Scams and Ponzi schemes beware!

One thing we have noticed is that in Africa there are a lot of unscrupulous people that try to cheat other successful people out of their hard-earned savings.

What is a Ponzi scheme?

“A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organisation running the operation.”

A Ponzi scheme attracts new investors by offering high returns, far beyond normal investments. By its nature, to keep the high returns going, an ever-increasing flow of new investors must be recruited.  This recruitment process is required from all of its members, especially from the new members.

This type of process forms a ‘pyramid’ type structure.  The scheme promises that the more people you recruit underneath you, the more money you will make.

Ponzi schemes will always fail over time because the returns being paid to the investors are higher than the earnings of the system. No investment money is ever returned as it has been removed by the originator of the scheme. 

The Ponzi scheme originated many centuries ago, but was made famous by a man named Charles Ponzi in 1920.  Ponzi’s scheme was started legitimately, but when he could not make returns he soon diverted new investor’s money to make payments to earlier investors (and himself).

The most well known Ponzi scheme in Botswana was the Eurex-Trade scam. Professional financial advisers pointed out that it was obviously a scam for more than a year before it disappeared earlier this year – taking everyone’s money with it. Not many people listened and did not get out in time – they were too greedy.


How can we tell?

The clues are clear if you look for them: firstly there are amazing claims of regular, vast (and easy) returns.

The Eurex Trade scheme advertised earnings of up to 2.9 percent per day.  This is the first clue that this is a Ponzi scheme – as this is simply impossible.

The Non-Banking Financial Institution Regulatory Authority (NBFIRA) recently pointed out: “There is no legitimate investment scheme that consistently makes that sort of profit. There is not, there never has been and there never will be. If there were such a scheme the bankrupt Greek government and investment companies around the world would be doing it as well. It really is too much to ask that the owners of a website have accumulated more financial wisdom than all the financial experts in the world.”


Too good to be true?

Again and again in recent times, we hear about moneymaking opportunities that sound too good to be true. When faced with something that sounds like easy money, beware. It’s usually a scam.

If it sounds too good to be true, it is simply not true. There is no easy way of making money, and anyone who tells you differently is trying to sell you something.


Guilt and fear

Why we do not admit our investment mistakes? It is hard to talk to our friends, family and colleagues about these things because we feel stupid, ashamed and angry with ourselves. That means that often we do not hear about these scams and how they affect other people.

So how can we guard ourselves against being conned? Put simply, we must educate ourselves.


But is it that simple?

When deciding where to invest, listen to what the investment is about and what the returns are. Remember, there is no such thing as high return with low risk. If the person presenting it convinces you, check the background of the investment with someone qualified and independent. That way you get a second opinion.


What tools can

we use to guide us?

What is the safest way of making a decision? Be sceptical and ask lots of questions. The more questions you ask the better picture you will get and the harder it will be to ‘pull the wool over your eyes’. Examples of these questions that you can use to protect yourselves against fake investments:

What does the company do, how does it make money?

Where is the investment regulated and licensed? Are the returns realistic? What are the risks?

Where does the money come from to pay the investors profits and returns? Who is trying to sell this investment to you? Why? What is in it for them? Check with a financial adviser registered with the Association of Botswana Financial Advisers (ABFA). You can find out more about ABFA and see their members at

Check with NBFIRA.

Ask: how do I send my money? Do not ever send cash – only transfers made through the banking system can be traced later.

Were you approached through the internet or over the phone? If so, how do you know who you are dealing with? Get some identification and proof of where they are based.

Do not be afraid to ask questions. If somebody is persuading you to invest your money, you have the right to ask whatever you need to know.

Remember, if it sounds too good to be true, it is usually not true!


Walk away if you have doubts.

Author: Author: Cynthia Tsumake – Sales & Marketing Manager with S.C.I. Training (Pty) Ltd. © S.C.I. Training run BOTA accredited financial wellness programmes in Botswana. For help and information contact them on 3180243 or 75114375 or [email protected]

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