Ignorance and greed
In any investment, legitimate or otherwise, a person loses money usually because of two things: 1) lack of knowledge about the product and 2) greed.
The latter is always at play in nearly all investment scams that have victimized many Filipinos in the past. And we never seem to learn.
Last week, the police apprehended a couple for allegedly scamming some 50 people into investing in bitcoins. The couple allegedly amassed some P900 million from unsuspecting and most probably unknowledgeable investors by promising them a 30-percent return on investment with payouts every 15 days. Certainly an enticing proposition.
The latest illegal investment scheme had all the trappings of a pyramiding scam in which there was the so-called upline, or the person who lures people to invest, and a downline, the person who invests in denominations of P90,000 and P160,000 a slot.
The more friends and relatives one is able to recruit, the more commissions one gets.
For example, the initial 10 investors get five recruits each, then these 50 new investors lure another five people each. This goes on until the base of the pyramid becomes filled with many so-called investors that paying them 30 percent for their investments becomes impossible.
The individual stakes in the recent scam are high. One victim told the police that she and her family members invested a total of P33 million in the couple’s scheme.
The others presumably invested their savings in the hope of doubling or tripling these in the shortest possible time. Others may even have borrowed the money they invested from family members and friends.
The police have filed syndicated estafa charges against the perpetrators, yet the victims will probably have to charge everything to experience and never recover their investments.
Also last week, the corporate regulator Securities and Exchange Commission (SEC) issued another timely warning to the public to be careful about investing in products that are being peddled using the cryptocurrency hype.
Cryptocurrencies like bitcoin are a digital form of money that have been around for the past 10 years. One of their main features is that they work within a system that is not regulated by a central bank or a single administrator.
The SEC has identified these red flags in potentially destructive investment scams:
They require the payment of an initial fee or
investment so the investors can avail themselves of whatever cryptocurrency-related products are being offered.
They promise to pay the investor daily or weekly proceeds, usually equivalent to a percentage of the initial fee or investment, and they offer commissions for every recruit (a main feature of pyramiding scams).
The SEC has warned that while monetary authorities cannot regulate cryptocurrencies as it does hard currencies or fiat money, investment contracts linked to such cryptocurrencies are considered securities that fall within its jurisdiction.
Since it involves the sale of securities to the public, the SEC said the Securities Regulation Code would require the appropriate license or permit before any party could sell securities to the public.
The SEC stressed that those who act as salespersons, brokers, dealers, or agents in selling or convincing people to buy into the investment scheme being offered by cryptocurrency companies — including solicitations and recruitment through the internet — without the necessary license or authority from the SEC could be prosecuted, held criminally liable, and penalized with a maximum penalty of 21 years of imprisonment.
As for ordinary citizens with extra money to invest or savings that they want to grow, it is wise to heed this general observation: The person who will fool you into giving up your money is usually someone you thought you could trust, like a relative or a close friend, or a friend of those relatives and close friends.
The next time someone you know offers to double your money within days or weeks in some investment of which you are ignorant, the wise thing to do is say no.