Financial “Black Magic”: Unmasking the Pyramid Scheme
Just as Halloween involves tales of the dead returning, Ponzi schemes rely on the “magic” of false promises to bring back exponential returns.
Many of us are tempted by the success stories of friends and relatives to jump on the bandwagon, only to be disappointed later. It’s important to remember that investment plans are not “one size fits all.” Just as a diet that suits one person may not suit another, what works for a social circle may be a dangerous trap for you.
The Ponzi Concept
A Ponzi scheme is an investment scam that pays existing investors out of money invested by new investors, giving the appearance of earnings where there are none. These are often made popular within social circles, relying on an ever-increasing number of recruits to stay afloat.
South African Red Flags: MMM & MTI
In 2017, the MMM scheme left many South Africans without legal recourse after the platform froze when it failed to “feed the bottom” of the pyramid. Similarly, the 2019 MTI scam used Bitcoin and referral bonuses to grow globally before being flagged by the Financial Sector Conduct Authority (FSCA) as unlicensed.
Symptoms of a Pyramid Scheme
If the main source of income is an upfront investment rather than a tangible product, it is likely a scam.
Unless you have a set salary, a model where your pay depends solely on signing up others is a pyramid structure.
Making money off your “friends’ friends’ sales” without being a formal sales manager is a major red flag.
Beware of temporary-looking setups with no real infrastructure—these allow scamsters to disappear quickly.
Final Thoughts
Scamsters often use religious leaders or well-known brands as a “front” for their schemes. Be mindful of “too good to be true” promises. There is no such thing as risk-free “get rich quickly” schemes. Avoid basing your financial future on storytelling shared in social circles.
Invest in Regulation
Always verify the license of an investment platform with the FSCA before depositing your hard-earned money.
Sydney Sekese, CFP®
FPI Newsletter | 9 November 2022
