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Last Updated on April 13, 2017 by Marie Bautista
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Did I get your attention?
This got my attention a year ago.
And I fell for it.
And I lost big!
(To think pa naman na of all people, ako na may financial background would fall for something like this!)
It all started when I was reading an online forum, Girl Talk, and noticed fellow Girl Talkers talking about their big returns. They were doubling their money practically everyday and they were posting and recruiting members!
So I began reading about JustBeenPaid, an online program offering you 2% earnings daily on every position you buy for 75 days. Every position costs $10.00 and you actually get to try the system first because they will give you free $10.00.
True nga! Everytime I reinvested the money, it got compounded daily (you call this unrealized profit because you see it only on paper).
Of course, little warning bells kept ringing in my head. I used to advise people of not getting fooled by high yielding interest, but I was thinking that I will invest only what I can afford to lose, so in case the program scams, I won’t feel that bad.
I think I bought 80 positions. Do the math and think of how much I have lost 🙁 . I also tried an HYIP (High Yielding Investment Program) called Silver Structure and it scammed after five months without getting my money back.
So, anyway, I should have withdrawn the money I earned earlier, but I was so greedy I wanted the money to get bigger, but by the time I was ready to withdraw it, the program closed and members received a notification that the owners sold JustBeenPaid and would re-open as Profit Clicking.
I had a feeling that the program would turn out into a scam when I was having a difficult time withdrawing my money. I was just able to withdraw $200.00, I think.
I don’t bother to look at the site anymore, and I am blaming myself for thinking of investing only what I can afford to lose.
My friends (also accountants) also tried out investing in the ForEx. I think this is more legit, but definitely, absolutely risky. They lost big here, too.
When we get together and talk, we just soothe ourselves and our sore wallets by saying that it is part of our financial education, but so expensive naman ang tuition…
So here is my first money lesson: Investment Scams 101 and how to spot them:
Although JBP (JustBeenPaid) insisted that they were not a Ponzi scheme and its founder, a guy named Frederick Mann, was so sure of his program that he offered $1,000,000.00 to anyone who will find a weakness in his system, this program totally reeks of Ponzi.
Who is Ponzi and What Was His Scheme?
According to Wikipedia, Carlos Pietro Giovanni Guglielmo Tebaldo Ponzi a.k.a. Charles Ponzi (who lived until January 18, 1949 making this scheme as old as, well, our grandparents?) was an Italian businessman and a con artist in the U.S. and Canada. His scheme offered a 50% profit within 45 days or 100% profit within 90 days. His scheme consisted of buying discounted postal reply coupons in other countries and redeeming them at face value in the United States as a form of arbitrage. The truth was Ponzi was paying early investors using the investments of later investors. His scheme ran for over a year before it collapsed, costing his “investors” $20 Million.
The purpose of the postal reply coupon was to allow someone in one country to send it to a correspondent in another country, who could use it to pay the postage of a reply. This was priced at the cost of postage in the country where it would be redeemed. If the cost was different, there was a potential profit.
Inflation after World War I had greatly decreased the cost of postage in Italy, which means the postal reply coupon could be bought cheaply in Italy and exchanged for US stamps of higher value, which could then be sold. Ponzi claimed that the net profit on these transactions, after expenses and exchange rates, was in excess of 400%. This was a form of arbitrage, or profiting by buying an asset at a lower price in one market and immediately selling it in a market where the price is higher, which is not illegal.
He promised to investors that he would double their investment in 90 days since big returns are available from postal reply coupons.
The rest of the story and how he got caught can be found here.
So anyway, here are the characteristics of a Ponzi scheme:
- Entice investors with the promise of extremely high returns (ranging from a low 4 percent to a high 29 percent or even higher per month.
- Pay initial investors with exceptional returns from the deposits of a growing number of new investors
- Create “profits” not from the success of the underlying business but from the capital contributions of others.
- Offer an economic purpose so that investors think they are investing in a viable venture that generates income.
- Guarantee payments by issuance of postdated checks (generally seven checks per investor.
- Have the potential of continuing for years.
- Reward participants for inducing other people to join the program
- Allow a participant to pay for the chance to receive compensation for introducing new persons to the scheme, as well as when the new recruits introduce new participants.
- Focus primarily on the exchange of money for recruitment.
- Offer this selling point: Each participant can recoup his or her original investments and make more money by introducing more participants.
- Hide scam by layering it with products, even if these products:
- Distort concept of entrepreneurship.
- Are inherently injurious to consumers because as a mathematical certainty, they are doomed to collapse.
- Make only those on top earn money, hence the stress on:
- Interests or returns that are TOO GOOD TO BE TRUE;
- Agents selling the investment scheme might show you a copy of their company’s certificate of registration but will not be able to produce a copy of its SECONDARY LICENSE to sell securities;
- Agents selling the investment scheme or contract are not SEC-licensed broker dealers;
- Plans or schemes that ask you to purchase a large and expensive inventory (without refund for unsold goods);
- “Opportunity meetings” that create a pressured atmosphere for you to invest NOW!
- Plans or schemes that reward participants for inducing other people to join the program;
- Plans or schemes that claim huge profits through continued growth of “downlines” or bonuses based on your advancement in the structure;
- Marketing of a product or service, if done at all, is only of secondary importance in an attempt to evade prosecution or to provide a corporate structure;
- Earning potential depends on how many people you sign up, not how much merchandise is sold.
Sources: Wikipedia and Securities and Exchange Commission