A recent spike in money-related scams and schemes, has prompted the South African Banking Risk Information Centre (SABRIC) to issue a warning to be wary of investments that seems too good to be true.
These scams include ‘get rich quick’ scams, as well as Pyramid or Ponzi schemes.
Pyramid schemes see returns generated by early investors through money paid into the scheme by new investors, rather than from business activities. When there are more existing investors than new investors, the scheme collapses. This means that all the monies invested in the scheme are lost. Investors expecting to make a good return end up losing their money and often other assets tied to their money, like their homes.
According to the CEO of SABRIC, Kaylani Pillay, scammers will go to great lengths to get victims to invest in these schemes. They often make use of social engineering tactics, and will even go as far as fabricating statistics to make their offer look more attractive. She said these schemes must always be treated with caution.
The markers of a Ponzi scheme include:
– Promises of high returns within a short period
– ‘Success’ stories of how much money existing members have made
– Statements such as ‘an opportunity of a lifetime’
– Lack of clarity around underlying investments
– Very high initial returns and encouragement to invest more
– Unregistered products
The markers of a get-rich-quick scheme include:
– Claims that the payout is in double digits
– It claims to be the opportunity of a lifetime
– There is no way explained as to how the money for the payout is generated
– It is not a registered product, nor is it a product offered by any authorised financial service provider
– Returns are dependent on recruiting more members to the scheme
– The scheme is insistent on you claiming your money “NOW”
If you are approached by a scheme you think might be a scam, do not hesitate to contact a third unbiased party to verify the legitimacy. Examples of an third unbiased party include an unconnected broker, or licensed financial advisor.