Don’t be a victim of scam (Part 2)

Nowadays, there seems to be a proliferation of investment scams, business opportunities with unreasonable high returns or the so called get-rich-quick schemes. To add with these, there are also the “networking” companies both traditional and the internet based companies that offers “big checks”. So the obvious questions could be: how can we tell the legitimate ones from the illegal ones? How can one avoid being cheated? Well, the simple answer I could offer is due diligence and common sense.

The following is a reprint from the Department of Trade and Industry (DTI) material:  “Don’t Be A Victim of a Scam” which I find very useful and so I am reprinting it to this column so that you could benefit from these and avoid being victimized.

The multi-level pyramid scheme. If someone invited you to join a group of investors who are making big earnings with their money by simply putting in some money and recruiting others into the group, would you join?  How much you earn depends on how many people you convince to join, and you're pretty sure you can convince all your friends.  It seems pretty safe and painless.  Here's the catch.  In order for everyone to keep making money from the scheme, there must be more and more recruits into the group.  Once the pyramid collapses, and collapse it will, most people lose money - except for a few at the very top.

In the classic pyramid scheme, participants attempt to make money mostly through recruiting new participants into the program.  Usually these pyramid schemes involve selling some product or service. The hallmark of these schemes is the promise of sky-high returns in a short period of time.  In pyramiding schemes, commissions are based on the number of distributors recruited.  If there are actual product sales, most of them are made to these distributors - not to consumers in general.  The underlying goods and services, which vary from vitamins to car leases, serve only to make the schemes look legitimate.

All pyramid schemes will ultimately collapse.  Later recruits will not be able to sign in the numbers required to deliver the income promised.  There will always be some who will think it's too good to be true and resist signing up.   A smart investor has to rely on good common sense. 

Below are some tips that should help you decide on whether or not a multi-level plan is a good way to earn money or a mere scam.

First, if a plan offers to pay commissions for recruiting new distributors, watch out! Second, beware of plans that ask new distributors to purchase expensive products or marketing materials. These plans may be pyramid scams in disguise. Third, beware of plans that claim you will make money through continued recruitment of people into the scheme rather than through your own sales of the products. Fourth, beware of plans that claim to sell miracle products or promise enormous earnings. Fifth, beware of shining testimonials.  They could be paid by the promoter.

Overall, beware of signing contracts in an "opportunity meeting" or other “high pressure” situation without doing due diligence.  Take your time and consult others, especially persons in authority and/or government agencies before deciding or investing.

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