By elmads

Work, Sleep, Receive our Salary, Live, and repeat. This is how the majority of the world population live most of their lives, in a simple work-life loop. The sense of happiness, and fulfilment depends on how we see our lives in the loop, some are very contented, while others are not. It is an undeniable fact that most of us, whether we love our job or not, wants a life of comfortability and joy.

Some of us find ways to make our hard-earned money increase without us doing to much work in order to have a more comfortable life, which is doable by the way but not entirely without effort. This is because the larger the returns we want to achieve from our initial capital, the more knowledge and skills we must acquire. Same as with our salary, the more qualifications, skills and knowledge we have with our work, the higher our chance we could land a higher position which usually translates to a higher salary.

Unfortunately, there will always be a large number of individuals who wants to get rich quick, to double their money within a couple of months or even weeks with little to no effort at all. It is making massive returns in a short period of time without wanting to even do the simple research. Why not! when there are people claiming that they can do it for them.

Persons offering guaranteed doubling your money every 2-3 months, groups of individuals saying that they can make you rich by subscribing with their courses as they will teach you how to make millions of dollars per month, and some people recruiting you into their company saying that it can give you a lot of incentives and large salary per month. Those are just 3 examples of the millions of strategies being employed by these types of people.

Don’t get me wrong, because a small percentage of these individuals actually have a genuine purpose to help, and have true knowledge and skills in their trade. Yet, most of them are actual frauds, their promises are to good to be true, which are are highly probably financial scams.

Scam

Do you ever wonder why scams, whatever timeframe we are in, are always part of our society? well because they are a profitable illegal industry. This means that there are and will always be people that gets scammed by these fraudsters. A research shows that multi millions of dollars are being taken away from people due to scams. That is why con artists will never go away, predators will always find their preys.

There are a lot of reasons why some people are being victimized into such scams. For instance;

• The guaranteed promises of making a lot of money without doing any work.
• People who are in dire need of money because of urgent life circumstances.
• The great manipulation tactics of these professional con artists.
• Less to no knowledge individuals about investing and personal finance.
• The human race’s innate nature of trusting others.

Those are just a few of the tenths to hundredths of reasons.

The only way for people to mitigate the risk of being scammed is by being aware of how scams are structured, made and operated. There are a lot of scams in our world, but most of them are stemmed from the 4 basic categories. Which are, Advance Fee, Pump & Dump, Ponzi Scheme, and Pyramiding.

Advance Fee

Have you ever experienced receiving emails, text messages, private social media messages or even phone calls about winning the lottery, or approval in mortgage and auto loans? That’s wonderful news isn’t it? the only problem is you didn’t even placed your bet in the lottery or applied for a loan. So, usually you’ll just never mind about it and just delete the message or drop the call. But, what if you actually did apply for a loan or bet on a lottery? so you’ll immediately get excited and reply to them isn’t it? there’s actually a catch, for you to get the lottery winnings or the loan, you must pay first for the tax needed for the transaction to take place. That itself raises red flags.

These kinds of scams are called Advance Fee. As the name implies, these scams will always say that you won something in particular, but before you could claim it you need to pay first for like transaction fees, taxes, or an upfront payment. This has been the most popular and easiest scam done by fraudsters. It doesn’t take too much time or effort to do it compared to other scams.

This kind of scam has been practiced even before the industrial revolution in the 18^th century, in which there were letters posted to different houses stating that they were in need of dire help and were asking a certain amount of money. The letter also states that they are from a prestigious and rich family. If they help the person in the letter, then their family will grant them a large amount of money in repayment for the help they gave to the person who wrote the letter. There were people who actually gave monetary aid to the letter sender, but no reward or even a word came back afterwards.

Advanced Fee scams are actually highly scripted and persuasive stories that are made not only for a specified person but to a group of people. That’s why these kind of scams have evolved as well, from letters, to television ads, to phone calls, to emails and to social private messages. They mass produce the stories into the current technologies of the world and send it to everyone else. They only need to get that few lucky persons which has a deep connection on the stories they make. Then, once the selected few have read it, a portion of them will take the bait and send money to these con artists. Scam completed. This is where Phishing schemes are derived as well, from the advance fee schemes.

Pump & Dump

These are scams that are mostly connected to marketable securities and other markets like the Stock Market, Bond Market, Commodities Market, Foreign Exchange Market and the currently popular Cryptocurrency Market.

This kind of scam works through making a particular asset pump its price into extremely high levels. This is done by influencing almost everyone who participates in the market to buy a specific asset that they want to massively increase in price.

So how does it actually work? It works only if a specific person or a group of individuals have credibility and great influence to others. These people continuously praise a certain asset. Through saying good news about it, such as the following below examples below;

• The future price that it could reach, “This will increase in price 100 times in 3 years time due to this and that.”
• How great this asset can be which can make our world better without any concrete and factual evidence, “This company is doing great and it is currently building a technological product that will propel mankind into greater heights.”
• It will be the next big thing, “This is the next Amazon and Tesla stock”
• That it will only go up and never down, “This will never go down ever!”
• That if you’re not in it you will lose this once in a lifetime opportunity and a lot more.

The red flag here is that you’ll not here a single criticism about the asset and only hear the asset worshipping.

Once the price of that specific asset has been pumped and reaches high levels, these people (called also insiders) who bought at the low level will suddenly sell it. They’ll be getting the money of those people who bought at the highest peak of the price. That is why it is called the Pump & Dump, they’ll buy a lot of the asset then influence other traders and investors to buy, when the price is so high already that’s when they will sell all of their assets in order to gain a large amount of money in the process.

These has been done over and over again through out history. It can also be due to the fear and greed cycle, but Pump and Dump will always play a role in it.

The only way people can mitigate this risk is through knowing the underlying value of the asset, not the price. If you know something in its core value, no matter the price fluctuations and the fear and greed in its market price, you’ll never be fazed by it.

Ponzi Scheme

This fraud started in the 1920s with a man named Charles Ponzi. Yes, as you guessed it right the scheme was named after him. Moving forward, Charles promised investors a doubling of their money every 90 days if they invest their hard-earned money to him. This scheme actually lasted a long time, Charles Ponzi was able to actually keep his promise of doubling their money up until it eventually crumbled down. Here is the actual view of the scheme.

The fraudster of the Ponzi Scheme will invent a fictional investment thesis and make a made out company or a fund. Here are the simple steps they take.

1. Enticing people with the returns that they can get from them.
2. Showing their investment thesis and where the money will be invested.
3. Will be focusing in obtaining large number of investors. (A way of adding more money into their pooled funds)
4. They will get a portion of the money they will receive from their potential investors, then the remaining money will be placed into just a single account.
5. Once there are a lot of investors in their network. They’ll be paying the 1^st sets of investors in their fund through the money of the new investors who just joined their fund. For instance, Investors 1^st and 50^th placed $10,000. The money of investor 50^th will be given to investor 1^st, and the cycle will continue to other investors as well. This will give the sentiment of trusts within their investor community as the fraudsters are able to keep their promise of returns.
6. When trusts are built within their fraud investment fund, then more people will join and the older investors will add more money.
7. They get a cut of the money every time a new capital comes into their made up investment fund.
8. Repeat steps 1-7.

Basically, it is like a mutual fund in which they pool investors money but they never invest it in an asset, instead they just place it into an account which they have access. Then what they do is that they just let the money circle around each investors while taking a cut from it. Trusts are built when their promises are completed, that’s why more people will join the scheme and older investors will continue to add more money with them.

It is literally borrowing money to Peter to pay Paul, then borrowing money to Paul to pay Pat, then borrowing money to Pat to pay Princess and so on and so forth, while they’re taking a cut from these transactions.

It is a perfect cycle of fraud, up until it gets caught by either;

• Accident
• Economic Recession
• No new investors put money in their fund anymore
• If a large number of investors ask for the money to be withdrawn all at once.

This makes the wheel of their fraud dry up and unable to turn anymore, which will cause an inability for them to keep up with their investment return promises.

To have a general idea if a fund is a legitimate investment fund we must know the following.

• It must be registered in the Securities and Exchange Commission (SEC), This name differs in some countries, like in the UK in which they their SEC is called the Financial Conduct Authority (FCA).
• Must have a clear and transparent business model (where they invest the money) and a fund prospectus, balanced returns (Low risk = low return, medium risk = medium return and high risk = high return. There is no such thing as No risk/low risk = High return)
• Must have consistent reports of their funds, like quarterly, half year and annual reports.

Pyramiding

People often confuse Pyramiding with Ponzi, I assure you that these are two different wicked schemes. Both are dependent on people coming in their network, but unlike Ponzi scheme which is staged as borrowing money to Paul to pay Peter. Pyramiding’s framework is through Paul gets paid when Peter recruits Pat and Princess, then when Pat and Princess recruits more people, then Peter and Paul will get a cut from the money coming from the new entrants in their network as well, and the cycle continuous as long as there will be new recruits below the pyramid.

A company who solely based their business model under the pyramiding scheme only becomes sustainable when there will be new entrants in their network, which is by the way, the bulk and most of the time the entirety of their revenue stream.

Nonetheless, these pyramiding company actually has a product to sell to the public the problem is most of their products are useless, it usually a front to their main business model. Their focus is on recruitment and not sales. They make up their own sales number to portray that their company is profitable, but in reality, they only generate profits from their new recruits.

When the scheme runs out of people to recruit, the pyramid will collapse while the people at the bottom will be crushed hard and flat.

The way to spot a pyramiding company scheme is the same with Ponzi scheme. It must be registered in the Securities and Exchange Commission (SEC) and it must have a clear and transparent business model (The income is focused on sales and not in recruitment, or the company is profitable even without any recruitment at all).

I’ve discussed the distinct difference of “Pyramiding Scheme and Multi-Level Marketing”. There is a thin line that differentiates the two, which everyone should be familiar with, in my own opinion.

Coaching Schemes

In the world of digitization and the internet, coaching schemes have been very popular and are widespread promoted. You will be able to see these fraudsters enticing people how to learn to make millions of dollars of money. These kind of frauds are somehow like an Advance fee scheme, in which you give money to the fraudster in exchange of knowledge that will give you ways on how to make a lot of money.

It is literally like this, I make hundredths of thousands per month due to trading, if you want to learn my techniques and strategies just subscribe with my coaching class in the link provided. Then there will be accounts or comments from different people on how they became millionaires thanks to this person. Furthermore, once you’ve actually subscribed with them, and taught you what they know, they’ll be enticing you again to join their advance coaching classes for a higher rate where they will impart to you their secret sauce into achieving the ultimate goal of multi-hundredths of dollars to millions per month.

The problem here is that, yes they will give you information about it, but it is not a substantial information to actually make you millions of dollars per year. There are a lot of books and free learnings that we can learn without paying any money to these so called paid gurus. Their promises very rarely delivers, they are just really good salesman and great promise givers. That’s all.

Don’t get me wrong there are legitimate gurus who are extremely good with teaching people and they also have their own specific strategies that are true. But, these people are only a small fraction of our today’s world of paid online coaching.

For people to spot the True from the Fake coaches. They need to do their research about the person selling their online coaching sessions, their background, their profession, their history in the field, their certifications and if they live what they preach. Read and watch their free contents, because most of these true masters have their own free contents for people to see. Countercheck their information from other sources if it’s true or not, and lastly never be influenced by other people’s comments and praises to these gurus, because it will give you a confirmation bias already. Always do your own due diligence to do your own research. Or better, why not learn the basics for free or read books which are always the best collection of millions to billions of learnings from the great people of your own chosen and loved fields.

To sum it up

Frauds and schemes will never go away, because there will always be people who will get fooled by these scams. Psychology places a big part of it most especially trust and the get rich quick mentality.

Trust is always part of our human behaviour, it makes our world peaceful and happy, but it is also the reason why some individuals take advantage of it.

Whereas, the get rich quick mentality is a way of thinking into getting out of the mud of hardships quickly. It is hard to be patient in life and most especially to take the long road, that’s why people will take the easiest but the deadliest path. In life, the long road will always be the sustainable, consistent and trustworthy path, plus it also shapes us into a better person than we were before.

I implore to you my dear readers, always please be cautious in every investment decisions you take and please do your own research about it. There is no one to blame if we commit mistakes in our life but ourselves, we must always take the responsibility for every financial decisions we make in our life.

Knowledge is my Sword and Patience is my Shield,

elmads

PS: Most of the information, ideas and my inspiration for doing this blog came from Netflix’s documentary titled “Netflix’s Money Explained: Get Rich Quick”, which was released on 11^th of May 2021. I just added my own thoughts and experiences with it.

This blog is for informational purposes only and not a Financial Recommendation. Not all information will be accurate. Consult an independent financial professional before making any major financial decisions.