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Ever since the Coronavirus pandemic hit, countries were hit by an influx of Ponzi Schemes all over the world, From India to Kenya, investors have been falling prey to these schemes regularly as everyone tries to make a quick buck online.

A few weeks back, Detectives from the Directorate of Criminal Investigations (DCI) arrested a suspect linked to the Amazon Web Worker Ponzi scheme which milked the pockets of unsuspecting investors dry while promising investors “Sh25 – 5000” in 10 minutes a day.

What is a Ponzi scheme?

A Ponzi scheme, in essence, refers to any investment scheme which has no legitimate source of revenue or profits to pay “returns” to investors.

Returns are paid to old investors by new investments made on a rolling basis. When the Ponzi scheme does not generate new investments anymore, it collapses and, in most cases, the owners run with the principal investment

How to Identify Ponzi Schemes in Kenya

Over the last year, I have tried to help identify these Ponzi Schemes, however, identifying the scams is not difficult and you can do it yourself.

Here are a few things that tell you that you need to be careful with your investment.

  1. High returns with minimum to no risk: as soon as you see those crazy numbers, it’s time to run! This is the most common way to identify a Ponzi scheme, they include a false assurance of “guaranteed” high returns or “guaranteed” consistent returns while offering vague or no business activities. As a rule of thumb, any investment that promises you over 12pc annual returns has a very high probability of being fraudulent. On average, most investment advisors expect equities to deliver 10-12pc annualized returns over the long term.
  2. Commissions on Investor Chain: Just like pyramid schemes, Ponzi schemes get investors by following a multi-level marketing model. They promise lucrative commissions to an investor who brings in others. If that online job provides high returns with low risk and commissions for referring others, avoid it completely. In Kenya, I have noticed many Ponzi schemes are now displaying company registration certificates and other government-issued documents. These can easily be forged, don’t invest just because they have a ‘document’. Ponzi systems need some credibility to attract members, this is done by getting you to recruit new members, celebrity endorsements, or paid influencers.
  3. Pressure to reinvest: Like earlier stated, Ponzi schemes will collapse if no one is investing or if too many investors withdraw their funds. This is because there is no actual money-making business model involved. To remain afloat, the scams in Kenya provide tiers that offer investors higher returns if they buy them. If that online business say, promises to give you Sh5000 a day in returns but offers a buy-in to make you Sh10,000 a day, be alarmed.
Nigel Jr.
• Tech • Courtesy is Key • Entirely Flawed • Extremely Reticent • DeFi •

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