With investment scams grabbing the headlines, I believe it is time once more to remind the public of what to look out for.
Firstly, please note that there are differences between multi-level marketing, Ponzi and pyramiding.
Multi-level marketing is a legitimate marketing scheme aimed at generating more sales for a company. Pyramiding focuses on earning money through the recruitment of more agents and not on the sale of a product or service. Many times, people who perform pyramiding acts used multi-level marketing as a tool.
Ponzi is the act of enticing someone to invest in a scheme with a high guaranteed pay out over a short period of time. Unbeknownst to the investor, his returns are being paid out of the funds of a succeeding investor. Money is not really made to earn but is just passed on from one person to the next. At times, Ponzi scam artists also use multi-level marketing to promote their nefarious act.
I once was asked by a relative to attend a training seminar for a consumer product. The company was purporting to have invented great products, in particular coffee and toothpaste out of mushrooms.
The trainer began by saying that their toothpaste was so awesome because not only did it whiten teeth and freshen breath, it was also good for healing wounds faster. Just rub a small amount on the open wound and voila! Then the trainer went on to say that on top of those fantastic features, the toothpaste is also an excellent feminine wash. But the trainer was quick to add that they make no therapeutic claims and that the product was only registered as a food supplement. Now this is the first sign of a scam, when the claims on product benefits are too good to be true.
Next the trainer went on to say that the price of their toothpaste was Php800 for a 150 ml tube. This is the second sign of a scam, when the item being sold is too expensive compared to existing substitutes. A leading toothpaste brand can be sold on a buy one, take one promo for just a little over Php100. The difference in price is to afford the scam artist enough money to pay loads of commissions to its unsuspecting agents.
Finally the trainer pointed to the car outside the room and said that the vehicle was acquired by another trainer who focused on recruiting more agents as his “downline”. This is the third sign that hammers the final nail on the coffin, the focus on recruitment.
Lately, scam artists have combined Ponzi with pyramiding by inviting people to invest huge sums to set up their own little selling units with a guaranteed return of sometimes as high as 40% in just a week. To see how unreal such promises are, just compare the returns promised to the weighted average interest rate on time deposits displayed on www.pdic.gov.ph.
Please note that the law states that if there is a public offering of investment securities, the proponent should secure a secondary license from the Securities and Exchange Commission (SEC). The registration of an entity with the SEC as a corporation or partnership is just the primary license. And also note, as the SEC points out, that the agents of scammers are just as liable as the scammers themselves.
To be safe, visit the SEC’s website www.sec.gov.ph for public advisories or consult your friendly financial planner.
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