Dangerous investments to avoid like the plague

A number of Kenyans lost investments worth about Sh1 billion in a cryptocurrency scheme involving Kenyans and Chinese. Bistream Circle was the Ponzi scheme that fleeced Kenyans of their hard-earned cash. So daring were the fraudsters that in a social media post they mocked and ridiculed their victims.

“I still drive my Ferrarri and some of you cannot afford to eat,” was a post made by the fraudsters on social media.

Last week the nation woke up to shocking murders. The four young victims were suspected to have been involved in cryptocurrency and bitcoin frauds according to media reports.

A cryptocurrency is digital and serves as a medium of exchange through computer networks. It is largely unregulated. Crypto and bitcoin investors often buy the currencies and wait for their value to rise and then sell it at a profit. The profit margin is then what investors capitalise on.

In March this year, the Central Bank of Kenya warned against investing in cryptocurrencies, citing regulations. The regulator further warned that financial institutions that support such transactions would risk losing their licences.

The CBK Governor warned “for every person who wins there are hundreds who lose.”

This is not the first fraudulent scheme to hit the Kenyan market. Many such schemes have been reported where innocent investors are lured by the promise of getting rich quickly. They ignore risks associated with the investment.

I highlight some tips on how to avoid these types of schemes.

Fraudulent schemes are perpetrated in many ways, however, investors should look out for anything that seems like a pyramid or Ponzi scheme.

Under pyramid schemes, investors are asked to pay and recruit others with returns being given to early participants from money paid by new recruits.

Ponzi schemes are a type of pyramid schemes. Ponzi and pyramid crash when the money raised from new entrants is not enough to pay the earlier entrants.

One of the biggest Ponzi schemes was run by Bernie Madoff, an American who was sentenced to 150 years imprisonment for running the scheme.

The first red flag is any investment scheme that promises you high returns in a short time, without detailing the risks involved. Often a lot of sales language is used without properly addressing the risks.

Valid contract

Two, ambiguity when you probe further on the risks involved. It is important to do a background check before investing. Find out who the owners are, where the office is and if the entity is registered. Find out if the entity is licensed. Walk away from the deal if the scheme cannot answer any of these questions. It is most likely to be a fraudulent scheme.

Find out if there is any legal documents accompanying your investment. For example, is there a contract? What options do you have in the event of a dispute?

If you choose to proceed with the investment, then insist on having a contract signed. This will give you recourse should anything go wrong.

Get expert advice, always.

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