SABRIC, the South African Banking Risk Information Centre, has sent out a warning to consumers to be sceptical of any investment that promises quick, high and guaranteed returns.
SABRIC CEO, Kalyani Pillay, says scamsters will go to great lengths to get victims to invest in these schemes through the use of social engineering tactics. “They will even come up with convincing, fabricated statistics to make their offer look attractive, so always treat these kinds of schemes with suspicion,” she says.
She is referring to schemes that generally meet the criteria of either a traditional Ponzi or Pyramid scheme. In both cases these schemes see returns generated for earlier investors through revenue paid by new investors, rather than from legitimate investments or business activities. At the point where there are more existing investors than new investors, the scheme collapses and all monies invested, are lost. People who were expecting to make a good return on their investment, not only get nothing, but also stand to lose most, if not all the money they initially invested.
Mellony Ramalho, African Bank’s Group Executive: Sales, Branch Network, says this is a very real issue in South Africa and agrees with Pillay that people need to be made aware of the dangers of being lured into ‘get rich quick scams’. “If something sounds too good to be true it generally is. There are many legitimate investment opportunities where your money can grow in a protected environment,” she says.
She highlights some tips issued by SABRIC on how to avoid these scams:
- Be skeptical of any investment’s insistence that you act NOW.
- Be careful of investments that guarantee you high profits with little or no financial risk.
- Exercise due diligence in selecting investments and the people with whom you invest – do your homework before investing your money.
- Consult an unbiased third party such as an unconnected broker or licensed financial advisor before investing.
“Remember to listen to your instincts. If you can’t understand how the scheme is generating its money then don’t get involved. Other signs to look out for include claims that the scheme will pay out double-digit returns and that the success of the scheme depends on recruiting more members. We strongly advise that you only consider products that are registered and offered by an authorised financial services provider,” says Ramalho.
For more tips on how to identify a Ponzi or Pyramid scheme contact SABRIC.