In the News!

Warning - Ponzi and Pyramid Schemes

posted on

The Financial Investigation Agency (“the Agency”) would like to advise and warn the general public of many get rich quick schemes (“Ponzi and Pyramid”) and other investment scams which are being promoted from and within the Territory.

Firstly, for the avoidance of doubt, there are legitimate Multi-Level Marketing (“MLM”) companies, also known as pyramid selling companies, which involves the sale of legitimate products or services whereby the revenue of the MLM company is derived. The sale of products or services are generally performed by a non-salaried workforce and the earnings of the participants are derived from a pyramid-shaped compensation commission system.

On the other hand, Ponzi and Pyramid schemes encourage participants to merely recruit new participants who will be paid returns from their own money or money paid by subsequent participants rather than from actual profits. Such schemes usually entice new participants by promising abnormally high short-term returns that other legitimate investment operations are unable to guarantee. The main difference between Ponzi and Pyramid schemes is based on the type of products offered by the schemers and the structure of the two schemes. However, both can equally cause devastating outcomes to the participants once the schemes can no longer be sustained.

In this current environment, with persons possibly experiencing greater financial difficulties due to the ongoing pandemic and other factors, it is exceedingly important that the public be mindful of the risk associated in such activities.

Key Elements

Virtually all Ponzi and Pyramid schemes have the same characteristics, the following elements can serve as red flags to potential participants:

Above-market or guaranteed return

To entice prospective participants, the schemer must offer an above-market or promised financial return. However, the operator will likely offer only a “reasonable” above-market rate, so as not to attract suspicion or unwanted attention from more investment savvy professionals or financial regulators.

To “sweeten the pot” the schemer will often:

  • encourage existing participants to provide favourable reviews to new participants; or
  • make sure to pay returns to existing participants, thus demonstrating that the operation is “legitimate.”

The goal of these steps is to encourage current participants to reassure prospective new participants that the “investment” is sound and that they too will be paid.

Appearance of illegitimacy or impeccable reputation

Large Ponzi and Pyramid schemes tend to be very organised operations. They are not run by operators with questionable or unknown pasts, but by persons with impressive credentials to enhance the credibility of the scheme.

Marketing and exclusivity

The scheme can sell itself through allegedly attractive monetary returns and through the word-of-mouth of initial participants who often help attract new participants. The fraudster does not necessarily want a wide and diverse pool of potential investors because that increases the probability that someone might recognize red flags, ask too many questions, or report the scheme to regulators.

Participant greed (going to the extreme to gain more money)

As a basic aspect of human nature, Ponzi and Pyramid schemes thrive on participant greed. It is important to point out that fraudsters need innocent or unsophisticated investors to leverage greed via a Ponzi or Pyramid scheme. Thus, the more successfully a fraudster can build the illusion of above-market or guaranteed returns, the more frequently he or she can leverage greed to entice people or organizations to reinvest for even higher returns.

Advisory

The Agency firmly advises that the public exercises extreme caution when presented with investment opportunities exhibiting the above characteristics to minimize risks, and to avoid becoming victims of fraud or a perpetrator of a fraud.

If you are approached by what you suspect to be a Ponzi or Pyramid scheme, please report suspicion of activities of this type, by contacting the Agency at 1 (284) 494 1335 or email the Agency at reportingauthoritygroup@fiabvi.vg

This Advisory Warning is being issued as a public service by the Financial Investigation Agency.

| Return


Any person that fails or refuses to provide information to the Agency that it considers relevant to the performance of its functions commits an offence and is liable on summary conviction to a fine not exceeding twenty thousand dollars or to imprisonment for a term not exceeding two years or to both.

Contact Us

If you have any questions, feel free to contact us.

Address :

PO Box 4090
Road Town, Tortola VG1110
BRITISH VIRGIN ISLANDS

Phone : (284) 494-1335

Fax: (284) 494-1435

Email : info@fiabvi.vg

Email Us