When it comes to investing, the unfortunate reality is that scams exist and even the most cautious investors are fooled. Opportunistic criminals prey on potential investors’ ignorance or gullibility, generally luring them in by promising them unusually high investment returns.


No one wants to invest their hard-earned money into a scheme, only to find out later down the line that it was a scam and they have been left with nothing. Below we explain how to identify pyramid and Ponzi schemes and what questions investors should ask before putting their money into any investment scheme.


Pyramid and Ponzi schemes share many similar characteristics, where generally speaking, unsuspecting individuals are fooled by unscrupulous individuals or so-called ‘investment firms’ that promise extraordinary pay-outs.


They differ from traditional investment schemes in that they can only offer consistent “profits” for as long as the number of investors continues to increase. The basic difference is in the type of products that schemers offer their clients and the structure of the two scams.


Ponzi schemes are based on fraudulent investment management services, where the person organising the scheme, merely transfers funds from one client to another and does not invest it as promised to clients.


A pyramid scheme is structured so that the initial schemer must recruit other investors who will then continue to recruit additional investors and so on. Each investor pays the person who recruited them for the chance to sell the particular service or product, and the recipient must then share the proceeds with those at the higher levels of the pyramid. In this investment scenario, investors very rarely see a good return on their investment and in some cases no return at all.


It is important that before you make any investment, you thoroughly vet the scheme you are investing in. It’s also a good idea to check whether the company in question is on the Financial Services Board’s fraudulent company alert list.


Here are some questions investors should gain clarity on before investing in a scheme:

  • How long have you and your firm been operational in the investment industry?
  • What are your professional qualifications?
  • Are you and your firm registered with the Financial Services Board, and can you show me proof of this?
  • Does the scheme require that I introduce other investors?


Ecsponent recently became aware of an investment scheme that markets itself and solicits funds based on Ecsponent Limited’s investment offering and as part of the Ecsponent Group of companies. We have no association to this scheme and completely distance ourselves from any company or product that is not officially part of our offering. Please exercise caution before investing and read more about Ecsponent’s investment offerings are regulated – beware of imposters using our name.