Home Business & Economy Five Signs You’re Looking at an Investment Scam

Five Signs You’re Looking at an Investment Scam


A few years ago, it was DKM Diamond Microfinance that collapsed and caused losses to its clients. Now, another Ponzi scheme called Savanna Brokerage has also tricked some Ghanaians with a supposed investment scheme which has collapsed, causing them losses.

Despite warnings to the public to be cautious with shady investment schemes, many still end up falling victim and losing their money because it’s sometimes hard to spot a Ponzi scheme.

Typically, a Ponzi schemes promise its clients nice returns, takes deposits from them and uses money from new entrants to pay the profits of old members. Such a system always requires new entrants to keep up the deception. Eventually, it gets to a point where new customers are not coming fast enough, leading to collapse.

Here are five red flags to watch out for with companies providing investment packages.

1. Very High Returns

Ponzi schemes often offer very high interests on their supposed investment packages. The rewards can look like this: double your money in two months, get 50% interest, 70% interest or 40% and so on. If you see very high returns being advertised liked this on your investments, chances are that you’re looking at a Ponzi scheme. As a general rule, if it looks too good to be true, it probably is.

2. Very Good Testimonials

Testimonials from peers and word of mouth communication are very potent marketing tools. It’s a good lure and marketers know it. Your friend will come and show you how much profit they made, how they doubled their money while you were acting like a fearoo. You must resist the human weakness to fall for testimonials from friends who have made some money from a Ponzi scheme.

As mentioned already, the early birds get their pay from the new clients who get enticed and join later on. Consequently, the latecomers are usually at high risk. If someone comes telling you about some nice profit they’ve truly made from an unbelievable investment scheme, if you heard about the company by word of mouth, resist getting enticed. Chances are that it is a Ponzi scheme.

3. High Rewards for recruiting new members

Since Ponzi schemes basically rob Peter to pay Paul and cannot survive without a steady stream of new entrants, they are sometimes compelled to encourage members to rake in more new entrants, by giving tips to those who are able to bring in more people. If you spot an investment scheme that places some value on snowballing for more members, that’s a red flag.

4. “No risk”

Ponzi schemes often advertise themselves as no risk ventures. The nature of investment is that it usually carries some risk. In the same way that you stand to earn money, you also stand to lose. And the risk often gets higher as the potential earnings also get higher.

But Ponzi schemes do not shy away from advertising their magic. Most usually claim that the investment package they’re offering is risk-free. If you hear that, it’s not time to get excited but rather, time to be cautious.

5. Secretive Business Model

It is best practice to know and understand any investment package thoroughly before putting your money in it. That’s just common sense. When a wealthy investor wants to put their money into somebody’s business, they make sure to assess the health of the company, its financial position, its business model and virtually everything else that they can. Rarely will money be put into what is not properly known and understood.

You should do something similar with your investments. But what happens when you ask a Ponzi scheme how they make their money, and when you try to understand how they get money to pay the high interests they hype? Most of the time, there will be reluctance to tell you, dodgy tactics or a flat refusal to answer and explain things. Bear in mind though, some Ponzi schemes are prepared to answer this question with a business which is used as a front for the whole game.


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