GET RICH QUICK – OR MUCH POORER

In hard eco­nomic times, con artists get craftier – so be­ware schemes that prom­ise un­re­al­is­tic prof­its

DRUM - - Money -

PYRA­MID SCHEMES

Th­ese fraud­u­lent schemes have been around for years and keep pop­ping up in new guises. The most re­cent ex­am­ple is called Me-Coin. As Gareth Col­lier of Crue In­vest ex­plains, the crooks con­vince you that you can earn an in­come with a dig­i­tal bit­coin ac­count. You’re promised 5 % in­ter­est a day. So if you in­vest R1 000 you’ll have R4 116,14 af­ter 30 days, and af­ter 365 days you’ll be worth about R51,6 bil­lion! Don’t be­lieve a word of it.

WHY THEY FAIL

Pyra­mid schemes’ suc­cess de­pends on the num­ber of “mem­bers” re­cruited. For ex­am­ple, Col­lier ex­plains, the first eight in­vestors are each sup­posed to re­cruit eight new ones. If they all suc­ceed the sec­ond level will have 64 mem­bers – each of whom must re­cruit an­other eight in­vestors. So on level three there are 512 peo­ple who each have to re­cruit an­other eight. If this con­tin­ues there will be 16,7 mil­lion mem­bers on level eight. The scheme crashes as soon as new in­vestors dry up and ex­ist­ing ones start with­draw­ing their money.

HOW TO SPOT THE CROOKS

In­vestors are al­ways promised easy money – big re­turns for lit­tle work. In­vestors get their money from in­vest­ments made by new re­cruits. Be­ware if you’re asked to pay for ex­pen­sive cour­ses, train­ing pack­ages or mar­ket­ing ma­te­rial as a con­di­tion for join­ing. And at your first meet­ing they might try to tempt you to join with the prom­ise of a gift, such as a free hol­i­day.

WHO’S TAR­GETED?

Any­one who’s gullible, des­per­ate or greedy. Greedy peo­ple sim­ply can’t re­sist the prom­ise of quick riches. Oth­ers might be try­ing to es­cape poverty. Re­search shows the av­er­age vic­tim is an op­ti­mistic, mar­ried man in his late fifties with a rea­son­able un­der­stand­ing of fi­nan­cial mat­ters and con­fi­dence in his own judg­ment. Col­lier says this man will be­lieve that while other peo­ple might fall for fraud­u­lent schemes, he won’t. In­ter­est­ingly, women don’t fall for th­ese schemes so eas­ily – they ask too many ques­tions.

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