Sunshine Empire 3 - The law of Ponzi Schemes

If James Phang and company are found to have run a Ponzi scheme, what can they be charged with?

Under Singapore law, the law relating to Ponzi Schemes can be found under section 340 of the Companies Act which refers to the business of a company "being carried on with intent to defraud creditors or ... for any fraudulent purpose" . Phang and Jackie Hoo face 1 charge under this section.

Another relevant section is section 404, Companies Act which refers to fraudulent inducing persons to invest money. However, proving fraud is usually rather difficult and it usually requires proof as to the state of the defendant's mind - that he intended to defraud others. In some cases, the defendant might claim that he honestly believed in his company's business model (its revenue generation methods). In a crminal trial, the prosecution has to prove the charges beyond reasonable doubt.

It should be noted that the bulk of the charges against the Phang gang are in relation to falsification of accounts. This may require a lot of investigation work but may in the end be easier to prove. In many cases, the assets of the company are overstated. In the cases of fraud, it is often not just over optimistic valuations of the assets but rather including ficititious assets on the balance sheets.