Financial pyramid: tips to avoid being the next victim

Discover some of the most famous cases of financial pyramids in Brazil and find out how to defend yourself

Financial pyramids are fraudulent schemes in which people are tricked into investing money with the promise of high returns, often with aggressive marketing campaigns. The scam also relies on the continuous recruitment of new members to pay the promised returns.

“At the beginning of the system everything works very well, because with these returns many people invest, allowing the scammer to pay the first investors the promised returns. Until investors start redeeming the money at a pace and volume greater than the inflow and, at that moment, the pyramid scheme will collapse,” says the coordinator of the Financial Institute of the Fundação Escola de Comércio Álvares Penteado (Fecap ), Ahmed Sameer El Khatib.

The expert cites some common characteristics of a financial pyramid:

• • Promises of exorbitant profits

Financial pyramids tend to offer returns well above the market standard, which can be a warning sign.

• • Recruitment of new members

Participants are encouraged to recruit others into the program, and some of the money invested by new members is used to pay old members’ returns.

• • Focus on recruiting, not selling products or services

In a financial pyramid, the main goal is to recruit new members, not to sell legitimate products or services.

• • Unsustainability

Financial pyramids depend on the continuous recruitment of new members to pay the promised returns. Eventually the system collapses when there are no longer enough people to support it.

They all have one thing in common

The professor says that all recent Brazilian financial pyramid schemes have one thing in common: the suspension of payments to customers and investors, precisely because they have no money, that is, because they sell something they don’t have – it’s called selling out, overdrafting.

“It is necessary to carry out a careful investigation and analyze the available evidence, including by comparing it with other competitors. If the economic situation is bad, it will be bad for all companies. If one of them goes in the opposite direction, something is wrong,” he adds.

To avoid falling for a scam, the teacher lists some precautions when faced with possible scams:

• • Research the company

Before investing in or purchasing a product or service from a company, it is important to thoroughly research its reputation, history and business model. Verify that the company has a real product or service and that there is evidence that it is generating revenue from those products or services.

• • Analysis of the remuneration structure

If a company’s main way of making money is by recruiting new participants and earning commissions on their signups, this could be a sign of a pyramid scheme. Carefully analyze the company’s compensation structure and see if it is based on the sale of products or services.

• • Evaluation of earnings promises

Companies that promise extraordinary financial returns in a short period, without a clear explanation of how this is possible, can arouse suspicion. Carefully analyze the company’s earnings promises and ensure they are realistic and sustainable.

• • Transparency control

Companies suspected of operating as pyramid schemes may be evasive or fail to provide clear information about their business model, source of income and compensation structure. Verify that the company is transparent and provides clear and detailed financial information on its operations.

• • Complaint investigation

If there are reports or suspicions that a company is operating a financial pyramid scheme, it is important to carefully investigate such reports. Check whether there is concrete evidence that the company is involved in fraudulent activities and whether legal action is pending against it.

Yes, there is a regulation

According to El Khatib, measures and regulations exist in Brazil to protect consumers from possible financial pyramid schemes in sectors such as travel and tourism. Some of these measures include:

• • Consumer Protection Code (CDC)

The CDC is comprehensive legislation that establishes the rights and obligations of consumers and provides protection against abusive business practices. It prohibits deceptive and abusive practices, ensuring that consumers are clearly and accurately informed about the products and services offered.

• • Action by consumer protection bodies

The National Consumer Protection System (SNDC), made up of bodies such as the Public Prosecutor’s Office and the Procons, works to monitor and combat abusive practices on the market. These bodies can investigate reports of financial pyramid schemes and take legal action to protect consumers.

• • Financial education and awareness

It is important that consumers are aware of the risks of financial pyramid schemes and know how to identify possible signs of fraud. Organizations such as Procon and the Securities and Exchange Commission (CVM) offer information and guidance to help consumers protect themselves from these scams.

Brazilian cases that have become famous

In recent years, Brazil has been the scene of numerous cases of financial pyramids, which have affected thousands of people across the country. All examples have the same characteristics: quick and easy profit and suspension of customer payments.

• • TelexFree

TelexFree stopped paying its customers because the company was, in reality, a fraud in the form of a financial pyramid scheme. The company promised high financial returns to its investors, but in reality it used the money of new investors to pay the old ones, without having a real business behind it. As time passed, the company was no longer able to attract new investors and, consequently, no longer had the money to pay the old ones.

• • Master of Ostrich

Ostriz Master was a company that sold ostriches as an investment, promising high profits in a short time. However, the company was accused of running a financial pyramid scheme and was shut down by the authorities in 2010. Ostrich Master has been compared to other famous financial scams, such as Boi Gordo and Ouro de Tolo, which also promised high financial returns and they ended up hurting. many people. The company had no support for its business and was discovered to be a scam, leaving thousands of creditors without receiving their invested money.

• • Fazendas Reunidas Boi Gordo

Fazendas Reunidas Boi Gordo was a company that sold investment shares in cattle ranches, promising high profits in a short time. However, the company was accused of running a financial pyramid scheme and was shut down by the authorities in 2004 because it did not have the money to meet its commitments.

• • Quantum Atlas

Atlas Quantum was a company that promised high profits from cryptocurrency investments. However, the company was accused of running a financial pyramid scheme and was shut down by authorities in 2019, harming thousands of investors.

• • Club D9

D9 Clube was a company that promised high profits from investments in sports betting. However, the company was accused of running a financial pyramid scheme and was shut down by authorities in 2017, also harming its punters.

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Source: Terra

Rose

Rose James is a Gossipify movie and series reviewer known for her in-depth analysis and unique perspective on the latest releases. With a background in film studies, she provides engaging and informative reviews, and keeps readers up to date with industry trends and emerging talents.