Bogus schemes galore


MANDALUYONG CITY–PSEUDO-INVESTMENT schemes such as Ponzi and pyramiding do not only promise quick cash to ordinary investors, but also rake in millions to billions of pesos for operators.

Ponzi scheme operators, explains lawyer Lalaine Monserate of the Securities and Exchange Commission, pay exceptional returns to investors coming from the deposits of “a growing number of investors.”

Generally, an investor can receive seven post-dated checks, said Monserate of the SEC compliance and enforcement division.

Suspected Ponzi companies get helped by agents or counselors, either an individual or a corporation, who will recruit as many investors, she explained.

The company or individual agent then gets the deposit of its first investor, who tells others of this “good investment opportunity” and who also receives an interest income. A second one comes in, gives his or her investment, and also earns from the interest.

The first investor is then paid by the agent her or his next interest income as a result of the money from the second investor.

When a third investor comes in, gives his or her money, and earns interest income from it, the second and first investors also get their next interest incomes. The cycle then continues (see diagrams A, B, C and D).

Monserate said one Ponzi company that operated only for five months earned as much as P25 million in a single day. The company’s only physical asset was a 35-square meter office space, yet it was able to collect around P1.2 billion in that period.

Another Ponzi company that operated for eight months earned P351.05 million as principal, and paid P67.41 million as interest income to its investors. The interest was from 8 to 18 percent

A pyramid scheme, on the other hand, is similar to multi-level marketing schemes.

Monserate said participants in this scheme get commissions for recruiting as many people as possible.

Monserate says pyramid scheme operators hook on the selling point that “each participant can get back their original investments and make more money by introducing more participants.”

Some companies hide these schemes by layering it with products, even if these products “have no real world value and are priced in an inflated manner.”

Pyramid sales schemes or chain distribution plans have been disallowed by the Consumer Act of the Philippines in the sale of consumer products.

The law, particularly Article 53, cites there is a pyramid scheme if the person using a chain distribution profits “primarily from the recruitment of other persons into the plan rather than the sale of consumer products, services and credit.”

Divina (not her real name) from the southern part of Metro Manila remembers joining one of those schemes, putting in P18,000 of her savings as a domestic helper in Hong Kong to the company.

But while recruiting friends and former overseas Filipino workers (OFWs) like her to join, Divina had to shoulder the transportation and meals when she meets them. She can’t remember how many commission payments were given to her, but a recruit taken gives her P1,500.

After five months, people she recruited –called “downlines”– blamed her for not earning.

While she sold products as part of recruitment, Divina said she still lost a total P40,000 from her five-month stint with a multi-level marketing firm.

Since only those on top, called “uplines,” earn, hence the stress of pyramid schemes are positioning, timing, and getting “downlines” in the left and right sides of the pyramid, Monserate said (see diagram E).

The SEC treats pyramid schemes as “an unregistered sale of investment papers or securities if there is an investment of money into a common enterprise, and the investor is led to expect profits from the efforts of the promoter or a third party,” Monserate added.

If pyramid scheme operators are registered as corporations, the SEC holds jurisdiction over them. However, if registered as single proprietorship or as corporations, the Department of Trade and Industry (DTI) covers these scheme operators.

The decision to join these investment or marketing schemes rests on the individual, and SEC director Hubert Guevara advises people to “stop, read and listen to them by asking questions to the companies and to regulators.”

If the scheme “is a quick-buck thing” such that you earn more than what a bank or mutual fund offers, “raise the ‘red flag’ and begin to ask questions,” Guevara added.

OFW Journalism Consortium Inc. in partnership with the Ateneo de Manila University-Economic Policy Reform and Advocacy (EPRA) consortium