How To Detect And Avoid “Money Doublers And Wonder Banks” (PONZI SCHEMES)

This is just one out of the many ways these fraudsters operate. Read and learn something today.
Mercy was typing away on her computer at work when she overheard her colleagues talk about a new investment that had given them outstanding returns. She always wondered how her colleagues were able to afford the nice shoes and dresses they wear despite them earnings the same salary. She decided to probe further and asked them if they could let her in on the investment plan.

They told her all she needed to do was invest N500, 000 every month and she will be paid N65, 000 in interest from the second month. After 10 months she will receive her capital. It was too good to be true so she decided to probe further. She asked them what they did with the money and how they are able to pay such a high interest. One of her colleagues told her they are into haulage whilst the other said they sell crude. Another said they export farm products and also mention she heard they sell forex.

No one seemed to know exactly what they did as the profits and consistency in their ability to payback their interest was enough for them not to worry about what their underlying business is.

Mercy continued to probe further and asked who the owners of the company was. Again her colleagues said they weren’t sure but all opined they were some young sharp boys who just came into the country. One simply said she never bothered to ask as that wasn’t necessary after all she gets her money as and when due.

Not to be deterred Mercy asked if there was any agreement signed before they released their money to the company. The told her there is no agreement as all you do is just fill a form indicating how much you wanted to deposit, your tenor and bank details. The form was just a single page and doesn’t require any stamping, photographs or any of those requirements that just delay transactions.

What next after you fill a form? They told her that you deposit your money into their bank account, collect the teller and present it to the office receptionist. Once she confirms the deposit has been paid, she issues you a receipt.

How about getting your interest paid? They told her it was also easy as all you needed to is wait till the end of the month and your bank account will be credited. “They don’t waste time” they tell her.

They went on to tell Mercy that there are even other incentives that can make you earn even more. For example, if you bring 5 more people to the business they give you a success commission and could even pay you a steady commission based on the volume of what your additions invested. They also promise to pay you 50% of your monthly interest as additional interest for every month you decide to rollover your interest.

Mercy did the calculation and figured she could even invest up to N1 million for starters. She also had a smart idea and thought she could simply just get a bank to lend here at an interest which she can more than quadruple via this new fledging business she expect to now do with her colleagues.

She got home feeling excited and decided to discuss it with her Hubby. After listening to her speak her hubby turned to look at her with a sense of shock. This by all means is a Ponzi scheme he screams. “Everything you just said is a hallmark of a Ponzi scheme” he yelled. “What is a Ponzi scheme” she retorted?

A Ponzi scheme or money doubling as it is called in Nigeria is a financial fraud that lures subscribers to invest in exchange of astronomically high interest holding their money for a period of time. Rather than actually invest the money and pay the subscribers interest out of the profits made, they do none of that. Rather they pay back subscribers from the subscribers own money as if it is interest. It is also perpetuated by wonder banks that collect deposits from customers in exchange for astonishing high interest rates.
So basically, if Mercy brings N1million they will pay her N130,000 from her N1million monthly and after 10 months they pay the principal. To ensure this works, they will need other people to subscribe otherwise within 7 months Mercy’s N1million will be exhausted and they will need to pay her principal. However, if someone else comes along with another N1million then they keep paying Mercy and hope to find another person to keep the pyramid going.

Ponzi schemes work because they perpetrators ride on their victim’s greed. They lure you with huge interest pay outs that ordinarily can’t be justified by any fundamentals.

How to avoid and detect a Ponzi? From the story above we ignore or remain cautious when we see these signs;

1 Interest is too high and too good to be true
2 You don’t understand what they do with the money
3 There is no face to the owners of the business
4 The company or office building is probably not more than two years old
5 They don’t sign any legal binding agreement with you
6 You don’t get a collateral from them
7 It is not approved by SEC or any other body allowed by law to approve such a scheme
8 They give you incentives to bring in more subscribers to the scheme.

CREDIT: NAIRALAND