Obvious scam

By Francisco J. Colayco, Ph.D

There is a scam that is so obvious and yet so many people are falling for it. Just last week, I received an email from Carlos who said that he has a friend offering an “index investment” at a very high daily interest based on internet transactions. For example, a $20 investment will earn 1.8% each day and you can get your money back in 100 days or 3 months. The return on investment would be 54% every month. Carlos said he doubted the investment because he read in my book that if a company offers you a high return such as 20% per month, there is a possibility that it is a scam.

Carlos also asked for a company profile but his friend didn't know how to explain and had no idea about the business. The friend was just focusing on the interest to be earned on the investment. His friend said that if he invested $25000, that's the time the “Index Investment” company will give everything about their profile, the type of businesses they are in around the world and their investment in different companies.

Carlos still put $120 just to try but then started to ask his teacher and also emailed me. When his teacher and I confirmed that it is probably a scam, he immediately sold is $120 investment and luckily, his friend bought it from him. His friend continued to convince him that he made a mistake withdrawing right away.

We checked the “index Investment” that Carlos named in the internet and sure enough nothing much was said except people who were not known talking in “blogs” of their so-called "experiences”. The investment is even coursed through non-bank channels. There is no way for an individual investor to recover his remitted investments in case he changes your mind.

Carlos did well to get out of it. How can anyone believe in investing $25,000 first before they are shown credentials? Any legitimate and respectable index will always have their their financial credentials in the web with the appropriate details and their corresponding licenses and regulatory permits from their own governments.

The amount to be invested is relatively small, only $20 or about 1000 pesos that it can really encourage innocent victims to try it out. They might even earn in the beginning but surely, it cannot be long term. Actually, for scams to work, they must be able to encourage others to invest. Otherwise, they will not get the cash flows they need to perpetuate the scam. Their objective is to accumulate large amounts of cash by luring thousands of investors with ridiculously high returns even with small amounts of investments. Eventually, they hope to victimize a good number of these small investors to increase their investments while they continue to victimize thousands and thousands of new small investors.

Unfortunately, we can only do so much in exposing this kind of scams. We have been talking about scams for many years now but some people are blinded by excessively high earnings. People have to become more financially literate by reading our books and listening to more experienced people.

Let me end by reminding all of us with this basic fact:

“the higher the returns, the higher the risks”