Whether it’s from a friend or from the news, we’ve all heard horror stories about people getting swindled by Ponzi schemes. Scammers are getting better at using the Internet to lure unsuspecting investors. Before making an investment, it helps to learn the difference between a legitimate investment and a scam.
Before anything else, what is a Ponzi scheme? Simply put, a Ponzi scheme is a type of fraud that pays existing investors with money coming in from new investors. When new investments or recruitment stops, the whole setup collapses and the last people who buy in will lose all their capital.
Protect yourself from Ponzi schemes by watching out for these red flags:
1. The company or investment offer is not SEC-registered
To legally operate any business in the Philippines, a company must be registered with the proper state regulator. The biggest red flag is if the company is not registered with the Department of Trade and Industry (single proprietorships) or Securities and Exchange Commission (partnerships and corporations).
But just because a company is registered with SEC doesn’t mean that they’re authorized to lend, sell securities, or take investments. Section 8 of the Securities Regulation Code specifically states that “Securities shall not be sold or offered for sale or distribution within the Philippines, without a registration statement duly filed with and approved by the Commission. Prior to such sale, information on the securities, in such form and with such substance as the Commission may prescribe, shall be made available to each prospective purchaser.”
To make sure that you’re dealing with a duly registered company, get in touch with the SEC through the SEC official website, the SEC main and satellite offices, and the SEC hotline and extensions.
2. They can’t provide official documents
When it comes to your money, paperwork is everything. If they can’t provide you with a financial statement, prospectus, offering circular and any other similar document, hold off on investing. Depending on the type of business they’re in, there should be a corresponding document in exchange.
Let’s say they’re into selling goods, an official BIR receipt should be issued upon sale. Alternatively, if they say that your money will be invested in stocks, you should receive a share certificate or share ownership statement with all financial and administrative matters concerning your shares. If they disregard documents, look the other way.
3. The only place you can find them is on Facebook
Another big red flag is if you can only find information on a company through, private chatrooms, or other social media groups. Legitimate companies have official websites or yellow page listings with contact information and addresses.
The same goes for any “official documents” issued. Official receipts and proof of deposit should not be validated through private message or other informal means of communication.
If you can’t find any information on a company or the information is unclear, don’t risk it. Your money, however big or small, is valuable.
4. Your payments are made to an individual account instead of a company
Make sure your money is going to a company and not an individual. One of the best ways to find out the legitimacy of a company is by checking where the deposits will be made.
If the agent insists on taking the money personally without an official receipt or similar document, chances are that money is going to someone’s pockets. The same goes if the agent requests you to deposit to a personal account instead of a business account.
5. They guarantee high returns in an impossibly short period
Ponzi schemes generally offer high “guaranteed” returns of 20% or more per year or per month. These attractive profits are used to lure in new investors and keep the scam going.
So if it sounds too good to be true, it probably is. Anywhere you look in the financial world, there is no such thing as low risk, high reward in X months. That’s because there’s no such thing as guaranteed returns in the financial world. There is always a certain degree of risk to every investment you make.
6. The operator or agent insists that you buy now or lose the opportunity
If the agent or operator pressures you into investing right now, run far, far away. When it comes to your money, fully understanding the mechanics, true potential, and dangers of any investment is crucial. One afternoon is barely enough time to get a full grasp on what you’re buying into, especially if you’re new to investing.
For more signs of a Ponzi scheme, read the SEC’s latest advisory on unregistered entities soliciting online investments. Coins.ph is not affiliated with any investment companies, and we encourage all our customers to be vigilant and do their due diligence before making any investments.
