The Bank of Uganda has come out strongly to caution Ugandans against investing in Ponzi Pyramid schemes. A communique to the public warns that a Ponzi scheme is a fraudulent investment scam that promises high returns with little risk to investors.
According to the Central Bank, money invested in this kind of scheme is not invested in any legitimate business but used to pay the people operating the scheme as well as those who invested earlier on. This makes a Ponzi schemes appear like genuine and profitable investments because people who invested first seem to benefiting.
Pyramid schemes are similar to a Ponzi but is based on a hierarchy where new investors are at the bottom of the pyramid. Original investors normally pray on income provided for paying membership fees or an initial investment.
The central bank cautions that these schemes do not sell products or make real investments but simply rely on money from new investors. Those at the top of the pyramid end up sharing it out. The schemes only generate income by promising extraordinary returns to new recruits to convince them to invest. Receiving payment becomes difficult as recruits are asked to bring in additional investors.
Ugandans should therefore note that Ponzi and pyramid schemes always collapse says the Bank of Uganda. Thus becoming unsustainable for those running it to deliver on the promises they made to investors. Once they collapse, there is often no way for those who invested to recover their money.
Bank of Uganda further urges the public to trust their investments with licensed investment firms regulated by either Capital Markets Authority or institutions regulated by Bank of Uganda
How to know if an investment maybe a Ponzi or Pyramid Scheme
- The scheme guarantees you high returns with little risk of losing investment.
- It promises you consistent returns regardless of the market conditions.
- The investment strategy or business activities are too complex for investors to understand, or top secret.
- The company or proprietor running the scheme focuses all their energy into attracting new clients to make investments.
- Both old and new clients face difficulty trying to remove their money from the scheme.