Many people in our communities are solely dependent on social grants and just cannot make ends meet as the cost of living keeps rising.
People are desperate – and this makes them vulnerable to criminals and scams.
SABRIC, South African Banking Risk Information Centre, urges consumers to be sceptical of any investment scheme that seems too good to be true, to prevent being deceived by so-called investors.
According to SABRIC, in South Africa, these schemes generally meet the criteria of either a traditional Ponzi or Pyramid scheme.
Both schemes see returns generated for earlier investors through revenue paid by new investors, rather than from legitimate investments or business activities.
At the point where there are more existing investors than new investors, the scheme collapses and all monies invested are lost.
People who were expecting to make a good return on their investment, not only get nothing, but also stand to lose most, if not all the money they initially invested.
SABRIC WARNS CONSUMERS ABOUT THESE ILLEGAL SCHEMES.
Scammers will go to great lengths to get victims to invest in these schemes through the use of social engineering tactics.
They will come up with convincing, fabricated statistics to make their offer look attractive.
SABRIC has the following tips to ensure that consumers are able to recognise these schemes, and protect themselves:
SIGNS TO LOOK OUT FOR THAT IT IS A “GET RICH QUICK SCAM”:
- It claims to pay out double-digit returns.
- It claims to be an opportunity of a lifetime.
- You can’t understand how it generates money.
- It is not a registered product or a product offered by an authorised financial services provider.
- Returns or profits earned are dependent on recruiting more members to the scheme.
AWARENESS TIPS ON HOW NOT TO FALL VICTIM TO GET RICH QUICK SCAMS:
- If it sounds too good to be true, it’s most likely a scam.
- Be sceptical of any investment’s insistence that you act “NOW”.
- Be careful of investments that guarantee you high profits with little or no financial risk.
- Exercise due diligence in selecting investments and the people with whom you invest.
- Do your homework before investing your money.
- Consult an unbiased, unrelated third party, like a broker or licensed financial advisor before investing.
TIPS TO SPOTTING A PONZI SCHEME:
- The promoter promises high returns, which could not be achieved through normal conventional investment opportunities, within a short period.
- In some cases the promoter will use fake qualifications or references to entice investors, for example, an “attorney with many years experience in the stock market”.
- Often high returns are paid initially and then investors are lured into investing even more money.
- They often promise guaranteed returns; please note that no return is ever guaranteed, all investments carry some risk.
- Promoters are usually quite secretive about the actual business model.
- The promoter becomes unavailable and investment returns dry up. Usually the scheme collapses soon thereafter.
TIPS TO SPOTTING A PYRAMID SCHEME:
- Promoters promise high returns over a short period and your returns increase with the number of people that you recruit to the scheme.
- A fee or initial investment is required to participate in the scheme.
- Participants are asked to recruit more investors and are rewarded for bringing them into the scheme.
- The scheme has multiple levels of members, all collecting commission on a single transaction.
- There is no underpinning financial investment that generates growth.
- Participants are sometimes taught how to circumvent detection methods.
- They are often disguised as stokvels and may even use virtual currencies like Bitcoin to sidestep the formal banking sector where they could be detected.
- A tiered investment structure to incentivise larger investments into the scheme (e.g. silver, gold and platinum membership).
- Investor complaints (usually on social media) that returns have dried up.
- The scheme operator typically responds with (1) promises that payments are imminent and (2) blame shifting to the banks where accounts have been frozen or closed.
- General secrecy – e.g. no details are made available regarding where the funds will be invested or in what. Very general terms will be used to describe the scheme.
- Schemes offering investment in “commodity trading”, “forex trading” or “virtual currencies”/ “virtual currency mining”.
- Short investment periods – sometimes as little as 10 days – with very high rates of return and strong encouragement to reinvest automatically.
- Requests to invest your pension funds or similar savings/capital.
- People should be aware of the fact that these schemes operate on trust – and an invitation to invest can therefore often come from someone close to you, such as a family member, community leader or religious figure.
- Closed user groups with an increasing trend towards messaging across WhatsApp, presumably due to the belief that the app offers end to end encryption and therefore anonymity.
For more information, visit www.sabric.co.za.
Over the years, as a financial columnist, there are two pieces of advice that I have given:
- If something sounds too good to be true – it probably is. Find out as much as you can about any financial product or opportunity before handing over a cent.
- Do not give your personal details (ID number, address, contact numbers, email address) to just anyone.
Criminals can use this to clean out your bank accounts, make debt in your name and even commit crimes using your identity.