PYRAMID SCHEMES UNSUSTAINABLE
Investors should be particularly wary of investment opportunities that promise extraordinary or virtually guaranteed returns, or whose underlying businesses cannot be independently verified, SIAS said.
They should also be cautious of schemes that encourage participants to recruit friends, relatives and acquaintances in exchange for unusually high commissions or advancement through different levels of an organisation.
A scheme is not necessarily legitimate simply because it has supposedly operated for many years, or because some participants may have initially received payments.
This is because “one of the defining characteristics of Ponzi- and pyramid-type arrangements is that early participants may receive money funded by later participants,” SIAS said.
Such payments can create the impression that an investment is genuine and encourage existing members to introduce others to the scheme.
This becomes unsustainable when the flow of new money slows or stops and the entire pyramid structure collapses, SIAS explained.
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