Greed & gullibility: Scammers’ edge

The Securities and Exchange Commission (SEC) recently informed the general public that “overseas Filipinos have become a favorite target of investment scams over the years and continue to be the usual prey especially with online advertisements.” Well, this reminder isn’t new at all. For decades now, SEC has been religiously warning the public of the dangers of these scams.

To recall, in 2012, some of our “get-rich-quick” enthusiasts were grieving for the loss of their hard-earned money or were spending sleepless nights staring at the prospect of losing their homes, which were used as collateral to obtain money for very high-yielding investments perpetrated by the Aman Future, a Ponzi scheme.

Ponzi schemes, actually, are not difficult to understand. Commonly, all these schemes have three basic steps. First, they convince a few investors to trust them with their money.  Secondly, after a specified time, return the invested amount plus the agreed interest or rate of return. Lastly, emphasizing the historical success, convince paid early investors to tell their friends of the benefits and lure them to reinvest theirs.

However, these steps are easier said than done without the five basic ingredients for a Ponzi scheme to succeed. These are beyond (1) normal benefits, (2) a systematic flow of how the rates are achieved, (3) initial credibility of company owners, (4) pay-off of early or initial investors, and (5) the “word-of-mouth” approach in advertising or communicating pay-offs.

So that, in the Aman Future scam in Pagadian City, in particular, they (scammers) promised 49% interest in 17 days. Considering that 91-day T-bills and bank deposit rates then were just even less than 1% to a high of 3% in a year, such yield was suspiciously exorbitant.  Secondly, they were trying to tell prospective investors that their money shall in turn be used to purchase gold or invested in oil exploration related undertaking, thus, the higher yield. Thirdly, they showed good initial track record by paying on time the early investors. Fourthly, they urged initial investors to tell their friends of these benefits and reinvest theirs to earn more.

Obviously, therefore, of these five, the four key elements are a lot easier as these will simply require good communication skills and great first impressions on pay-offs. The initial credibility of the owners, however, is the hardest to establish. In Aman’s case, the owners’ credibility wasn’t established, yet, they invested because the scammers cleverly invited influential people (like, mayors) to put their money on it and pay them off too.

Then, in 2019, KAPA-Community Ministry International Inc. (KAPA, for brevity) hugged the headlines after then President Duterte ordered it to be closed because of their scheme.  To recall, KAPA notoriously used the pious facade of its denomination to lure or trick gullible investors to invest in what clearly appears to be another Ponzi Scheme.

However, for the sake of argument, if we should assume that these investments are legitimate (as some investors still believed until today) and that these are not Ponzi schemes, let us do some math and try to figure out if this is (their investment scheme) really sound.  Remember, KAPA, for instance, claimed to have five million members then. Assuming that these members invested (or should we say, donated?) P10,000 (some claimed to have invested millions) each, then, conservatively, the pooled amount shall be P50,000,000,000. Therefore, at 30 % monthly return, KAPA pays P15,000,000,000 per month or an incredulous annual payout of P180,000,000,000.

We should, further, assume that this annual payout comes from net profit. Why? If not from net profit, then, it won’t be sustainable. So that, we may ask, if this payout represents accumulated profits, what business is KAPA engaged in? Remember this is a staggering 360 percent return of their (investors or should we say, donors?) investments. San Miguel Corporation, for one, never turned in this much annually in net profit nor had it declared this much dividend in a year. Yet, we saw their factories and delivery trucks. We also have tasted its products and cheered for its heavily funded basketball team in the PBA.

What about KAPA? Did we see its factories or delivery trucks? Have we tasted its products or services? Or, if we say, it is largely involved in e-commerce, then, have we visited its website? Have we used its platform?

So that, today, as we stare on the prospect that the scammers will continue to take advantage on the existing and some potential investors’ gullibility or lust and greed for money, we should be constantly reminded by the misfortunes the victims have suffered then and agonized until today. Moreover, let us all heed the legitimate warning of the SEC. Ignoring both is a monumental display of stupidity.