Do You Know the Red Flags of a Financial Scam?

Hi Reader,

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You have likely heard the above quote a thousand times. When it comes to Ponzi Schemes, the saying always holds.

These schemes lure investors in with the promise of high returns and little to no risk. But behind the scenes, there’s no real profit. Early investors are paid with money from new investors, and the cycle continues — until it doesn’t. Once the inflow of new money dries up, the entire scheme collapses, often leaving countless people with devastating financial losses.

There are no underlying assets to support these high returns and most of these schemes are often disguised as “crypto investments,” “forex trading,” or even “real estate investments.”

We’ve seen this play out again and again — from MMM to the most recent case with CBEX, which collapsed after drawing in many hopeful investors with its promises of effortless wealth. Whether it is driven by greed or lack of financial literacy, Ponzi schemes have remained a recurring theme in this century.

🚩Some Red Flags to Watch Out For:

No Real Underlying Assets

Legitimate investments are typically backed by real or financial assets — like stocks, real estate, or business operations. If you invest in the S&P 500 ETF, for example, your investment is backed by the largest publicly traded companies in the United States. Hence, the return on your investment depends on the performance of these companies.

A common theme with these schemes is that there are no real or financial assets backing the investments and the expected returns. With such schemes, the underlying assets are questionable and we often hear that they are backed by forex trading, crypto, or even commodities without real proof or transparency of how the money is being made.

High, Unrealistic Returns

The promised returns are almost always too good to be true. For instance, an ‘investment’ that promises to double your initial capital after one month. This is essentially equivalent to a 100% monthly return and a 1,200% annual return! If it were that easy, most wealthy investors and fund managers would put large sums of money into such investments and not take up risks in equities and other assets.

Always compare the return on these investments to the country’s government-backed securities such as Treasury Bills to understand the riskiness.

No Clear Explanation of Risks

Every investment carries some degree of risk, and investments yielding higher returns typically involve more risk. Mostly, these schemes claim that these returns are guaranteed with little to no risk. If someone tells you an opportunity has guaranteed returns and zero risk, that’s a major red flag.

Lack of Proper Registration and Documentation

Ponzi schemes typically involve companies and investments that are not registered with the Security and Exchange Commission (SEC), the central monetary authority, or with state regulators. Check if the company or investment platform is registered with a recognized regulatory body in the country. If not, walk away.

✅Before You Invest, Do This:

• Conduct a background check on the company, individual, and the asset involved.

• Ask tough questions; How is the money made? What’s the business model?

• Look for independent reviews — not just testimonials on their website or WhatsApp.

• Don’t invest under pressure. Any legitimate opportunity will still be there tomorrow.

Reflect on This:

• Have you ever invested in a Ponzi scheme? How did it turn out?

Till next week, I am rooting for you, money-ly!

Dee

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Disclaimer: This does not constitute financial advice. Please conduct your research or consult your financial advisor for important financial advice.