Search

Get-rich-quick schemes, pyramids and ponzis: five signs you’re being scammed

<a href="https://theconversation.com/profiles/bomikazi-zeka-680577">Bomikazi Zeka</a>, <a href="https://theconversation.com/institutions/university-of-canberra-865">University of Canberra</a> and <a href="https://theconversation.com/profiles/abdul-latif-alhassan-1390159">Abdul Latif Alhassan</a>, <a href="https://theconversation.com/institutions/university-of-cape-town-691">University of Cape Town</a> Consumers are under a lot of financial strain. The <a href="https://www.weforum.org/agenda/2022/09/cost-of-living-crisis-global-impact/">World Economic Forum</a> reports that the cost-of-living crisis is affecting people across the globe. With food and fuel prices rising, it’s becoming increasingly difficult to keep financially afloat. On top of that, salaries <a href="https://www.wsj.com/articles/workers-pay-globally-hasnt-kept-up-with-inflation-e6df92d">aren’t keeping up with inflation</a>, making it more difficult to save and build wealth. It’s during such times of economic difficulty and uncertainty that fraudsters lure unsuspecting consumers into “<a href="https://www.sabric.co.za/">get-rich-quick</a>” schemes, offering <a href="https://www.sabric.co.za/stay-safe/ponzi-pyramid-schemes/">an avenue to make easy money</a> by investing in a “lucrative” financial opportunity. Nothing beats the prospect of making easy money, and every now and again there seems to be a “get-rich-quick” scheme circulating on WhatsApp or on social media that seems legitimate. But it’s not. Our research interests centre on financial systems in emerging economies, and we advocate for financial inclusion and empowering marginalised communities through financial literacy and financial planning. We use our academic platform to share our expertise on finance, including common financial traps people should steer clear of. “Get-rich-quick” schemes are one such trap. They’re also sometimes called ponzi or pyramid schemes. The schemes are a form of <a href="https://www.lawinsider.com/dictionary/financial-fraud">financial fraud</a>. The people running them take money through deception: the misrepresentation of information and identity. They promise financial benefits that don’t exist. You should avoid them because, more often than not, they are bogus and fraudulent business ventures. There have been some massive fraud schemes over the past 30 years. In the early 1990s, <a href="https://www.independent.co.uk/news/world/africa/mmm-global-russian-ponzi-scheme-from-1990s-reborn-and-now-spreading-like-wildfire-in-africa-a7333366.html">MMM Global</a> - one of the world’s largest and most notorious ponzi schemes - defrauded up to 40 million people, who lost an estimated $10 billion. Ponzi schemes have since resurfaced in different forms in <a href="https://www.iol.co.za/weekend-argus/news/ponzi-scheme-investigated-as-some-victims-lost-as-much-as-r200-000-c3c3633c-2abb-4dd4-b668-a5ea608deb41">South Africa</a>, <a href="https://guardian.ng/business-services/nigerians-lose-over-n911b-to-ponzi-schemes-related-fraud-in-23-years/">Nigeria</a>, <a href="https://www.voazimbabwe.com/a/zimbabwe-money-pyramids-ponzi-schemes/6305100.html">Zimbabwe</a>, <a href="https://allafrica.com/stories/202105170964.html">Kenya</a>, <a href="https://doi.org/10.1108/JFC-09-2020-0177">Ghana</a> and several other African countries. There are five tell-tale signs of a “get-rich-quick” scheme. Watch out for them. <h2>The five tell-tale signs</h2> Firstly, they offer exaggerated and above-market returns within a short period of time, with the promise of little to no risk. There are two golden rules when it comes to investing. The first is that it takes time to make money. Amassing a small fortune within a short space of time should raise questions about the scheme. The second rule is: the higher the risk, the higher the return. In other words, no investment is risk free or can guarantee significant returns. There is always some risk involved. An investment that promises substantial returns tends to be quite risky, which repels most people with a low appetite for risk. Secondly, new members are constantly recruited to join the scheme. Typically, such schemes are sustained by relying on the investments of new members to pay existing members. Once the number of existing members exceeds new members, the scheme goes “belly-up”. At best you lose out on the returns you were promised. At worst you lose all the money you’ve invested. When the scheme collapses, it is almost impossible to recover the money you’ve lost because you’ve technically given it to a stranger (remember, the definition of financial fraud encompasses the misrepresentation of identity). Thirdly, there is urgency to join the scheme and no clarity on how the scheme works. This is a classic characteristic of a “get-rich-quick” scheme. There is usually no clear answer about the nature of the scheme, what it invests in, how it generates its returns or the credentials of the organisation. Legitimate investments are transparent and can provide investors with all the information they need to help them decide whether to invest. Unsurprisingly, a proper check of “get-rich-quick” schemes will unmask their fraudulent nature. This is why there’s always the urgency and coercion to make an immediate financial commitment under the guise of missing a once-in-a-lifetime opportunity to get rich. Fourthly, the scheme is not registered with or regulated by any recognised authority. Regulatory authorities are important because they monitor the conduct of financial service providers and protect consumers by keeping their best interests in mind. The protection provided by financial regulators also instils confidence in financial systems. “Get-rich-quick” schemes are not registered and operate outside the framework of regulatory bodies. This makes investors more vulnerable to loss and makes it more difficult to seek legal recourse when the loss occurs. Legitimate investments in South Africa are offered by authorised financial service providers and regulated by the <a href="https://www.fsca.co.za/Pages/Default.aspx">Financial Sector Conduct Authority</a>. You can search for any authorised financial service provider on the authority’s <a href="https://www.fsca.co.za/Fais/Search_FSP.htm">website</a>. Fifthly, they use the testimonies from existing members who’ve earned big bucks to promote the scheme. At the initial stages, the scheme tends to pay out to those who have invested early, and these members are encouraged to share the news of their wealth (which travels fast and far) to promote the scheme. But this is a tactic used to create the impression that you too can earn returns in the double digits. These schemes are both unsustainable and unethical as one person gets wealthy through someone else being deceived. <h2>Too good to be true</h2> It’s worth repeating that if it sounds too good to be true, then it probably is. Wealth comes from a sound investment strategy and decisions made over time. Any promise to “get rich quick” should be treated with the cynicism it deserves. It will ultimately reveal its fraudulent nature. Recognising the signs of “get-rich-quick” schemes can save you from unnecessary financial distress. It’s always a good idea to do your own investigation before committing your finances into any investment. You can find more information on the various types of scams through the <a href="https://www.sabric.co.za/">South African Banking Risk Information Centre</a>’s website and report them to the <a href="https://www.safps.org.za/Home/Contact">South African Fraud Prevention Service</a>.<img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important;" src="https://counter.theconversation.com/content/205798/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /> <a href="https://theconversation.com/profiles/bomikazi-zeka-680577">Bomikazi Zeka</a>, Assistant Professor in Finance and Financial Planning, <a href="https://theconversation.com/institutions/university-of-canberra-865">University of Canberra</a> and <a href="https://theconversation.com/profiles/abdul-latif-alhassan-1390159">Abdul Latif Alhassan</a>, Associate Professor in Development Finance & Insurance, <a href="https://theconversation.com/institutions/university-of-cape-town-691">University of Cape Town</a> Image credits: Getty Images This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/get-rich-quick-schemes-pyramids-and-ponzis-five-signs-youre-being-scammed-205798">original article</a>.

Money & Banking

4 reasons to avoid MLM schemes

Whether you’re looking for an income boost or are strapped for cash, you’re likely to come across multi-level marketing (MLM) while figuring out your options. Multi-level marketing, also known as direct selling, is a form of direct sales where salespeople who aren’t employees of the company and don’t receive a salary or wage are used to distribute products or services. These companies often sell wellness and cosmetic products - such as essential oils, supplements, and skincare products. Recruiters of MLMs often target vulnerable people with promises of flexible working hours, getting to be your own boss, and being able to “get rich quick”. In situations where money is tight, it’s easy and understandable to be susceptible to that kind of temptation. To combat the stigma and dispel the myths around MLMs, here are four reasons why they may not be the solution. #1 You have a 99.7 percent chance of losing money Though some MLM recruits say their income allows them to travel the world and buy new cars, the representative body for direct selling, Direct Selling Australia, says otherwise. “Direct selling isn’t about buying boats or bigger houses … [rather] earning additional income that contributes to school fees, weekly groceries, saving for a holiday and bills.” But even that is a reach for most members. Gerard Brody, CEO of Consumer Action Law Centre, said more than 99 percent of recruits will lose money, going against the wealthy lifestyle MLMs claim to fund. Professor David Wishart, who has researched the dangers that come with MLMs, said it’s important to remember these companies “don’t operate within the social contract that business has with society”. “If you are in business, yes you look after your own needs, but there are limits and morality - everyone is supposed to have that,” Professor Wishart said. “[MLM recruits] operate outside of that. “People down the end are simply ripped off. It’s a bad taste capitalism.” #2 It could cost you your friendships Members of MLMs often rely on their existing relationships with friends and family, but it can come at a cost. “Many people become frustrated with friends attempting to ‘commodify’ their emotional connection,” said Marie O Sullivan, a lecturer in marketing at the Cork Institute of Technology who has studied MLMs from a feminist perspective. Dr O Sullivan also said some of these companies encourage members to cut ties with those who don’t support them. “Participants are encouraged to cut out anyone who expresses doubt as this negativity will prevent them from achieving their full potential.” #3 You’re blamed for failing, despite working hard With many MLMs pushing the idea that the harder you work, the more you earn, many are left feeling shame when they don’t make it in direct selling, Dr O Sullivan explained. Sara Balanuik, who had sold weight-loss products for a MLM in the past, recalled: “I hustled hard but was still not a successful boss babe, as was promised.” She was told by her “upline” that she wasn’t seeing the results promised because she wasn’t working hard enough. This kind of business model sets people up to fail, according to Anna Jenkins, a senior lecturer in entrepreneurship at the University of Queensland. “It’s very, very important for all potential sellers to make themselves aware of the statistics around MLMs,” she said. #4 It can be an ethical conundrum While MLMs aren’t strictly illegal - unlike pyramid schemes - they can be ethically dubious. Many MLMs use a business model that focuses on recruiting “downline” - meaning they get new distributors to buy the product - rather than selling products to actual customers, making them similar to pyramid schemes. “While there are many genuine underlying economic activities involved in these schemes, they commonly operate to benefit those at the top. And disadvantage those at lower levels,” Mr Brody said. Professor Wishart recommended doing your due diligence on the company before deciding to join their ranks. “Read what you’re in for. Work out what the terms are. “Look at the product and the sales commission you get on it. Compare the product with what else is on the market. Nobody buys Tupperware anymore as there is stuff that is just as good.”

Retirement Income

Warning: Have you heard of the latest pyramid scheme luring Aussies?

There are new warnings of an international scam making its way throughout Australia called the “loom” scheme. Participants are targeted through social media and can lead to them “scamming” their friends and family to purchase products that they are selling. The victims can then be left hundreds out of pocket as they run out of friends and family to recruit, but still need to purchase a base amount of stock. How it works Users are initially asked to invest $300, with the promise that they will make eight times that amount once they recruit their friends and family. Facebook user Luke MacDonald explained the experience to the <a href="https://www.abc.net.au/news/2019-04-12/loom-pyramid-scheme-social-media/10994448">ABC</a>. His friend had claimed that they had made up to $5,000 through the scheme. "It was just a link to a chat in a WhatsApp group … I asked what it was and he said it was a Loom group and that he had cashed out twice," Mr MacDonald said. Mr MacDonald was aware of what it was, but thought most people involved had not known what they were doing. "This particular person is a really nice guy, but he wouldn't think about things that deeply," he said. "His response was; 'it doesn't matter to me, I've made $5,000 in two days'. People have this concept that it's just making money out of nothing, but it's not. "Essentially you're scamming your family and friends because it's your immediate circle that you're pushing it onto — it's just transferring money around to different people and then eventually the people at the bottom get screwed,” MacDonald explained. It’s against the law in Australia to not only promote a pyramid scheme, but to participate in one. What to look out for Queensland University of Technology fraud expert Dr Cassandra Cross explained how the Loom was so successful in Australia and how it’s similar to a pyramid scheme. "There are a lot of similar characteristics of a pyramid scheme … but this is a circle one where people get pushed into the middle," Dr Cross said. As the Loom is built via social media, it can be a bit more deceptive as you see your friends and family participate in it. "If you're committing to it and then asking your friends and family to do so, it takes away some of the warning signs," Dr Cross said. "You have to give out your bank details in order for money to go into an account, and you also send money to someone else's account. "That just raises suspicions about money laundering, and around not necessarily knowing who you're sending money too, or having your bank account details that are out there." However, Dr Cross warned that people will be left out of pocket once they run out of people to recruit. "It will certainly get to a point, as many of these schemes do, where there's no new investors and no new people coming into it and once that happens all of the promised returns never eventuate and it all falls over," she said.

Technology

Artist makes iconic Louvre Pyramid “disappear”

French artist JR has made the iconic Louvre Pyramid in Paris disappear in an optical illusion. The artist covered the glass pyramid with a trompe l'oeil, an eye tricking technique that uses realistic imagery to create an optical illusion. Covering the pyramid’s nearly 700 glass segments with black-and-white photos, JR made the large monument in the middle of the courtyard “disappear”. Tourists who visited on Wednesday fought to take a potentially historic selfie of the Louvre without the glass pyramid. JR said he enjoyed "people being destabilised and trying to find the point" that scales with the background. Louvre exhibition organisers said the artist’s "spectacular mode of intervention poses questions about artistic creation, the role of images in the age of globalisation". The artwork will be on display until 27 June, 2016. Related links: <a href="/travel/international-travel/2016/04/strange-international-foods-squirm/">10 strange foods that will make you squirm</a> <a href="/travel/international-travel/2016/04/top-10-museums-2016/">Top 10 museums to visit in 2016</a> <a href="/travel/international-travel/2015/12/top-10-amazing-festivals/">10 most amazing festivals in the world</a>

International Travel

Pyramid scans uncover ancient secrets

Modern technology may have just uncovered a secret buried deep in the Great Pyramid of Giza. Antiquities researchers in Egypt had been observing the 4500-year-old structure with advanced thermal scanning technology, when they noticed an anomaly in their readings. They believe the warm section of stones picked up by their cameras could point to a concealed passageway. “The first row of the pyramid’s stones are all uniform, then we come here and find that there’s a difference in the formation,” said Mamdouh el-Damaty, the Egyptian minister for Antiquities, adding that they found, “that there is something like a small passage in the ground that you can see, leading up to the pyramids ground, reaching an area with a different temperature. What will be behind it?” <img width="497" height="310" src="https://oversixtydev.blob.core.windows.net/media/10931/pyramid-giza-scan_497x310.jpg" alt="Pyramid Giza Scan" style="display: block; margin-left: auto; margin-right: auto;"/> Slight Anomalies in temperature in structures like the Great Pyramid are not uncommon, but some stones in the Great Pyramid were six degrees warmer or cooler than the stones next to them. Other heat anomalies have been detected in the upper half of the pyramid and will reportedly be investigated former. Mr el-Damaty has invited Egyptologists to join in the research.

International Travel

Our Partners

Over 60

News

Shop

Catalogues

Contests

Entertainment

Travel

Health

Lifestyle

Finance

Property

Games

Information