I read an advert recently on social media asking people to invest and make a guaranteed monthly return of 30%. This was very suspicious and the post was already making the rounds as people kept indicating their interest in the comments section. Investment schemes such as this are usually organised to steal from people through unrealistic promises of mouth watering returns, which are often impossible to get when making a genuine investment.
There is often a rise in these dubious schemes during periods of high economic hardships as they try to take advantage of the woeful economic condition and promote the next new get-rich-quick scheme. It is essential to be aware that any investment scheme offering you outrageous returns with no transparency as to how your money would be used is an investment scam and you need to steer clear of such scams.
Perhaps the most popular of investment scams was the Mavrodi Mundial Movement (MMM) scheme, a ponzi scheme disguised as legitimate, in which returns to earlier investors are paid using the capital from newer investors in a continuous cycle.
Some scammers would claim to own platforms for investing in Bitcoin, Ethereum, or other digital currencies but in reality, these are fake and designed to steal your money. Many individuals have also suffered from fraudulent foreign exchange (Forex) traders who claim to invest their money and gain huge returns in little to no time.
It is not too difficult to identify these investment scams. Knowing and understanding the tell-tale signs that characterise these scams would help you spot and avoid them easily. These signs include:
- Promises of huge returns in a short time: The most obvious red flag of most investment schemes is the guarantee of huge returns in a short period. Nothing comes easy, especially money. It takes time to earn good returns on investments. If an investment opportunity introduced to you is offering returns that seem too good to be true in a short period of time, then it is most likely a scam.
- No transparency: Most of these investment schemes do not have a viable business model attached to them and people who have fallen prey to these scammers in the past did not have any understanding of the business involved. You need to get clear information of how the investment works and how your money would be used before making your investment decision. If they refuse to give a clear explanation of how the investment works, it is best to avoid such schemes.
- No form of registration: This is another feature that most of these illegitimate investment companies have. The Securities and Exchange Commission (SEC) has a list of registered investment companies on their website. You can glance through the website to confirm that the agency or platform you would be investing with is duly registered.
- An active referral system: Ponzi schemes often rely on the referral systems to get more people to join the scheme and pay off the initial investors with the capital of the newcomers. This is not to say that all businesses that promote investment scams in particular are popularised by a network of referrals as people are convinced to bring in more people to join the scheme through showing off unverified proceeds they have made from the scheme in the past.
- Pressure to invest quickly: To further play on people’s emotions and their fears of missing out on the next best thing, the individuals behind these investment scams would often intensify their efforts to get new victims with a ‘limited offer or limited slots’ tag to their investment schemes. By making the opportunity seem time sensitive, people are pressured to invest without carrying out due diligence on the details of the investment. Legitimate investment opportunities will give you adequate time to review all the necessary details.
To avoid becoming a victim of these dubious scammers, be on the lookout for these tell-tale signs and take the following steps to protect yourself:
- Learn how to compare returns: if a ponzi scheme is offering 20% a month, convert to a year and compare to what the government offers. 20% return per month is equivalent to 240% on simple interest and 791% on compound interest in a year. If the government is offering 20% return on treasury bills in a year, any investment offering such returns is most likely a scam.
- Conduct due diligence: Always investigate any company or individual offering investment opportunities. Look for reviews, news articles, and check if they have been registered by the SEC. Ask the right questions such as how your money would be used? How to withdraw your money? The time horizon of the investment, etc.
- Consult with professionals: If you have access to a financial advisor, consult with them about the investment before making your decisions.
- Report suspicious activity: If you come across a suspicious investment offer, report it to the relevant authorities such as SEC to help prevent others from being scammed.
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