As what the
Securities and Exchange Commission of the Philippines
emphasized,
"This investment scheme ordinarily collapses as fast as they are created while leaving its investors behind and unable to recoup their investments" (sec.gov.ph)
That's
why it's very important to know how to identify a pyramiding scam or
ponzi investment scam. Both offline or online pyramiding scams have the
same ending - collapse and loss of investment of most
investors.
What
we will focus here are the online or internet-based pyramiding
scams.
How to Identify an Internet-Based Pyramiding Scam or Ponzi
Investment
Scam?
Because
of the widespread of pyramiding/ponzi schemes in the internet, the
Securities and Exchange Commission (SEC) of the Philippines laid out the
features of an internet-based ponzi investment scheme in their website
(sec.gov.ph):
- No SEC registration
- Investment in foreign currency, preferably in US dollars
- Offers or guarantees a huge profit in a very short period
- Utilizes a binary network (i.e. upline and downline) to earn commissions
- No paper trail (i.e. contracts, receipts)
- Promises little or no financial risk
- Provision for a lock-up period where an investor cannot touch the investment (i.e. 60 days)
- Assures pay-off investments in a short time
- Uses high-pressure methods to convince investors to reinvest their earnings
- Unknown principal office, address, founders, directors or officers
- Orientation seminars are conducted informally
In addition to the list of
features above, let me add some important ways to determine an
internet-based pyramiding scam or ponzi investment scam based on my
experience and
research.
Research
about the company and its products or
services.
Usually,
you can search in the internet some comments, reviews or opinions
(positive and negative) regarding the company and its products/services.
You can gain additional insights from these before finally deciding to
join an internet-based or online
program.
What are
some tips to do in researching in the
internet?
Use
these keywords
- "name of the company" scam
- "name of the company" ponzi
- "name of the company" pyramiding
- "name of the online program" scam
- "name of the online program" ponzi
- "name of the online program" pyramiding
- "name of the officer(s) of the company" scam
Know if products are sold by other
companies/businesses. Search the name of the products in the internet.
Determine its price and compare it to the online program's price. If the
products are overpriced,
beware!
Customers
don't like to buy overpriced
products.
If you
are a member of the pyramiding/ponzi online program, you are just force
(not interested) to buy those overpriced products because they are
required in order to receive commissions from your downlines. This is
one of the many signs of pyramiding
sheme.
Check
the website of the online investment
program
Know
some background information of the website by checking it in
a www.domaintools.com. This is a helpful
website in determining useful information about the website such
as:
- When was the website created?
- Who created the website?
- When will the website expire?
- Where does the website being hosted?
Take extra careful if the
website is very
new.
It's
also helpful to install alexa ranking extension in
your browser. You can search in Google about this tool and how you can
install it in your
browser.
The
alexa ranking extension can help you determine how
the website rank globally and how high its
traffic.
If
the alexa rank is around 1 million to 2 million, it means the website
has very low traffic or have very few visitors. Usually it has within
300-500 visitors per
day.
If the
website of the online investment program has very few visitors, you
should not trust this program
quickly.
Know the
Officers/Management of the
Company
Know
the officers of the company. Search about them in the
internet.
I
read a lot of many cases of ponzi schemes and scams. Do you know what I
found out?
Those
who earned a living by scamming and deceiving in the past are likely to
repeat their evil deeds in the
present.
Their
unethical deeds seem to be a habit that most scammers cannot avoid.
If their first
version of ponzi scheme is discovered, they will use another version of
it just to fool people and earn a lot of money in a short period of
time.
Usually the
victims are those who lack knowledge in investing, finance and online
technical
information.
Very
High Profit in a Short Period of
Time
Most
pyramiding/ponzi scams promise you more than 40% - 80% profit in a
month or in just a few months. Take note: There's a huge difference when
you invest your money in stock market or in real
estate.
When you
invest your money in stocks of a profitable company, you will usually
earn an average of 15% - 20% profit annually. In a valuable real estate,
average profit would be 10% - 15%
annually.
Let's
say for example, you invest $100 in an online program and you earn $50
profit or net income after a month. That's 50% profit,
right?
Then it's a
too-good-to-be-true investment. That profit comes mainly from the
membership fees and not from the actual sales of products or
services.
If no
one registers in the program or if a significant number of members stop
reinvesting in the program, it will collapse. And most members will
suffer huge loss of money from their
investment.
So if
you invest in an online program, be sure you know how much profit you
can earn and how long you can earn that
profit.
Determine
how the company or investment program earns
money
Nowadays,
it's so hard to identify how some ponzi investment program earns a
profit. Different versions of Ponzi scams are now getting
complicated.
Determine
carefully how the money flows and how the company/operator of the
investment program earns a
profit.
It it
engages in an unsustainable business/program, it's probably a ponzi
scam.
If it
troubles you knowing how the program earns a profit, ask yourself this
question, "If no more people join the program, can the
company/investment program sustain or continue its
operations?"
If
the answer is "No", it's surely a ponzi
scheme.
If
the company or business is selling "securities" or investment program,
are the securities registered in the Securities and Exchange Commission
(SEC)?
The
Republic Act No. 8799 otherwise known as "Securities and Regulation
Code" defines "securities" as shares,
participation or interests in a corporation or in a commercial
enterprise or profit-making venture and evidenced by a certificate,
contract, instrument, whether written or electronic in
character. (RA No. 8799 Chapter 1, Section
3.1).
If the
company promised you an investment contract that
would earn a certain interest/profit in given period of time, that is
called
"security".
If
the company offers you 8%, 10%, 50% or 100% rate of return of an
investment contract, that is also called
"security".
To
give you a more specific understanding of
"securities", 'RA No. 8799, Chapter 1, Section
3.1' also defines securities as:
- Shares of stock, bonds, debentures, notes, evidences of indebtedness, asset-backed securites;
- Investment contracts, certificates of interest or participation in a profit sharing agreement, certificates of deposit for a future subscription
- Fractional undivided interests in oil, gas, or other mineral rights;
- Derivatives like option and warrants;
- Certificates of assignments, certificates of participation, trust certificates, voting trust certificates or similar instruments;
- Proprietary or non proprietary membership certificates incorporations; and
- Other instruments as may in the future be determined by the Commission
Don't
hesitate to ask if the investment contract or "securities" offered by a
company is registered in the Securities and Exchange Commission
(SEC).
One
example of a company who issues non-registered "securities" is the Aman
Futures Group Philippines, Inc.. You can read more details about this
company here: "SEC accused AMAN Futures Group Philippines'
investment a ponzi
scheme".
If
it's not registered, then it's illegal, unauthorized and probably has a
big possibility to be a ponzi
scheme.
Consult
a Financial Planner or
Analyst
A
financial planner can advise you whether it's safe to invest in an
online program you want to join. He has the special skills to determine
the risks of a certain
investment.
As
what the Federal Trade Commission advises,
"Be skeptical of any investment pitch that insists you act now,
that guarantees big profits, that promises little or no financial risk,
or that demands you send cash immediately." (source:
onguardonline.gov/articles/0002k-investment-schemes)
To
have a better understanding how ponzi scheme works, I want to introduce
to you the first person who popularized this
scheme.
Who
is
he?
The
first man who became most popular in using the ponzi scheme was Charles
Ponzi.
Charles Ponzi, an Italian businessman, promised his investors a 50% profit in 45 days in his postal reply coupon business.
With its huge return of investment (ROI), his investment scheme became a frenzy to many people. Many people were so crazy that they immediately invest their money with Ponzi. Some people mortaged their homes just to have money to invest with Ponzi.
Charles Ponzi - the term "Ponzi Scheme" derived from him
Just within a few months, started as a poor guy, Ponzi became an instant millionaire.
But it was later discovered a fraud/scam because his postal reply coupon business was unprofitable and couldn't pay back all investors. The main income from old investors came primarily from new investors coming in. and His investment company collapsed. Most investors suffered huge loss of money.
Ponzi was jailed. His wife, Rose Gnecco divorced him.
Do you know any online investment or MLM programs that use pyramiding/ponzi scheme? Let us know in the comments below