Ponzi Schemes In The Frum Community

We are a close-nit community where we trust each other in many important ways. We trust Kashrus organizations to provide us with kosher food, Frum schools to educate our children, Our Rebba’s/Rabbonim, Our neighbors with our children, etc. Trust is the backbone of the Frum community.
There also is a Mitzva in the Torah to judge other’s favorably even if it’s a 50/50 chance of guilt, an issur of loshon Horah even if it’s Litoeles if it’s coming from a biased place & not being said purely litoeles.
We also have a large number of people with no formal education or business background becoming entrepreneurs & starting businesses without any credit. We also have many people that are financially illiterate who don’t know how to vet a business or it’s owner & they are at risk of losing large amounts of money by providing the seed money to these unproven businesses.
As long as the businesss is making money, everyone’s happy. The business owner carries no risk because he’s playing with other people’s money & takes a large salary for himself, the investors are also happy with the income they get in return. What happens when the business has a cash crunch & profit goes south? Now the risk of a Ponzi scheme starts. The owner brings in more investors to add more liquidity, he uses his old investors who enjoyed the stream of income as proof of his business acumen & reliability & the business is bailed out for some more time. He also looks for new vendors because he ran out of credit with the old one’s. However, if the business owner draws too much money out of the business, or makes poor decisions, or has bad mazel, eventually he will run out of investors, & the whole venture will crash!

Why do we only know about the Ponzi scheme after the fact?
Often, There’s no transparency in the business so no one actually knows if it’s making of losing money. They only see the income arriving which actually came from the new investors.
Sometimes, the earlier investors & vendors know fully well how risky this business iss, but they keep quiet because they are hoping the proprietor get’s some more unwitting investors to throw in their money so that they can withdraw their investment before the crash happens. This is why nobody knows about the scheme until it’s too late. The early investors or vendors know that if they let out the word about this risky investment, they’ll never see their money again for a certainty! So they keep quiet.

We need to come up with a way to educate people how to protect themselves & not be overly trusting. I know people that lost their life savings in these Frum Ponzi Schemes & never got it back! They lived poorly the rest of their lives, sadly.
I know a tremendous masmid that entrusted his money to a realestate “investor” who lost large amounts of money.
Even the leader of the Ponzi scheme can fool himself that he’s running a solid business that just needs a cash infusion to carry it over & might be shocked when it implodes. He might consider himself as much a victim as his investors, because afterall, the business did have some success in the past & he was hoping for things to turn around. He doesn’t even understand why anyone would be upset at him because doesn’t all business investing involve risk? Why is it his fault that his business idea failed, he wonders? He doesn’t feel responsible to return any money because it wasn’t his fault for the failure. it was the fault of the people who didn’t allow his business to succeed!
This is repeating itself again & again, in our community.
The Risk of a Ponzi scheme happening in our community is extemely high & we ought to find a way to spare people from being a victim of it.