The South China Morning Post recently published an article, “‘Life plans on hold, no money to send home’, (full article: here) on pyramid-like schemes that have deceived dozens of domestic helpers from 2013 to early this year, losing them at least HK$8.4 million.
Unfortunately cases such as these where victims are scammed into investing with the promise of high-yields are common – in just March to August of this year, 183 reports were made to the police by people who believed they were deceived on their investments. At Enrich, we are also frequently approached by women in these situations – women who have been deceived out of their money – sometimes large amounts from their life savings Driven by promises of easy money, women are often left seriously in debt and estranged from friends and family that they had either borrowed money from or recruited into the scheme as well.
In the past 12 months, Enrich has warned participants about pyramid schemes: Emgoldex (a fraudulent investment scheme denounced by the Philippines Securities and Exchange Commission: article) and Mezzo (a fraudulent investment scheme denounced by the Consulate General of Republic of Indonesia in Hong Kong: article in Bahasa).
At Enrich, we educate migrant women about “Investment Red Flags” and how to make wise investment decisions through our Growing My Money workshop. The interviewees of the SCMP article describe a scheme that displayed key characteristics of a Ponzi or pyramid Scheme:
1st Red flag: Low risk and high returns
“I invested HK$39,000 dollars the first time … I got HK$70,200 after 12 months. It seemed very good. That’s why many people wanted to join.”
There is no “guaranteed investment opportunity”. Every investment is risky and higher returns usually involve more risk. If an investment pays back regular, positive returns despite overall market conditions, it may be too good to be true. Investment values tend to go up and down over time, especially those with the potential for high returns.
When considering an investment, ask yourself: Do I understand the risk involved compared to the potential return?
2nd Red Flag: Lack of understanding of the investment
Several domestic helpers reported being made to sign documents, but in many cases they were not given a copy. They were told their money was to be invested in projects such as herbal farms in China, property in India and sunflower farms in the Philippines, among other things.
“But I was not sure where my money was going,” Lauren admitted.
The key to protecting oneself from investment scams is to avoid investments you do not understand or for which you cannot get complete information.
Ask yourself: Do I have enough information about the company? Do I have access to information and understand the investment fully?
3rd Red Flag: Recruitment of friends and relatives
“Every Sunday, they would give us training and targets to bring in new people.”
Victims of pyramid schemes are often required to recruit others into the scheme. The money from the later investors, their friends and relatives, are used by the organisers to stand as the “profits” from the so-called investment. Eventually, the pyramid schemers will flee with the accrued funds.
Ask yourself: Is there a clear explanation how returns are calculated?
4th Red Flag: Difficulty receiving payments
“Early this year they disappeared, they stopped paying us and they stopped answering the phone.”
Pyramid scheme organisers often encourage investors to “roll over” investments and promise higher returns. Be suspicious if you have difficulty cashing out or receiving payments on your investment.
Ask yourself: Is there a systematic process regarding how investors can cash out investments at anytime? Do I know who or where to go to for help if anything goes wrong with the investment scheme?
At Enrich, we believe that early intervention through financial and empowerment education can prevent crises situations like falling victim to investment scams. Our programmes are available to all migrant domestic workers in Hong Kong and suitable for a variety of comfort levels with personal finance.
Please share this article widely and share information of Enrich programmes with someone today.
by Victoria Ahn, Project Officer, Enrich
Read the SCMP article ‘Life plans on hold, no money to send home’: Indonesian domestic helpers in Hong Kong fall prey to alleged pyramid scam’:here. Learn more about our workshop on making wise investments and use of income: Growing My Money. In our previous post: “Investment Red Flags: What is a Ponzi Scheme?” we outline telltale signs of an investment scam. Read it: here.