7 Simple Steps to Identify Investment Scams

Due to the current popularity of social networking sites, investment scams have surged over the past few years with scammers preying on the hardworking OFWs who are desperate for higher and quick returns.

The most popular scams today include Ponzi scheme and Pyramid scheme that always come with the promise of higher returns than investors can obtain elsewhere.

Ponzi vs Pyramid Scheme

A Ponzi scheme is a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned by the operator. (Wikipedia)

A pyramid scheme is an unsustainable business model that involves promising participants’ payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public. (Wikipedia)

The difference between a pyramid scheme and a Ponzi scheme is that a Ponzi scammer will only ask you to invest on something. You won’t be asked to do any action other than handing over your investment money and then wait for your big return.

On the other hand, a pyramid scheme will offer you an opportunity to make money yourself. It requires more work because you have to buy the right for a position and start recruiting more people.

Both of which are illegal in the Philippines because they use one person’s money to pay another. An operator entices people to invest promising unusually high returns. The only way to continue paying such high returns is to recruit even more investors. Eventually, the scheme will collapse if recruitment stops and the last people to join will lose their hard-earned money.

Tips To Avoid Being Scammed

Below are the following tips on how to spot and avoid an investment scam. Please note that this guide is specific to the Philippines only.

1. First and foremost, be suspicious of all unsolicited investment offers.
These scams primarily proliferate on social media websites such as Facebook and Twitter, both of which currently have millions of active users and are free to use. However, legitimate businesses also use social media, so it is better to do more research before joining any investment venture offered online.

2. Ask the rate of ROI (Return of Investment)
Guaranteed big return of investment is always a big red flag. Remember, even bigger banks with big capitalization can’t offer big fixed returns for an obvious reason.

3. Get the company’s contact detail

• Get the name of the person, and the full name of the company he/she is representing.
• Get the address of the person, and the complete office address of the company.
• Get the number of the person, as well as the company’s landline telephone number.
• Request for a copy of their SEC Registration as an investment and security broker and counter-check it at the SEC website (www.sec.gov.ph) or call SEC office to confirm. (Trunkline No. (+632) 584-0923)

If they are unwilling or hesitant to give any of the information above, or they have no SEC registration or appropriate license to offer investments then avoid dealing with them.

4. Know their products
All legit business offers products or services. If they claim that you don’t have to do anything, then turn away.

5. Check the fair market value of their product (if they have any)
This is to check if their price is reasonable enough and not overpriced, usually overpricing the products is for the purpose of paying the people in the upper lines.

6. Will I still make money without recruiting anyone?
If the answer is “NO” to this question, then it’s definitely not a legit business. You should be able to make money through commissions paid on the sales of their products and not on recruitment of new investors.

7. Can non-members buy their product?
This question is to test if product movement and income can be sustained if recruitment stops. If the answer is “No” then it may be pyramiding.

These are just basic questions you need to ask to avoid being scammed. It is advisable to do more research and inquiry before entering any investment and business deal.

Just always remember the old adage “If it’s too good to be true, it’s probably is.”

We all have the responsibility to protect our hard-earned money, as well as not to victimize our fellow countrymen and human beings. Please help spread awareness about these scams.

We all want a better life and security for our family, and there are legal and moral ways to achieve them if we are only willing to learn. There is still no substitute to hard-work, savings and doing legit businesses.

If you are an OFW in Thailand and want to know more about other form of legit investments, please join us at TAP-Bangkok, TH: a group of OFW stock investors, security traders, real estate investors and entrepreneurs.