How to spot a Scam
Here are six things that should make a big red sign, with the letters SCAM, flicker on the control panel of your mind.
1. Massive Returns
If you could earn 10% a week on money you invest in some brilliant new idea, would you tell anyone else about it?
Neither would I.
It’s a scam.
A good investment will offer you a return of inflation + 2% to inflation + 6% per year, on average.
If anyone offers you an “investment opportunity” that promises returns better than that, be very, VERY skeptical.
2. Ridiculous Guarantees
If someone promises you there is absolute no way you will loose any of the money you invest in their investment opportunity, they are lying.
All investments have a certain amount of risk associated with them. There is a chance that you will loose your money, even with the most conservative and safe investments that exist.
The higher the potential returns of an investment, the higher the risk. That is the way investments work.
3. Pressure
If someone offers you a brilliant investment opportunity, which will only be available for the next 2 to 24 hours, remember this:
People who offer good investments don’t need your money.
They have a good investment opportunity. They will get investors. Whether you are one of them, or not.
They will get investors based on the soundness and quality of the investment they have to offer, not by the amount of pressure they exert.
4. No Registration
The Financial Advisory and Intermediary Services Act stipulates that anyone selling a financial product, must be registered with the FSB, as a financial services provider (an FSP).
If someone offers you a financial product to invest in, first ask them for their FSP registration number. Then do a check to see if it is valid.
If they are not registered, they are operating against the law. If their product is legit, then why are they not registered? Do you really want to hand your money over to someone who is breaking the law?
5. No Prospectus
According to the Collective Investments Control Act, if you want to raise money from the public, you need to have a prospectus, which must be lodged with the Department of Trade and Industry and issued to all prospective investors.
A prospectus is a document that is supposed to tell you everything about your potential investment, how they plan to make money, what the risks are, how they plan to counter those risks, etc.
The most basic scams won’t have a prospectus at all.
Even if someone can offer you a prospectus, make sure you study it carefully and that you understand it. Remember – someone can still lie, even if they do so “officially”.
Never invest in something you don’t understand or with someone you don’t trust.
6. No Physical Address or Telephone Numbers
No telephone numbers? No physical address? No other places to verify that the investment is legit?
Perhaps a website or email address is provided. This is hardly a proof of legitimacy. It costs about R160 a year to host a basic website. Anyone can have a website.
Perhaps only a mobile number is provided?
The lack of a physical address and land-line numbers is a dead giveaway for a scam.
Never give your money to someone if you don’t know how to find them.
October 16th, 2008 at 04:35 pm
Great Francois, this is probably the best advice you could give as so many people are taken for a ride everyday. keep up the good work! Gerrit
October 17th, 2008 at 06:09 am
Goeie advies.
October 18th, 2008 at 08:54 pm
The internet seems to be full of them, they operate under the term MLM or multilevel marketing, basically a legal pyramid scheme usually selling as data entry systems or similar garbage you wouldn’t buy under normal circumstances.
Hope you don’t mind me sharing these links, but I feel really strong about warning people about these scams and shutting them down:
http://blog.mycee.net/2008/05/04/data-entry-scam/
http://forums.mycee.net/index.php/topic,441.0.html
Peace
October 19th, 2008 at 07:37 pm
@Reaper
I don’t think all MLM schemes are scams (i.e. illegal), but I don’t support these schemes at all:
Forget about Network Marketing
October 20th, 2008 at 09:28 pm
Let’s speak about 99% of them, they are not illegal, but do take your money under false pretenses or giving you a false impression of what you’re actually buying and their target market is usually people who are desperate for money, usually single moms or people who have just lost their jobs.
Have literally seen thousands of these, some lasting a little longer than other, but they always fall apart in the end as the business model is not sustainable which causes people to lose a lot of money in the end while the people at the top get filthy rich.
Have seen about 3 or 4 MLM systems which does not fall into this category where the MLM system is only used as a marketing tool to commission people for referring customers / clients instead of it being the product itself.