Get rich quick scams

Even with all the highly publicized pyramiding scams that defrauded thousands of people and involved hundreds of millions of pesos, it still amazes me that a lot of people are victimized by new ploys that separate the gullible from his money. Cellphone text raffles, inspite of the warnings of NTC and the Central Bank are still drawing hundreds of thousands of pesos, although it is definitely decreasing as cell phone users are getting wiser. The "Nigerian letter" scam which has been all over the world in the past 40 years is still being sent (with variation), and is still getting victims. There are also still quite a number of people putting their money in deposits in banks with rates of interests that are way beyond normal, or are getting unusual gift items like a car, and expecting that they can get their money back with the high interest promised. It seems, P.T. Barnum is still correct: " there is a sucker born every minute."

There is a difference though between falling for a scam and making a bad investment. It is the difference between being unable to get the tuition money for your children from CAP or Pacific Plans, and being unable to get your principal invested in Multitel or Tibayan or any of the pyramiding companies that were popular five years ago but are no longer around.

In the case of CAP or Pacific Plans, it is still possible to get all the money you paid to them plus an interest of 5% to 7% per annum. These companies have invested in assets that did not yield as much as their actuarial assumptions, so they cannot comply with the current tuitions of the schools, which have increased very much more than the actual yields of their investments. The fault of these pre-need companies was in promising to pay whatever will be the tuition rates in the future, without anticipating the inflation in tuition rates, and in being too optimistic to the point of being unrealistic in the expected returns of their investment. These were compounded by the excessive operating expenses of these companies, which included the expensive lifestyle of some of the officers and owners. The actuarial discovery of the trust fund and asset deficiency of these companies were known years before the fiasco when their checks to the schools started bouncing. But since the promise of meeting whatever was the tuition of the schools was part of the marketing ploy, and the marketing network was already all over the country, it took them a long time to stop selling the guaranteed tuition plan. These companies are now under judicial rehabilitation, and with proper and prudent management, which should include penalizing the management and shareholders, they should be able to pay back the planholders their principal plus interest which is better than the savings rate. It will certainly not pay for the four-year college course of your son, but it is a partial recovery.

The victims of the pyramiding investment, whether there was a product to sell or not, are worse off, because these companies have little or no solid investment at all. The money of every new investor went to pay for the excessive interest of the earlier investors and the operating expenses of the company, leaving very little funds for productive investments. So when these companies folded up, the auditors found very little tangible assets or any remaining assets at all. Even if there were, it was not even enough to cover a fraction of the principal amounts of the investors who were left holding the bag. I have heard of many sob stories of the victims of these scams, of retirees losing all their retirement pensions, of losing money for hospital expenses, of losing even their homes, and its heartbreaking, so we should learn.

There are actually some simple rules to determine if something is a legitimate investment opportunity or a scam. First, you have to check how realistic are the returns compared to normal bank interest rates. Realize that this is a passive investment, so that the company has to invest the money and get a return higher than what they are paying you. If it is too out of line, be wary. Next, take a look at the financials of the company, or at the very least, find out where the money is going. Then, find out who are the people owning and running the company. If you will not trust a million to your best relative, why will you trust your million to a total stranger. The names of legitimate and trustworthy businessmen are available and you can ask around of the reputation of the people running the company. Then, take notice of how they are selling or marketing these investment opportunities. If there is a lot of hard selling and anecdotal storytelling without proof, be wary. Lastly, ask yourself if the deal is too good to be true. If it is, be very wary, because statistically, if a deal is too good to be true, 97% of the time it is not true. The 3% is what gets you a windfall profit, but the odds are great against you.

These are all sound advice, but sometimes greed makes us deaf of all sound and advice. So keep your GREED in check.