Investors Seek Protection From Losses In Ponzi Schemes

Reports of investors duped into fake investment schemes for digital currencies like bitcoins increased (almost doubled) in the last few years as retail buyers are keen to grow their income through the crypto boom. The regulators are cautious of the frauds where hundreds of victims have been lost in Ponzi schemes. 

These schemes promise high returns or dividends, often unavailable with conventional investments. In some cases, the early investors earn and motivate others to invest, but those who join later lose money.  

Investors across Europe have been tricked into buying in schemes expecting to deliver higher returns. Instead, such funds are often redirected and deposited into risky alternative funds like gaming firms, jewellery, luxury cars or IT equipment. 

European intelligence agencies have initiated cross-border operations to dismantle the criminal network into scams and money laundering. 

In many such cases, the members of the criminal groups pose as professionals who contact the victim through a call centre, and they use manipulated software to depict fake growth in investment to the victim to motivate them to spend.

These days, scammers use sophisticated, even threatening calls to ask for investment money or seek help for a social cause. Some sell insurance for white goods, like electronics; some callers claim they are from NHS, Amazon or another utility firm. Sometimes, the callers say they are from domestic home repairs or drainage. 

These are some of the most common nuisance calls that sell products or services, whereas investment scams are often out-and-out scams, and they target older people. 

Sometimes, they call to create/modify a bank account and ask to enter bank details in their app, which are often scams where the guy asking you to register to an online account intends to steal your money by getting access to your personal and banking details.

They often trick the victim into opening pop-up warnings on websites on their computer screens. They mostly start by playing as an unsuspecting target, speaking politely to convey ways to follow instructions and connect to their home apps or virtual machines. 

During the pandemic, online platforms and poor cybersecurity continue to pose risks caused by false invoices, bot attacks, phishing attempts, money laundering, and other digital shifts. Many users have lost money online, and many do not even know yet, as some schemes take a long time to be noticed.

Ponzi and Pyramid Schemes 

A standard Ponzi scheme promises to deliver a high return on investment from capital derived from the investors. The investors are attracted to abnormally higher short-term gains, and the fraudsters charge a fee to the client for the membership. 

The first such scheme was launched in 1920 by Charles Ponzi, who guaranteed to pay 50 per cent returns on postal coupons.

A pyramid is a scheme based on referrals from previous members. It is a fraudulent business model where new members are recruited to get future members. The bonuses and benefits are connected to the enrollment of new members – who often pay a fee to join the pyramid. 

However, new member recruitment becomes impossible as the memberships grow and the business fails to work. 

Most such schemes fail because they do not involve legitimate product sales or business with true profits.
Regulatory bodies and investors often overestimate their ability to spot a scam, and awareness is not a solution to the problem. 

Moreover, most investors seek financial protection, particularly when they go online. So, the regulators are proposing an Online Safety Bill where the technology companies posting the ads must meet the legal requirements if the ads appear on their sites.

How To Protect Yourself?

• Please beware of the opportunities offered in unrealistic schemes where the firm wants you to join as a member to earn, and they give a bonus to bring recruits to the organisation. Initially, they pay an attractive return on investment, but the money dries up later, and the investors lose everything.

• One should seek financial advice before investing in such offers and ensure that any firm you deal with is authorised.

• The follow-up can be a new scam, where the firm offers a money-back or proposes to buy back the investment for a fee.