Every time the equity market is on song, more and more people sit on the fence and watch the party.

Not that they don’t want to join the party, but these fence sitters are over-awed by the risks. Give them an assured return situation, and they’d lap it up at once. They are also the kind of suckers that fly-by-night operators are really looking for.

At the height of the ‘tulip mania’ with technology stocks in 1999-2000, some shady finance companies in Calcutta raised hundreds of crores in the form of deposits.

They promised a phenomenal interest rate — up to 10 per cent a month even on one-year deposits. The money, they said, would be invested in shares, but the depositors would not be exposed to the risks of the market.

For the fence sitters, the deal couldn’t be sweeter. These firms rapidly spread far and wide into the districts and beyond the state, as investors turned agents and fetched more deposits.

The crooks sold the stock market story well. Nobody ever questioned the ability of these firms to fulfil their payment commitments.

These are the typical pyramid schemes that stay afloat as long as the operators can keep drawing in investors in large numbers.

It’s a story that goes back to the pyramid schemes that became famous as Ponzi schemes, named after Charles Ponzi who defrauded thousands of investors in the 1920s.

It involves recruiting people to invest in a fictitious or worthless product or service at a guaranteed rate of interest and then using the money taken from newcomers to pay off earlier recruits.

What investors do not realise is that these firms rob Peter to pay Paul. As long as more money comes into the system than is withdrawn, these firms have no problems in meeting payment obligations.

The Ponzi schemes that surfaced in Calcutta in 1999 ran smoothly for over two years before the flow of deposits started drying up. The leader in the chain of firms was the first to run into rough weather.

It revised the interest rate a couple of times, before defaulting in November 2001. A complaint was lodged with the police. The cops nabbed the kingpin and, in less than a fortnight, the whole chain collapsed like a house of cards.

The fairytale turned into nightmare for thousands of investors. Unable to cope with the loss, one killed himself. The crooks spent three months in judicial custody before being released. And predictably, they disappeared with the crores they had ripped off.

That wasn’t the first time investors in Bengal were taken for a ride. Remember Sanchayita — the infamous finance company that ripped off crores in the early eighties? Even after protracted legal battles, Sanchayita’s investors couldn’t recover anything.

The equity market is roaring again and the rogue operators have reappeared. Their modus operandi appears to be the same. And though the regulators are more vigilant this time, these crooks somehow manage to walk between raindrops.

This time, they are little more conservative, offering say 5-6 per cent a month on deposits, which is very lucrative compared with other assured return products. And the writing on the wall says history is going to repeat itself unless investors and regulators wise up to these shenanigans.

If you don’t have the stomach for the risks of investing in shares or mutual funds, stay out of the market. But never ever invest in these shady deposit schemes, however convincing their business models might appear to be.