CCAC warns consumers against Pyramid and Ponzi Schemes 

No matter how tempting they seem, pyramid and Ponzi schemes will always eventually collapse, and following receipt of several inquiries of investment “scams” in Guyana, the Competition and Consumer Affairs Commission (CCAC) last Friday issued a statement reminding that it is an offence to operate such schemes.

The CCAC also called on citizens to be cautious of “pyramid and ponzi schemes” disguised as legitimate investments. Part V of the Guyana Consumer Affairs Act, which speaks to the issue of “Pyramid selling” states that “a person shall not promote or operate a pyramid selling scheme and any person who contravenes the subsection of this Act commits an offence”.

“Ponzi schemes”, however, are a criminal offence. CCAC Consumer Affairs Officer, Feona Austin-Paul, noted that the CCAC has not yet received an official report from any consumer on the situation, but having got wind of what is happening, the CCAC wants to caution consumers to prevent them from being scammed.

“We haven’t tracked down anyone, but we know that it is happening and we just want to warn the public. Because some persons are benefitting but it will be the ones at the bottom that will suffer,” Austin-Paul noted. “If we do get a report we would have to investigate to determine if it is a pyramid scheme, because if it is a Ponzi scheme that’s a criminal offence and that would have to be referred to the police. With the pyramid scheme we would have to investigate and enforce the Act,” she added.

A pyramid scheme is one whereby persons are promised high returns by investing a small amount, they are promised commission based on recruiting new persons into the scheme. However the scheme is essentially dependent on the intake of new recruits as persons are simply being given the money that the new recruits invest into the scheme. Failure to recruit typically means no investment return. Since there is no capital outside of money brought in by new recruits, when new recruits dwindle, there is no longer any money to continue to pay persons

When the scheme collapses, while those at the top of the “pyramid” would’ve already received the returns on their investments, those at the bottom of the pyramid are unable to get paid any money and bear the brunt of the losses. A similar structure applies to “Ponzi schemes”, however that is a form of fraud in which investors are duped into believing in the success of a non-existent enterprise, fostered by the payment of quick returns to the first investors however they are only being paid money invested by later investors. As incoming investors diminish the scheme collapses.

One of the most renowned Ponzi schemes was orchestrated in Antigua by Texan financier Allen Stanford, who was found guilty of a massive US$7 billion Ponzi scheme by a court in Houston, in 2012. The fraud was run from his offshore bank in Antigua, and investors’ money was used to pay for Standford’s lavish billionaire’s lifestyle. The after effects of the collapse of the scheme gravely affected the Antiguan economy, and left many unemployed.

More recently several “get rich quick” schemes have been growing in popularity on social media over the past few months promising persons that they will earn multiple times their investment by investing in these groups. However, in many cases, the shaky structure of the investment is dependent on the continuous recruitment of other persons to join, by definition a pyramid scheme.

In many cases the initial promoter of the “investment” are not necessarily Guyanese or in Guyana and transactions are done virtually over the internet. Austin-Paul warned that because of that dynamic it is even more important that Guyanese be careful of how they invest, given that Guyana laws may not protect them in cross border transactions.

“Consumers need to note that, ‘essentially, the foundation on which the pyramid scheme is built is the problem. Any plan that offers commissions for recruiting new members will inevitably collapse. The real casualties in the collapse are always the people in the bottom, with the people at the top of the pyramid protected,” the CCAC statement noted. It added that: “The CCAC encourages consumers to do thorough research before becoming entangled in any of these schemes.  If you think you have been scammed please contact the CCAC to investigate.”

Guyana Consumer Affairs Act notes that “pyramid selling scheme means a scheme that (a) provides for the supply of goods or services or both for reward; (b) that, to many participants, constitutes primarily an opportunity to sell an investment opportunity rather than an opportunity to supply goods or services: and (c) that is unfair, or is likely to be unfair, to many of the participants in that – (1) the financial rewards of many of the participants are dependent on the recruitment of additional participants; and (11) the number of additional participants that must be recruited to produce reasonable rewards to participants is either not attainable, or is not likely to be attained, by many of the participants”.

In the case of the “investment” ponzi schemes, the CCAC reminds consumers about an advisory issued in October 2019 by the Guyana Securities Council warning persons about fraudsters fleecing unsuspecting persons by asking them to invest in business in the securities market but are not licensed to so do by the Council. In this case, consumers are advised to check with the Securities Council before making any investment. The Competition and Consumer Affairs Commission (CCAC) was established in 2006 and functions objectively in executing the laws governing two acts, namely the Competition and Fair- Trading Act N0. 11,2006 (CFTA) and the Consumer Affairs Act. The Commission is an Agency of the Ministry of Business.