If it’s too good to be true, then it probably is…
In recent years South Africa has seen a prevalence of Ponzi Schemes that offer investors phenomenal returns at little to no risk. One of the more popular of these Schemes was MMM which was really popular in 2016. It sadly left many South Africans bankrupt after its collapse. In this day and age, owing to the rise in internet investment get-rich-quick schemes, one needs to keep vigilant about the scams around us. Let’s define it.
What is a Ponzi Scheme?
Ponzi Schemes are investment scams that offer the investor high returns at almost no risk. This, in reality, is not true since in investment there is no reward without risk. Ponzi Schemes use a pyramid system where the money received from new investors is used to pay old investors. As long as the scheme can attract new investors then it keeps running, but once new investors run out the scheme collapses. The people who benefit from this are usually the makers of the schemes and the people who get in first. It’s important that one knows how to pick up signs of a scam.
How to identify a Ponzi Scheme
The following 5 tips can assist in spotting a potential ponzi scam:
- Do the people offer you high returns at no risk? – In September, Fin24 reported a Ponzi Scheme run in Cape town by Graeme Minnes and his wife. The scheme had a minimum investment of R100,000 and had a 65% return on investment! They promised that they will achieve this level of return through ‘trading forex’. They amassed R278 million from 934 clients. The Ponzi scheme went under and this led to the arrest of Graeme and the wife; but unfortunately, many investors lost everything.
- Are they open with their investment strategy? – If the managers of the fund hide around how complex a strategy is, then it most probably is a scam. If it is said to be complex then you should run. One should always invest in what one understands.
- Are they registered with FSB(Financial Services Board)? – The sole regulator of financial institutions in South Africa is the FSB. If the people are not registered with the FSB then be very sceptical. It is illegal to provide financial services in SA without an FSB license.
- Ask to see paperwork for their investments. – If they are legitimate they should provide paperwork that makes investing in them more professional. Also, this protects you legally as the investor when you want to get your money back.
- Do they keep requesting you to add new people in order to get paid? – Keep your wits about you.
Now read: Mom, I won the lottery!!!