5 Ways To Easily Detect Ponzi Schemes


5 Ways To Easily Detect Ponzi SchemesHave you heard of some of these companies; MMM, Twinkas, Loom, Racksterli, iCharity Nigeria, Loopers Club, NNN Nigeria. Unfortunately, there is one thing these companies have in common: they are all Ponzi schemes.

The term, Ponzi Scheme, was named after an Italian called Charles Ponzi who created a fraudulent scheme that generates returns for older investors by acquiring new investors without creating any value.

In the wake of the coronavirus pandemic, individuals and companies are considering and engaging in various kinds of business opportunities, and Nigerians are no exception. 

Although in time past there has been a resurgence of unethical financial investment schemes such as the ones listed above, many Nigerians are still failing victim and losing their hard-earned money to Ponzi scheme, a type of ruse that for nearly 100 years has ripped off investors for millions of cash all over the world. 

Read Also: Nigerians Share Heartbreaking Experiences With Ponzi Schemes

In a typical Ponzi scheme scenario, fraudsters promise incredibly good Return On Investment (ROI), which they deliver – but for a while. These fraudsters are not investing in any products or services, instead, they are using money from new investors to pay their obligations to the old, including the exaggerated returns promised to get more people to join. Eventually, the operation cannot bring in enough fresh money to sustain itself, it then collapses.

In other to avoid being a victim yourself, let’s run through five ways on how to easily spot a Ponzi scheme before it’s too late.

1. Extraordinarily high “guaranteed” returns

Ponzi schemes usually offer abnormally high and “guaranteed” ROI of more than 20% per annum and some go as far as promising to pay profits monthly. The attractive returns are used to lure investors to invest in their supposed products. However, even the most powerful and established financial investment companies never give their investors any guarantees. 

If you promised high returns on your investments no matter what the circumstances are, it’s likely a fraud.  There is no such thing as guaranteed returns in this world, even the money in your savings account because there is always some degree of risk to every investment.

2. Low Risks

Every investment comes with a risk, and in finance, the higher the promised return is, the higher the risks are going to be. Therefore, high-return/low-risk investments simply don’t exist, no matter what the member of the scheme may tell you.

Investments also take time to double. An investment fetching you 12% will take slightly over six years to double your money, and one offering you 10% will take a little over seven years. Use these benchmarks to evaluate investments from little known companies.

3. Vague business model

Whenever you see a scheme that guarantees high returns, it is important to always ask how they can generate these returns if I were to invest with them.

The answer you would usually get is that the investment process is confidential and they cannot tell you. With that, it is unwise for anyone to invest in a company if you don’t understand how the company makes its money.

Even if they do explain how they make the money, the business model is usually overly complex and hard for a normal individual to understand. The point here is, don’t invest in a company where you don’t understand how they are going to generate returns for you. 
If you don’t understand a business model, stay away.

4. No questionable paperwork

Even in this digital age, every investment, especially a major one, needs to come with a certain amount of paperwork. If you are not given any paperwork or it seems inconsistent and made by an amateur, it’s probably part of a Ponzi scheme.

5. Requirement to recruit others

If you are required to bring new investors to receive any profit or to advance to the next level within the company, you are undoubtedly dealing with a scheme with some elements of a pyramid scheme.

They may offer commissions to an investor to bring others. It’s a Ponzi scheme if it provides high returns with low risk and commissions for referring others.

Sales personnel in Ponzi schemes are usually highly motivated to promote the scheme because their commissions are very lucrative. Therefore, always find out what the sales personnel commission structure is like. If it is too high, it is usually unsustainable.

In conclusion, as the saying goes, “If it sounds too good to be true, it probably is.” watch out for the signs and don’t be greedy.

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