How To Do It: Stay away from pyramid schemes

Last month, the U.S. Securities and Exchange Commission (SEC) created a bogus company and ran its details over the Internet.

Within 48 hours, there had been more than 125,000 hits, a sure indicator of the potential gullibility of investors not only in the U.S. but also around the world.

This was a sign that some investors, if not greedy, have to be considered naive to still believe in get-rich-quick schemes.

Remember, the only winner in these circumstances will be the originators and the advice has been, and always will be, "stay clear".

The creation of McWhortle Enterprises, a so-called maker of biological defence equipment, stirred the market's interest particularly since it was reportedly already 200 per cent oversubscribed.

Bogus testimonials from a stock analyst and an executive from another company further whetted investors' appetites. The rumour mill then went into overdrive and soon fiction blurred into fact.

The message is simple, beware of all scams because there are some sharp and dubious operators out there whose sole purpose in life is to separate you from your hard-earned money.

The two recent cases of Enron and Allied Irish Bank (AIB) show that con merchants can come in many different guises and this can make life difficult for the average investor.

AIB, the biggest company on the Irish Stock Exchange, is in the news after managing to lose the equivalent of nearly Dh3 billion of investors' money, or almost 10 per cent of its capital base.

Enron has shown itself in a different league and, with the apparent help of regulators, auditors and bankers, has bankrupted itself twelve months after being valued at well over Dh300 billion. No wonder equity holders are disillusioned, particularly since their shares that were valued at around Dh350 in early 2001 are worthless today.

The arrival of the Internet has been a godsend for con merchants. The likes of Nigerian Alhaji Tijani O Mustapha, Sierra Leone's Dr Gruba Musa and Zairian Bahir Sese Sekou would not normally be able to pay the postage from their exotic African locations.

But with a click of the mouse, they can send their message to thousands of potential 'clients' promising them 15 per cent of their fortune in return for bank account details.

Remember that Robin Hood lived and died hundreds of years ago: he was the last known person who willingly gave money away to all and sundry.

Does anybody honestly believe that a perfect stranger from another country will contact them with the sole intention of giving them money for nothing?

If some adviser offers a guaranteed 20 per cent return on your investment ask two questions. Where does he put his own personal money and why is he not in Rio getting ready for tomorrow's Mardi Gras?

Following recent local newspaper reports, readers are again reminded to exercise great caution in relation to pyramid schemes.

Any person who pays an entry fee for the chance to receive benefits which will invariably depend on future income should be taken away in a straitjacket.

The income is derived from that person introducing additional participants into the scheme rather than the sale of a particular product or service. There is more chance of seeing Elvis Presley at a Spinneys' check-out than of making any money from these nefarious con schemes.

Not only that, there is the distinct possibility that any initial investment will be lost as well. Anybody who finds himself in this position can take cold comfort in the fact that they will not have been the first to fall for a fraudulent scheme and there are hundreds more out there waiting to follow them.