The Spiel By Ricki Chavez-Munoz
Just when we thought that Ponzi scheme fraudsters were a thing of the past century, Greg Wood reveals in The Guardian, exclusively, that the bankrupt gambling product Football Index might have been reinvented as a dastardly betting web vehicle in this band new XXI Century.
In a recent consulting document about a gambling product, I was asked whether such product might not be touted as an investment opportunity to avid investors out for a quick return. Indeed, the product might have been offered as a pennies, pence, cents, centime, or other low entry investment, but when the raison d’etre of the business was analyzed fully, the product was simply a betting offering, where the term investment was only a fancy promotion angle.
In the report quoted by Wood, Football Index’s deliberate imitation of an investment product “has led to unparalleled levels of irresponsible gambling behaviour from 10,000s of users misled into believing they are investing rather than gambling, with little or no consideration that all of their money is at risk”.
Like the fraud vehicles peddled by Ponzi and many others since Charles Dickens time, when such schemes were featured in novels ‘Martin Chuzzlewit’ (1840) and ‘Little Dorrit (1857), options, shares or “dividends” could also be won when more susceptible punters were sucked into the scheme with promises of quick high returns.
Wood writes that Football Index promised to pay dividends for “shares” over the term of a bet, increased “every time a share is purchased”. By January 2020, Football Index’s liabilities “exceed £1m/month”, and that “the only way the company can afford this long term is through the constant sale of yet more new shares to new users alongside a constant churn in positions.” In other words, sales by Football Index would have to increase, and if this “stopped or declined, the company would quickly find itself unable to pay these liabilities to users.”
The Ponzi scheme works on the basis of offering quick high returns in supposed legitimate companies or products, to investment in escalating percentages to tiers of investors on a hierarchical structure with the oldest tier getting paid from the investors it recruits, who also recruit investors to get commission or “dividends” for themselves and the investor who recruited them. And so on and so forth, until the monies from the later end tiers does not stretch to pay “dividends” along the earlier investors in the hierarchy, and the system collapses leaving most of the investors with losses, apart from the older end tiers.
Wood adds that the Football Index scheme was, “vulnerable [to] and destined for a bank run in which the first ‘X’ per cent of users manage to get some money out before the system collapses and the remainder lose everything”.
The Guardian reveals that the Gambling Commission was warned in January 2020 that the betting firm Football Index, which suspended its platform last week, was “an exceptionally dangerous pyramid scheme under the guise of a ‘football stock market’” and that immediate and urgent action was needed “to alert and protect their users”.
Football Index launched in 2015 under a licence from the Gambling Commission, which regulates betting companies, rather than the Financial Conduct Authority, which oversees investment products. The platform allowed its users to buy what it described as “shares” in leading footballers, which would earn “dividends” over the three-year term of their bet. Users could also buy and sell “shares” between themselves, with Football Index charging a 2% transaction fee.
The conclusion of the consulting document referred to above, was clear about betting products: “A betting product is any proposition that has a conclusive and indisputable outcome at a given time and or date, and which is approved by the local gaming regulator, such as approved casino games, approved sports, events, etc., in the form of individual, combined or pooled (pools) results.”
