Mr Francis Boadu, Head of Department (HoD) in charge of Broker Dealers and Advisors at the Securities and Exchange Commission (SEC) has called on investors to seek general information about the capital market and products in the market, seek information about licensed capital market operators, report persons suspected to be operating in the capital market without a license, report fraudulent investment schemes and activities of capital market operators, and make complaints to them to be dealt with.
He advised investors never to put money into an investment they don’t fully understand and if they suspect an investment to be a Ponzi scheme or any other type of scam they should file a complaint with the Commission.
Mr Boadu who gave the advice in an interview with Newsghana in Takoradi during the Western Regional edition of the “Time With the SEC” revealed that there were many online resources to help investors learn how to invest and how to evaluate opportunities for risk and potential gains so as not to invest in the wrong capital market.
He disclosed that most Ponzi schemes rely on a theoretical business model to produce the touted profitability and superior returns to its investors and therefore would like to use creative accounting devices to cook their books and most of the time will use new investors funds to pay prior investors.
He indicated that schemers always employ artificial devices to disguise the lack of economic substance or defer the recognition of economic loss and most of the time representing that the investors’ returns were generated from a purported business venture.
Mr Boadu mentioned that when a Ponzi scheme is about collapsing or being exposed, the promoter may take the money and disappear, sell the business, pay off any investor who complains, and transfer investors into a new or existing shell entity that is self-liquidating.
They may also create new management which may include the promoter and/or a select group of investors and try to control, manipulate and divert any regulatory investigation of the scheme and seek investor loyalty in doing so.
He opined that schemers resort to “source credibility” tactics where they establish credibility through associations or involvement with reputable individuals or entities, or those with special credentials or experiences particularly, legal, financial and investment industry.
“Social consensus” tactics with the notion that others have already invested, creating the appearance of success which is appealing to the ‘herd instinct’; “reciprocity” tactics by offering to do a small favour in return for a big favour such as giving a discount in return for an immediate partial investment; and “scarcity” tactics thereby creating a false sense of urgency.
According to him, “if someone tries to sell an investment that has huge and/or immediate returns for little or no risk, it could well involve some sort of fraud, and if someone contacts you unexpectedly, perhaps inviting you to an investment seminar, is often a red flag.”
He said one should be suspicious of any investment that continues to generate regular, positive returns despite the overall market conditions and economic state of affairs.
He added that one should be suspicious of statements that overly represent that security, safety and liquidity of principal were safe and positive in particular, when they hear statements such as “no investor has ever lost a single penny of his investment with us” and “we have an unblemished track record of meeting or exceeding the promised profitability.”