How Kenyans are losing billions in these “Life-time business opportunities”.
ATENTION!!!ATTENTION!!
-A multimillion
company is urgently Looking for aggressive, self-motivated and industrious
individuals to help in digital advertising of the services and products.
-Am Willing to Share
With You How you can Earn Ksh. 10,000 Weekly. ASK ME HOW
-Am looking for people
to employ. I have a project in Nairobi Kenya and I need 20people to assist me
in the project. Anyone interested SMS or whatsapp +254…………
Does that look familiar? I know your answer is an absolute
YES.
I totally understand that everyone needs more cash, more
income, more time and a much better lifestyle. That's why we all look for money
making opportunities.
Unfortunately, those so called “Life Time Opportunities”
where some promises you to make, say Sh. 5,000 daily are usually scams. If you want to invest in those kind of things,
be ready to lose all your money in that whole operation.
Kenyans have not forgotten the famous Pyramids Schemes in
which some gullible investors — who ostensibly wanted to double their money —
lost Sh. 8 billion to various fly-by-night companies. By
taking advantage of an unregulated market, they promise very good returns and
in a day and end up raking billions through word of mouth and aggressive
campaigns.
All these schemes can be classified into Ponzi Schemes or a
Pyramid Scheme.
Ponzi scheme.
A Ponzi scheme (popularly
known as pyramid schemes in Kenya) is a fraudulent investment operation where the operator provides fabricated reports and generates returns for older
investors through revenue paid by new investors, rather than from legitimate
business activities or profit of financial trading.
Operators of these schemes can be either individuals or
corporations and grab the attention of new investors by offering short-term
returns that are either abnormally high or unusually consistent.
Companies that engage in Ponzi schemes focus all of their
energy into attracting new clients to make investments. Ponzi schemes rely on a
constant flow of new investments to continue to provide returns to older
investors. When this flow runs out (i.e. when they are no longer able to
recruit new members), the scheme falls apart.
The basic premise of a Ponzi scheme is ‘To rob Peter to
pay Paul’.
Typically, Ponzi schemes require an initial investment and
promise well-above-average returns. They use vague verbal guises such as “hedge futures
trading”, “high-yield investment programmes”, or “offshore investment” to describe
their income strategy.
Initially, the operator will pay high returns to attract
investors and entice current investors to invest more money. When other
investors begin to participate, a cascade effect begins. The “return” to the
initial investors is paid by the investments of new participants (money paid by
new members), rather than from profits of the product.
Often, high returns encourage investors to leave their money
within the scheme, so the operator does not actually have to pay very much to
investors. The operator will simply send statements showing how much they have
earned, which maintains the deception that the scheme is an investment with
high returns.
NOTE: Investors within these schemes often face difficulties
when trying to get their money out of the investment.
These schemers try as much as possible to minimise
withdrawals by offering new plans to investors where money cannot be withdrawn
for a certain period of time in exchange for higher returns. The operator sees
new cash flows as investors cannot transfer money. If a few investors do wish
to withdraw their money in accordance with the terms allowed, their requests
are usually promptly processed, which gives the illusion to all other investors
that the fund is solvent, or financially sound.
A wide variety of investment strategies that are typically
legitimate have become the basis of Ponzi schemes. Ponzi schemes rely on some esoteric investment approach and
often attracts well-to-do investors.
Pyramid schemes.
In a pyramid scheme, those who recruit additional participants
benefit directly. In fact, failure to recruit typically means no investment
return. They explicitly claim that new
money will be the source of payout for the initial investments.
A pyramid scheme typically collapses much faster than a
Ponzi scheme because it requires exponential increases in participants to
sustain it.
Economic bubbles.
Economic bubbles are also similar to a Ponzi scheme in
that one participant gets paid by contributions from a subsequent participant (until
inevitable collapse). A bubble involves ever-rising prices in an open market
(for example stock, housing, cryptocurrency or tulip bulbs)
where prices rise because buyers bid more, and buyers bid more because prices
are rising. Bubbles are often said to be based on the "greater
fool" theory.
As with the Ponzi scheme, the price exceeds the intrinsic
value of the item.
Cryptocurrencies.
Cryptocurrencies have been employed by scammers
attempting a new generation of Ponzi schemes. For example, misuse of initial
coin offerings, or "ICOs," on the Ethereum blockchain
platform have been one such method.
The novelty of ICOs means that there is currently a lack of
regulatory clarity on the classification of these financial devices, allowing
scammers wide leeway to develop Ponzi schemes using these assets.
Here in Kenya, the Central Bank of Kenya governor, Dr.
Patrick Njoroge, has warned those trading in cryptocurrencies that the bubble might soon bust on them.
Warning!
If a Ponzi scheme is not stopped by authorities, it usually
falls apart quickly for one of the following reasons:-
-The operator vanishes, taking all the remaining investment
money.
- Since the scheme requires a continual stream of
investments to fund higher returns, once investment slows down, the scheme
collapses as the operator starts having problems paying the promised returns
(the higher the returns, the greater the risk of the Ponzi scheme collapsing).
Such liquidity crises often trigger panics, as more people start
asking for their money, similar to a bank run.
-External market forces, such as a sharp decline in the
economy cause many investors to withdraw part or all of their funds.
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