Don’t get caught out by a Ponzi scheme

The Securities and Exchange Commission has commented on the recent information going around, of people investing in an “investment scheme” that guarantees 30 per cent monthly profit:

“The attention of the Securities and Exchange Commission, Nigeria (“SEC”) has been drawn to the activities of an online investment scheme tagged ‘MMM Federal Republic of Nigeria (nigeria-mmm.com). The platform has embarked on an aggressive online media campaign to lure the investing public to participate in what it called “mutual aid financial network” with a monthly investment return of 30 per cent.

“The commission hereby notifies the investing public that the operation of this investment scheme has no tangible business model hence it’s a Ponzi scheme where returns are paid from other people’s invested sum. Also, its operations are not registered by the commission.

“The general public is hereby advised to distance themselves from this online scheme. Please note that anyone that subscribes to this illegal activity does so at his/her own risk.

“Those pyramid schemes have not been approved by SEC, and we have been telling investors that if anybody is selling any scheme that is not approved by SEC, investors should not buy.

“If they buy, then they are on their own because people are being pushed to buy those kinds of schemes.

“So we too as individuals do not have to be greedy, because it is all driven by greed. How can somebody give you 50 per cent return? Where is he going to get the 50 per cent from? Where is he going to put the money?” (www.sec.gov, August 2016)

In spite of SEC’s public alert, thousands of Nigerians have gathered their savings to “invest” in this scam. What drives people to take such a risk with their hard-earned savings?  Greed can be defined as “an excessive desire to acquire or possess more” especially more material wealth; greed is about excessive want.

A Ponzi scheme is a fraudulent scam that promises high returns with little risk to trusting, uninformed and greedy “investors”. The scheme generates returns for the initial investors by attracting and introducing new investors. This is similar to the “pyramid” scheme in that they both use new investor’s money to provide returns for the earlier subscribers. This continues for a period and eventually there just isn’t enough money to go round and it all unravels.

Companies that engage in these schemes do all that they can to attract clients by promising extraordinary returns in spite of current market yields. The schemes are dependent on a constant lure of new investors so that the cycle can continue. Of course, when new investors check with their friends who invested early, they are told of the amazing returns they have enjoyed and this often encourages them to dive in with their life savings. Ponzi schemes and other scams often share some characteristics.

Here they are:

1. A guaranteed promise of exceptional returns with little risk
2. Investments are not registered with the Securities and Exchange Commission or other regulatory body
3. Subscribers are usually given very little in the form of formal documentation
4. Subscribers do not usually understand what they are investing in
5. Clients face difficulties when they wish to exit or withdraw even a part of their money

Below are some tips to help you avoid Ponzi schemes:

Don’t go for the highest yielding investments
Investors are naturally attracted to investments producing a high level of income. However, it is also a warning sign. There is likely to be a very good reason why an investment yields so much. If something sounds too good to be true, it probably is.

Don’t follow the crowd
When it comes to investing, far too many people tend to follow the crowd and invest in the latest fad; this can prove to be disastrous as such investments usually carry an extremely high degree of risk and are unsuitable for most of us. Adverts and rhetoric will show people making huge amounts of money to entice the “greedy” ignorant onlooker who then jumps on the bandwagon and loses all his money.

Following the crowd is a mistake that far too many investors make. By the time you witness the crowd chasing after an investment, it is already too late to jump onboard. Investing is a process that takes time, careful thought and planning. If you are investing, think long term. If you want to take advantage of short-term vagaries and plan to get out quickly, that is not investing; it is speculating and this requires knowledge and skill to be successful.

There is no right or wrong way to be successful at investing but truly successful investors usually confirm that their success came from a combination of knowledge, skill, experience, hard work and usually over a period of time. With skill, experience, consistency and discipline, you stand a far better chance of making your investments a success than if you are an emotional, impulsive, uninformed or greedy investor.

Source: Punch