How to spot a ponzi scheme

Dec 10 2012 13:58

Cape Town - With the global economic slowdown and interest rates at around 5% to 6% investment returns are looking bleak.

With many South Africans, particularly retired persons struggling financially, fraudulent investment schemes, or “Ponzi” schemes have become more widespread, says Dawie de Villiers of Sanlam.

Investors often buy into such schemes without full understanding how such schemes and their operators achieve the promised returns.

These schemes often assure investors of a return far greater to that of the financial market, at low risk.

In the past few years, Sharemax, Fidentia, Leaderguard and those of Herman Pretorius are some of the schemes many unsuspecting investors have been caught out by.

There are however ways for investors to prevent falling prey to such schemes, says De Villiers.

  • Ensure that the investment vehicle or institution is registered with the Financial Services Board (FSB). This way investors will, if necessary, be able to take necessary recourses with their investments.  
  • Compare the interest rates offered by the investment with global and local interest and economic growth rates. Unrealistic promised returns on investments are likely to be fraudulent.
  • Be skeptical of promised guaranteed returns. Financial markets fluctuate, a scheme that offers consistent returns without being underwritten by a bank or insurer is unlikely to be invested safely.
  • Invest with established and trusted institutions. Speak to a broker, the FSB or write to the personal finance section of a paper for advice on investment options.
  • Beware of the “comfort factor”. Many Ponzi schemes are introduced to prospective investors by friends, family and associates. Schemes often initially pay-out to some investors to further draw in new ones.
  • Do not invest in schemes that promise higher returns by including fellow investors. Reputable investment institutions never use such strategies.


Investors can avoid falling prey to Ponzi schemes by investing in regulated investment options like unit trusts or mutual funds.

Schemes that promise extraordinary returns and are “too good to be true” often are.

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ponzi scheme  |  fraud



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