12% return on investment on Mintos: Is this a ponzi scheme?

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Reza Machdi-Ghazvini,CAIA
Last updated on 03 September 2021

Ist Mintos ein Schneeballsystem?

Mintos advertises an average return of 12% per year on its website. This arouses suspicion among many investors and often quickly leads to whether Mintos is a Ponzi scheme? With double-digit returns, there must be a catch.

In this article, we want to clarify how real the risk is that Mintos is a Ponzi scheme.

Definition of a Ponzi scheme

Often the terms pyramid scheme and Ponzi scheme are used interchangeably, yet they stand for two different schemes. We will focus on the Ponzi scheme, which is defined on Wikipedia as follows:

"A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. The scheme leads victims to believe that profits are coming from legitimate business activity (e.g., product sales or successful investments), and they remain unaware that other investors are the source of funds. A Ponzi scheme can maintain the illusion of a sustainable business as long as new investors contribute new funds, and as long as most of the investors do not demand full repayment and still believe in the non-existent assets they are purported to own."(Source: Wikipedia)

In a fraudulent P2P platform, users would not receive interest and repayments from P2P loans that actually exist. Instead, the platform would just move funds back and forth between existing users and newly signed-up users. In the process, the platform operators enrich themselves until the system is noticed.

A Ponzi scheme often has devastating consequences for the unsuspecting users who are part of the system. The billionaire fraudster Bernie Madoff caused a damage of around 65 billion US dollars with his Ponzi scheme.

Security check of Mintos

Every Ponzi scheme runs a little differently, but all Ponzi schemes have in common that they thrive on not being discovered. That's why it makes sense to look primarily at features that provide information about how transparent a company is and whether the company's publications are verified by a reputable party.

Mintos team

Mintos Team

The CEO of Mintos is Martins Sulte, who is also the founder of the platform. On the team page of Mintos, a total of 9 employees present themselves, who make up the management team.

For all team members, the corresponding LinkedIn profile can be accessed.

Regulation of Mintos

Mintos is not supervised by any financial market regulator at the current time (February 2021). But the platform announced in April 2020 that it has submitted an application for an investment company license to the Latvian Financial Market Authority (FCMC).

Mintos annual report

Mintos' annual reports are offered on the website in an easily accessible and open manner. The auditor of Mintos is EY (Ernst & Young). EY is one of the best known auditors in the world with a good to very good reputation.

Mintos credit companies and statistics

Investors can take a very detailed look at the Mintos website to see which loan originators offer their loans on the platform. Likewise, there is a loan statistics page that offers detailed statistics about the offered loans.

Mintos the next Ponzi scheme?

A Ponzi scheme thrives on very high intransparency and fraudulent people who are willing to harm other people.

For Mintos to be a Ponzi scheme, the following conditions must be met:

  • The entire management team has colluded and is deceiving the public.

  • Mintos tries to influence the Latvian Financial Market Authority or provides it with completely false data and figures to obtain a license.

  • EY has been tricked by Mintos several times into verifying figures as correct, which do not exist or are completely false.

  • A large majority of loan originators have also been corrupted by Mintos.

For the above conditions to be met, several independent individuals and companies would have to coordinate with each other at once to actively defraud numerous users.

If we evaluate the listed conditions in total, we consider the risk that Mintos is a Ponzi scheme to be very low to non-existent.

Finally, however, it should be mentioned that there is no complete security against fraud or other fraudulent actions. A good example of this is the Wirecard fraud scandal, in which the entire system of regulators, auditors and supervisory boards failed completely.

In this context, however, it must also be mentioned that Wirecard was clearly a Black Swan event. These are events that cannot actually occur in this or a similar way, but when they do, they cause devastating damage.