Mr Francis Boadu, Head of Department (HoD) in charge of Broker Dealers and Advisors at the Securities and Exchange Commission (SEC) has advised investors not to put money into an investment they do not fully understand.

According to Mr Boadu, if investors suspect an investment to be a ‘Ponzi scheme’ or any other type of scam, they should file a complaint with the Securities and Exchange Commission.

Meanwhile, Mr Boadu called on investors to seek general information about the capital market and products in the market, seek information about licensed capital market operators, “report persons suspected to be operating in the capital market without a license.”

“They are also to report fraudulent investment schemes and activities of capital market operators and make relevant complaints for necessary actions to be taken.”
Francis Boadu

Mr Boadu revealed that there are many online resources to help investors learn how to invest and how to evaluate opportunities for risk and potential gains so as not to invest in the wrong capital market.

Mr Boadu opined that, one sign that investors should look out for in determining a ‘Ponzi scheme’ from genuine investment, is the interest rate. He suggested that ponzi schemes normally give high interest rates to deceive investors.

“If someone tries to sell an investment that has huge and immediate returns for little or no risk, it could well involve some sort of fraud; and if someone contacts you unexpectedly, perhaps inviting you to an investment seminar, is often a red flag.”
Francis Boadu

The HoD noted that one should be suspicious of any investment that continue to generate regular, positive returns, despite the overall market conditions and economic state of affairs.

Mr Boadu added that prospective investors must take into consideration how the investment company tries to sell its investment package to them. He averred that if they start boasting of an unblemished track record and other sweet talks, then they are suspects.

“One should be suspicious of statements that overly represent that security, safety and liquidity of principal are safe and positive in particular. Or when they hear statements such as: no investor has ever lost a single penny of his investment with us and we have an unblemished track record of meeting or exceeding the promised profitability.”
Francis Boadu

Mr Boadu disclosed that most ‘Ponzi schemes’ relied on a theoretical business model to produce the touted profitability and superior returns to its investors and therefore, would like to use creative accounting devices to cook their books and most of the time would use new investors’ funds to pay prior investors.

Mr Boadu stated that schemers employ artificial devices to disguise the lack of economic substance or defer the recognition of economic loss and most of the time representing that the investors’ returns were generated from a purported business venture.

Mr Boadu explained that “when a Ponzi scheme is about collapsing or being exposed, the promoter may take the money and disappear, sell the business, pay off any investor who complains, and transfer investors into a new or existing shell entity that is self-liquidating”.

The HoD noted, they may also create new management which may include, the promoter or a selected group of investors and try to control, manipulate and divert any regulatory investigation of the scheme.

He further pointed out that schemers also resort to ‘source credibility’ tactics where they establish credibility through associations or involvement with reputable individuals or entities, or those with special credentials or experiences, particularly, legal, financial and investment industry.

Mr Boadu however, admonished the public and investors to be vigilant in order not to be victims to these ponzi schemes.