The COVID-19 pandemic has disrupted business activities globally making countries affected to be navigating uncertain times.
And as the disruption in economic and business activities bites harder into the pockets of people, this presents an easy opportunity for illegal fund managers to lure unsuspecting but gullible people to fall prey to their fraudulent activities (Ponzi schemes)
A Ponzi scheme is essentially a pyramid scheme that operates on the basis of ‘robbing Peter to pay Paul’. The promoter (or the fraudster setting up the Ponzi scheme) pays the initial investors enormous returns using the investments of later investors rather than from business profits.
Named after the 1920s fraudster, Charles Ponzi, who promised investors in New England a 40 percent return on their investments in 90 days, compared with 5 percent interest earned in savings accounts, the Ponzi scheme is the oldest and most common type of investment fraud.
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Ponzi schemes attract all types of investors. From novices to savvy investors, rich and poor, everyone who is looking to cash in. In Nigeria, Ponzi schemes has always been around. In 2016, many people were entranced by the euphoria of MMM which was lured into the process by premised on a false foundation. And then in December of that year, everything came crashing down.
So, if you are looking into a new investment opportunity and you don’t want to fall prey to Ponzi schemes, here are some few tips to guide you.
The abnormal high investment and quick returns
For Ponzi schemes, investors are promised that they will make a much higher return than what can be achieved through any conventional investment opportunity. For example, invest N50,000 and get N100,000 in four hours. That is why any investment with “guaranteed” high returns should be carefully examined. Make sure you check out the credentials and background of the person who has approached you about any investment.
Unregistered Investments and sellers
Most cases of fraud investments that have not been registered are also not recognised by regulators. Unlike most investment schemes such as mutual funds, pension funds, etc., which are all recognised and regulated by the Security and Exchange Commission (SEC), Ponzi schemes do not have such oversight. They have hidden Information and excuses about missing paperwork, errors, or secretive strategies
The need for more investors
Ponzi schemes’ survival depends on its ability to continually attract new investors. Without new investors, the fraudster is unable to pay the previous investors, and the whole scheme will unravel. They usually attract people by words of the mouths starting from family and friends, and social media platforms. They hardly place adverts
Pressure to act now and reinvest
Ponzi fraudsters pressure people by creating a false sense of urgency by leading them to believe that the deal is only valid for a limited time. The investment opportunity is often shrouded in secrecy, and the investor is pressured to ‘act now’ while the ‘once-in-a-lifetime’ window of opportunity stands obscurely and suspiciously ajar.
Vague business model
Warren Buffett, a famous investor has a saying: “Never invest in a business you can’t understand.” If you don’t understand the business model of how they make their returns, then stay away. According to Gareth collier, a director and shareholder at Crue Invest (Pty) Ltd, the investment’s business model should be easy to understand and, as an investor, one should be clear where and how returns are generated. “Fraudsters are notorious for using complicated verbal constructs such as ‘hedge future trading’, ‘high yield investment’ and ‘offshore investment program’ to intimidate would-be investors,” He says
