Have you heard of the recent investment scam in Lucena City? They call themselves: GABAI (Grand Alliance Business Association Incorporated). Sadly, millions of pesos were taken not from rich business owners, but from ordinary Filipino workers and even poor families. Some even had to sell their carabaos and houses just for the promise guaranteed 40% return every month.
If you think that this is new, well think again. Just a year ago, there was this investment scam from the Aman Futures Group that victimized Pagadian Residents and other areas in Mindanao, I am sure you have heard of it.
If you think those scams are the only ones, think again. During the past few years, we’ve seen many ordinary Filipinos lose hundreds of thousands and even Milllions from investment scams such as PIPC (2007), Francswiss (2007) and Multitel (2011). If you could even remember that. I think there are plenty more of these scams that did not even reach the headlines.
These investment scams are called, Ponzi Scheme.
What is a Ponzi Scheme?
This was made famous by Charles Ponzi in the 20th century who became notorious for using the technique in 1920. It is basically a fraudulent investment that pays returns from money paid by the subsequent investor rather that actually earning from a real investment.
Wikipedia adds, “Ponzi schemes occasionally begin as legitimate businesses, until the business fails to achieve the returns expected. The business becomes a Ponzi scheme if it then continues under fraudulent terms. Whatever the initial situation, the perpetuation of the high returns requires an ever-increasing flow of money from new investors to sustain the scheme.”
Signs of a Possible Ponzi Scheme
• You never actually receive any real product or collateral for your investments, just promissory notes and statements. Receipts they are using are either fraudulent or not registered as legitimate.
• They offer higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent.
Abnormally high means – the rates of return you’re getting seem too good to be true (5-10% per month or even 50-100% return per year is too high). And they assure you a GUARANTEED return. Legitimate investments cannot give such high return, nor can they even guarantee them.
Unusually consistent – you earn consistent strong returns with no losses, regardless of market behavior. There are legitimate financial products that offer and deliver stable returns with no market risk (such as some annuities) but these are backed by old, valuable companies with many assets on the books. And they don’t pay those too-good-to-be-true returns.
• You’re told complicated yet compelling stories about why the returns are so strong. There is a story-telling behind the investments that may seem real to you. Con artists are good at that.
• New investment ventures are more prone to be frauds than older ventures, but also remember that other Ponzi scheme in other countries ran for 30 years.
How to Avoid falling a Victim of a Possible Ponzi Scheme
• Be financially literate to be able to make a sound financial judgement. Stupidity and lack of financial education will earn you a victim of these varieties of financial ploy.
• Don’t be too greedy. Don’t let greed overcome your good judgment. Don’t fall to “GET RICH QUICK” or “EARN 50,000 A MONTH WITHOUT DOING ANYTHING” kind of things. If your inner alarm bells go off, listen to them.
• It is also important to take note that, Ponzi Schemes in the Philippines nowadays are usually from a province. Where the governing bodies like the SEC (Securities and Exchange Commission) are too far to monitor and Filipinos there are more gullible and with not much access to information technology like the internet.
• But this does not mean you are immune to these scams if you are living in the city. You also need to stay vigilant, remember, con artists also adapt to changes in society and technology, they may even be more dangerous now since they could be online and have knowledge numerous editing programs like Photoshop.
• Be diligent. Research the person offering you the investment, and also the company behind it.
Are they giving you legitimate receipts?
There are two things you need to look at to see their legitimacy:
(1) Are they registered in Securities and Exchange Commission and/or other governing bodies?
(2) License to sell investment products or Securities.
Find out where the company really invest your money.
• Know that there are different legitimate investment companies that can invest your money legitimately. Although the return is not that attractive as Ponzi’s, but you are sure of your money. Example of those companies and their governing body where they are registered:
Mutual fund companies (SEC), Insurance Companies (Insurance Commission), Banks/UITF (BSP) and the Philippine Stock Market.
Financial experts say that Filipinos are risk averse. Meaning, when it comes to investing their hard earned money, Filipinos don’t like taking risks. But, why do many of us still fall from these kinds of investment scams?
I daresay, investment scams have one thing in common. That is, they feed on two human flaws, which are: Stupidity and Greed. As harsh as it may sound, but it is true. Investing is not only all about earning money. It is all about fulfilling your goal and dreams for you and your family. Don’t jeopardize your dreams by being both stupid and greedy. Plan for it wisely. Get some legitimate help.
Helping your dreams come true.
Doc Pinky
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