This is a fraudulent investment scheme promising high rates of return with little risk to investors. The scheme generates returns for older investors from the investment of new entrants. This scam thrives as earlier subscribers who are paid huge returns spread the words and get more people to join the bandwagon. The schemes usually collapse when new investors are no longer forthcoming.
How It Works
It typically starts with one person – the initial recruiter – who is at the apex of the pyramid. This person recruits a second who is required to “invest” a certain amount, which is paid to the initial recruit. In order to make his or her money, the new recruit must get more people under him or her, each of whom will also have to invest. If the recruit gets 10 more people to invest, he or she will make a profit with just a small investment. These schemes usually collapse on themselves when the new investments cease.
In another scenario, the victim invests in a scheme and promised mouthwatering returns within a short period of time beyond the range of interests on fixed deposits payable by commercial banks. The scheme thereafter collapses and the owners disappears into thin air, while depositors lick their wounds.
What to Do
ASK YOURSELF Where does the company get the money to pay investors the fantastic returns on investment within a short time?
FIND OUT With the relevant Government regulatory agencies to see if it is a registered company investment.
REMEMBER All companies providing investments services to potential and existing clients usually detail how and where the money will be invested and also the profile of returns on investment.
. Don’t invest your money in any business that has no clear prospectus on how it operates.
. Be wary of investments with high rates of returns in the short term.