2) Realistically assess the risk to investors.
3) Assure investors that there's a mechanism in place so that if they do take losses, they'll be able to reasonably assure themselves that those losses were due to legitimate investment losses and not just him deciding to keep people's money.
4) Assure investors that there's a mechanism in place such that if there are reductions in the total worth of all investments, losses will be taken proportionately by all investors instead of processing full payouts to those who happen to withdraw first and leaving essentially nothing for those who don't withdraw at the right moment.
It's not a matter of whether it's a Ponzi or not really. There are lots of scams that aren't Ponzis. The idea is to show that it's a legitimate loan or investment. If there was something that was otherwise a legitimate investment but couldn't do at least two of these four things, rational people would not invest in it.
2: That's a good idea, and I do assess the risk of the loans and investments that I make. I probably have one of the better databases of credit risk, but I still have some that have been spectacular failures (Rebate springs to mind).
The point was that your investors had to be able to realistically assess the risk of investing with you.
3: Normally I take the losses, and not my customers. Not aware of anyone that has had a loss on their deposit yet. If anyone can provide a counter example that would be useful.
The point was that your investors have to know what will happen if they do take losses. For example, investors with Pirate took losses when Pirate failed to meet his own payout terms. Those investors now have no idea what the value of their investment is. Every Ponzi scheme will go through a long period in which people are told they didn't take losses and the investors are kept in the dark about the losses they are taking. There has to be a way for investors to know they have not in fact taken losses.
If your current total deposits exceed the fund's assets, then your investors have taken losses. If you're hiding that from them, that's a problem.
4: See #3 above. People depositing to Starfish are not really exposed to the underlying. When I consider some of the real-life bank runs I have observed, there can be queuing. I think that if someone wanted to force the issue and required me to liquidate all my assets at a loss (rather than an orderly wind out) then they should accept that as their choice. I have discussed that with several people recently and it is a feature of most investment funds/deposit schemes that coins are put to work, not simply lying around.
Are you saying that right now, the fund's total net worth exceeds deposits? If so, why don't your investors know by how much? Essentially, you are the only one who knows the actual value of the funds your investors supposedly own a portion of.