There has been a spike in the number of fraudulent pyramid schemes or Ponzi schemes springing up all over South Africa. With the promise of quick financial returns every year, these schemes defraud many unsuspecting South Africans of their hard-earned money. It is essential to distinguish between a stokvel and an illegitimate pyramid and/or Ponzi scheme.
According to the National Stokvel Association of South Africa (NASASA), approximately 810 000 involved stokvel communities comprised of over 11 million South Africans, with about R50 billion. Nearly 40% of South Africa’s adult population
belongs to a Stokvel.
What money making scheme have you participated in and spent money on? Although Uma-societies are not historically a money making scheme, a member would run away with the society’s funds.
Signs and tips on how not to fall victim of a Ponzi Scheme:
- It claims to pay out double-digit returns.
- You can’t understand how it generates money.
- It claims to be an opportunity of a lifetime.
- Returns or profits earned are dependent on recruiting more members to the scheme.
- It is not a registered product or a product offered by an authorized financial services provider.
- If it sounds too good to be true, it’s most likely a scam.
- Be skeptical of any investment’s insistence that you act “NOW.”
- Be careful of investments that guarantee you high profits with little or no financial risk.
- Exercise due diligence in selecting investments and the people with whom you invest- DO YOUR HOMEWORK BEFORE INVESTING YOUR MONEY.
- Consult an unbiased third party- like an unconnected broker or licensed financial advisor before investing.
7 ways to spot a Ponzi scheme:
- The promoter promises high returns, which could not be achieved through everyday conventional investment opportunities, within a short period.
- In some cases, the promoter will use fake qualifications or references to entice investors, for example, an ‘attorney’ with ‘many years experience in the stock market.’
- Often high returns are paid initially, and then investors are lured into investing even more money.
- They often promise guaranteed returns –no return is ever guaranteed, all investments carry some risk.
- Promoters are usually quite secretive about the actual business model.
- The promoter becomes unavailable, and returns dry up.
- Usually, the scheme collapses soon after that.
