Warning Signs Of An Investment Scam And How Not To Fall For It

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The recent proliferation of different investment schemes in the Philippines gave rise to a more extensive investigation by different government agencies that brand these schemes as scams. A presidential call to put an end to all of them was even made. There were cases filed, warrants of arrests and hold departure orders issued. There were a series of protests by the so-called initiators and “investors” against the government’s move to cease the operations of these investment organizations. The initiators were accused of running a Ponzi scheme that has now left millions of investors losing their money.

Ponzi scheme and how it works

The Ponzi scheme was named after Charles Ponzi who swindled a lot of investors back in the 1920’s under a postage stamp speculation scheme. At a period when interest rates on bank accounts fell at only 5% annually, Ponzi guaranteed returns of up to 50% in three months. If profits are the only thing to be considered, then for certain, Ponzi’s scheme would have been too good to pass up.

While it may be a bit confusing to understand how his scheme exactly worked, but simply put, in a Ponzi scheme, the existing investors are paid their returns from the funds invested by the new investors. As long as there are new investors being recruited, the returns can flow continuously. Yes it could, but not for very long. When recruitment of new investors becomes difficult, then the countdown to a collapse will have begun.

How to spot an investment scam

Those running the investment scams operate in the guise of a legitimate business. And, their target mostly are the unsuspecting individuals whose financial literacy level is on the lower end. But if you are that one who would want to protect your hard-earned money, then look out for these signs in any investment scheme being offered to you and walk away instantly when you see them:

1. Very high yield or returns

We are not just talking about 3% to 5% here. When you will be promised returns of 30%, 50%, some even gave out 600% monthly and perpetually, chances are these are just too good to be true. Even the most profitable business or stocks and bonds, wouldn’t be able to yield that high. Following the basic concept on investment – high risk, high reward, then you can already say that these schemes that speak of very high returns are very risky investments.

You might find some agents waiting for you outside of car dealerships or real estate offices to offer you an investment package. They might tell you to instead invest the funds you allocated for the downpayment for that car or house that you’re planning to buy since the returns will allow you to acquire them in only a few months anyway. You are being made to believe that you are actually saving on interest for mortgages.

2. Consistent, guaranteed profits

High-yielding investments will entail fluctuations in investment values depending on the impact of the economic conditions in the area and other factors. So, it will be fairly difficult to set a certain value of return to the investors. All the more questionable the investment will be if they will guarantee you a fixed return say, monthly for life, for your one-time investment.

This kind of guarantee in their so-called investment package lures people not only to invest but to invest much. If this were all true then this could seem like the best passive income that will give people the financial freedom that they’ve been wanting to gain. Then again, we underscore, if it was true.

3. High-pressure marketing

When you are being pressured to invest, only within a certain period, otherwise you cannot avail the offer of a lifetime of high, guaranteed profit from your investment, walk away. This high-pressure marketing tactic is a red flag.

Their offers may make the investment scheme look like it’s a now or never deal: low initial investment but only for today; you get an additional 10% return on top of the usual 30% that they normally give, if you invest right there and then. Their goal is to make you invest your funds now.

To some extent they use intimidation, harassment, coercion, although subtly at times, just to get you to invest your money in the scheme that they are offering.

Sometimes, they lead you to their office and once you’re there, you will find that you cannot just easily leave. If you say no to one agent, another one comes. If that cannot help, you will suddenly find yourself surrounded by their so-called officers like you are being held hostage. In the end, even if you have no plans of investing at all, you will because of fear.

4. No clear details about the investment

Transparency is a measure of the integrity of an investment scheme. If you are being deprived of a clear information as to how your investment will grow and where they are being re-invested, then think twice of giving in. Your questions would probably be evaded or you would be discouraged from even asking. They might even say that it will be too technical for you to understand so it would be best to just think of the returns that they are offering.

Most often too, they do the asking. “Will you just be satisfied with the meager returns you get from your other investments?” “Don’t you want to get rich?” “Don’t you want to get rich now?” These are just some of those questions that they will throw at you. They do this to divert your focus from trying to understand the scheme to getting it all in for the money.

5. Tempting rewards or offers

Who wouldn’t want to get the house, vacation and the car of their dreams? Or, movie tickets, meal coupons, accommodation discounts? These are the usual rewards that go with the investment package that scammers or swindlers offer. Of course, they need a bait to lure you into their trap.

As an example, their spiels would include the part where you can own this particular brand of luxury vehicle in less than 6 months if you invest this much. The offer is tempting but the catch there is, they are merely telling you that the returns from your investment can already cover the downpayment and the monthly installments thereafter. They’re not giving you the car for free.

Or as a way to lure you into coming into their office, they first offer movie tickets that you can get for free if you attend their seminar or an investment forum. If you took the bait, then for sure you will find yourself in a precarious situation, facing their high-pressure marketing tactics that can force you to invest.

6. No business or products involved

Unlike in a multi-level marketing where a sale of products and services are involved, in an investment scam no sale of products is being mentioned. They are just saying that it’s just a typical investment but the returns are higher.

This should raise a question or several. One would be, where will they source the funds to pay out the investors’ returns? Another, where will they re-invest your funds to grow them? Will they be able to sustain paying out the expected returns to their investors? These are just some that you must seek answers for before you decide to invest.

But you must be more cautious though since some investment scams pose themselves as a multi-level marketing company. They have a complete product line but accompanied with a Ponzi-scheme type of return payout. You will be asked to invest in their products to sell where you earn a commission. But, you can top-up your investment by putting in more, this time under the Ponzi-scheme.

7. Complicated investment strategies

Trying too hard to appear transparent, some investment scams perpetrators do have presentations and even conduct investors’ forum. The problem lies in the presentation itself that is too complex for ordinary individuals to comprehend. They use investment jargon that some may have heard of for the first time yet. They could be talking about virtual currencies or cryptocurrencies, derivatives market or foreign exchange trading.

Since they appear to know a lot about investing that makes you question your stock knowledge about it, the tendency is you put all your trust in them. And that’s what they actually intended to happen. They intentionally confuse you with data, statistics and other information that you would have little to no chance of verifying.

While they do this, they highlight, on repeat, their claim of giving you high returns for your investment. As they bring your focus more on this, they bring you further from trying to understand how their investment scheme works.

8. Unregistered or unlicensed

These investment scams are usually unregistered or if they are, they are registered to do another type of business. In some cases in the Philippines, they were registered with the Securities and Exchange Commission and other regulatory agencies as multi-purpose cooperatives, multi-level marketing businesses, agricultural venture companies, church-related ministries and other business organizations. All, to disguise these scams as legitimate businesses.

But to engage in investing activities, a company must be licensed to do so. If you question their being unlicensed, some would even make a point that the government and its officials are just trying to regulate what could help most people. And, this is being done by them in an effort to keep all the profits to themselves. So, if you have this long-standing grudge against the government’s corrupt motives, you could somehow agree.

Do your due diligence before investing

A wise investor would always do his due diligence before putting in his funds.  Due diligence here is not some complex financial process that would require an extensive knowledge and a team to back you up.  It’s something that you can do on your own. It could be a self-initiated study, research or investigation on the kind of investments being offered to you.  Your aim should always be to protect your hard-earned money or assets.

In conducting your due diligence you should pose more questions to yourself and should be able to address them.  Some of the questions that you can ask are:

  • What is the risk of losing in this investment?
  • How much am I willing to lose?
  • What’s my exit plan or strategy in case?
  • Where will they invest my money?
  • Do I fully understand how the investment scheme works?
  • Is the investment company registered and licensed?
  • Do I know the personalities behind the company?
  • Does this investment make business sense to me?
  • Is this aligned with my personal values and principles?
  • What do my instincts tell me?

The above are only some of the most basic questions that you should ask before thinking of entrusting the management of your funds to someone else.  Keep asking until you are satisfied with your response and you can come up with a decision that you can stand firm on.

Don’t be a willing victim

Reminders and warnings are all over. There were cases of similar investment frauds in the past that made news and became part of history. You shouldn’t turn on your short-term memory button for get-rich-quick schemes. Be vigilant. Protect your assets especially those that you’ve worked hard for.

There are more legitimate sources of other income that you can try: you can invest in stocks or bonds, you can start a small business or setup your own company. These may entail a lot of work on your part but isn’t that how it starts? You work for it, earn from it until you can get to the point of financial freedom.

And, if you have once fallen victim to these investment frauds or know of people who have, we would love to know your input in the comments below. Who knows, you could save the next target.

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