Spot and avoid falling prey to pyramid schemes

Business Daily Kenya:  Pyramid and ponzi schemes can be quite enticing, which is why so many people have been fooled over many years. Kenya...

Business Daily Kenya: 

Cash. Photo/File

Pyramid and ponzi schemes can be quite enticing, which is why so many people have been fooled over many years. Kenya has been a playing ground for such projects that promise heaven only to deliver hell to unsuspecting investors.

The infiltration of the market by pyramid schemes has once again been highlighted after Rwandese central bank banned an organisation with a large presence in East Africa alleging it was swindling money from unsuspecting investors.

Last week, National Bank of Rwanda Governor John Rwangombwa wrote to 17 banks, including Kenyan financial institutions with branches in Rwanda, urging them to stop any money transfers to the scheme. It comes just months after phantom real estate investment firm took off with deposits from prospective home owners in the country.

It emerged that the firm, simply had a Facebook page and a corporate website which it used to swindle money from unsuspecting Kenyans with an insatiable appetite to own homes.

It appears the firm had amassed enough cash from gullible depositors who paid up upfront without conducting due diligence on the firm that only existed on paper.

Rwandan case therefore highlights just how widespread the problem is, with people within the region falling prey to these dubious businesses.

There is, however, a difference between a multi-level marketing programme and a pyramid scheme with the latter being illegal. If the money you earn is based on your sales to the public, the company may be a legitimate multi-level marketing plan. PD Wikendi sought ways to help spot telltale signs of a pyramid scheme to help you safeguard your cash.

You recruit others to earn cash

According to a leading consumer information portal that investigates such schemes, Federal Trade Commission, if you join an investment firm where your income is based mainly on the number of people you recruit, and the money those new recruits pay to join the company — not on the sales of products to consumers - then you are dealing with cons. In a typical pyramid scheme, you pay to join.

The scheme relies on you convincing other people to join up and to part with their money as well. In order for everyone in the scheme to make a profit there needs to be an endless supply of new members.

In reality, the number of people willing to join the scheme, and therefore the amount of money coming into the scheme, will dry up very quickly. A good business should have an object of trade that earns the company cash. Recruiting people in a bid to earn cash is outright stupidity because human beings cannot be retail commodities.

Vague products

Scam-Watch says some pyramid scheme promoters disguise their true purpose by introducing products that are overpriced, of poor quality, difficult to sell or of little value.

Making money out of recruitment is still their main aim. Additionally, if you are required to buy lots of inventory, or you are forced to buy other things you don’t want or need just to stay in good standing with the company then it is time to run for your money.

Low risk, high returns. If it is too good think twice.

According to TML which dedicates itself to alerting people about fraud, if you are presented with any investment opportunity that’s described as offering very low risk and very high returns or, worse, that’s “guaranteed” to deliver high returns, beware. “Generally high potential returns are linked to high risk. That’s just how the financial world works,” it says.

Secrecy

TML warns that the hallmark of many Ponzi schemes is that they feature complex or secret strategies. That’s because, as they’re fraudulent, their true nature shouldn’t be apparent. It’s common for you to be told that the amazing results of the investment are due to a secret investing strategy.

Alternatively, you may be given an explanation that’s too cryptic to understand -- possibly because it really doesn’t make sense. Being too trusting can get you in trouble. Beware!

The post Spot and avoid falling prey to pyramid schemes appeared first on Mediamax Network Limited.

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