5 ways to recognise a ponzi scheme

A Ponzi scheme is an investment fraud that pays people with the funds with earlier investors.

Losing money on investment does not mean it was fraudulent or it is a Ponzi scheme.

For example, investing in the stock market does not mean that you are guaranteed returns.

Ponzi schemes are quite obvious but year after year a lot of people fall victims. Could it be greed or being foolhardy?

More so, if you know it is a Ponzi scheme and willingly subscribe to it with hopes that it would not crash before you get your money out of it, you are subscribing morally to the loss of money that awaits later investors.

So how do you recognize a Ponzi scheme?

You need to carry out due diligence. You worked so hard to earn your money, make sure you aren’t just throwing it away.

1. Non-compliance to regulatory agencies

Being registered under the Corporate Affairs Commission isn't all you need to know. Is the company in compliance with the Ministry of Finance, the Securities and Exchange Commission? Is the money insured by the Nigerian Deposit Insurance Corporation?

Doing due diligence on a company will sometimes require the services of a lawyer and, in some cases, it is worth it.

2. The interest is ridiculously high.

When you start hearing 40 per cent Return on Investment, that is your cue to leave. Companies with such high interest rates are likely to fall into trouble trying to pay people back.

3. No verifiable business or investment

You have no idea what your money is being used for, you were just asked to bring your money. That’s already a red flag.

4. No written agreement

The presence of a written agreement does not mean you won’t be scammed but, in case you want to pursue legal means of debt recovery you can use it.

5. No past financial records

It just makes financial sense to know if the company or business you are investing in is profitable or was profitable in the past.

Carrying out due diligence is a lot of work, sometimes it is better to invest in verified online platforms that are insured, registered and in compliance with government policies.