How to know you are being scammed

Unbelievable high returns

If it entices you with handsome returns that are far above the market rates, you are probably about to invest in a scam.

Churchill Ogutu, an economist at Genghis Capital, says investors must watch out for investment schemes that promise abnormal returns way above market rates, noting that this is the hallmark of such scams.

“If you are investing in a fund that promises you returns of say 20 per cent after a certain period of time yet the market level is about 11 per cent, you need to ask yourself where your money is going to be invested so that it will earn such high returns,” Mr Ogutu cautions.

Can a bank fund it?

Commercial banks have a team of experts that review various enterprises and assess them for their potential. They are always scouting for business ideas with great potential to give loans.

So if an investment idea is so lucrative and certain, ask yourself why is it that the company has not approached a bank for a cheaper loan. For Cytonn, the company hired an army of sales people to entice buyers in a door-to-door campaign promising them 18 per cent returns, yet they could get cheaper funding of about 13 per cent from a commercial bank. This means that either the investment fundamentals were weak or the company could not back up its promise of high returns.

Short-term maturity

Mr Ogutu says investors should also be suspicious of investment schemes that have a short-term horizon to mean that the investment matures in just days or weeks. For instance, Kenyans who fell for the collapsed Amazon Web Worker Ponzi scheme were promised earnings on not only referrals of new customers to the site, but they would also earn weekly and monthly interests on their deposits in the platform.

But the economist notes that traditional mainstream investments such stocks, treasury bills and bonds, real estate and others have relatively defined maturity timeframes, and that companies that promise to pay you interest in just days, weeks, or even few months need to elicit caution.

“There is no magic-wand in business that multiplies your money in just a few days. If someone is telling you to give them a certain amount of money and they promise that you will earn an X amount of interest which is very high compared to a bank or other institutions and over a short period of time, you need to be very cautious,” the economist says.

Unlicensed

Before making an investments, investors must do background checks on the company or product they are investing in to make sure it is properly registered, has a physical address, and is licensed and regulated by the relevant regulatory body.

Mr Ogutu says this minimises incidences of being scammed, as regulated entities have proper management and ownership structures that can be accounted for, which protects investors’ money.

“Is the company I am investing in duly registered? Who owns the company? What products does it sell and how does earn its income? And also, it is legally regulated and licensed to sell you the product that it is selling? Finding the answers to all these questions is an adequate barometer that will answer if the company is genuine or not,” he said. Also do the sales people look rehearsed? Have they themselves invested in the product they are selling?

Non-disclosure of crucial information

Mr Ogutu says if a company is unwilling to fully disclose critical information including an elaborate disclosure of how they will invest your money, and other relevant information about its undertakings, then it is a red herring that indicates the company should not be trusted with your money.

A genuine and competent investment company, the economist adds, is not only transparent with all the information that investors need but is also forthright and has records of the investments it has made or is making, and has a tangible portfolio of its track record.

“We see each day new scams coming up telling you to invest a certain amount of money in this or that products or scheme, yet they cannot tell you full information about themselves and where they want to put your money to earn the high interests. Investors should keenly watch out for such red flags,” Mr Ogutu said.

No documentation

You want to instantly buy that cheap parcel of land that has just been advertised in Kamulu and Kitengela before it is sold out and you miss out.

But before you send that money, first ensure that the parcel of land actually exists, do a search in the lands registry to establish its ownership and availability for sale, and make sure you get appropriate documentation for each transaction that you make.

This is one of the ways in which investors fall to scams by buying inexistent parcels of land, sending money to obscure persons or entities for a purchase or investment, and failing to secure proper documentation including title deeds, car log books, and official receipts.

If an entity is tactfully not willing to provide you with documentation, it is another red flag that it cannot be trusted with your hard-earned money.