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What Are They and How Can You Avoid Them? | #socialmedia | #hacking | #aihp

You’re scrolling your social media feed. And there you see it: a “double-your-money” scheme or a course teaching you how to make money quickly!

These get-rich-quick schemes appear on every platform, in one form or another. The words and calls-to-action might change, but the pitch remains the same. And unfortunately, we keep falling for it. Why is it so and what can you do to avoid taking the bait?

What Is a Get-Rich-Quick Scheme?

The term “get-rich-quick” is used to describe shady investments with unrealistic rates of return. They create the impression that users can obtain this high rate of return with little skill, effort, or time, and with minimal risk.

Most of these schemes are advertised through spam emails, cold calling, or social media ads. They date back hundreds of years and can take the form of a system, a coaching service, a work-at-home opportunity, or some other variation with a deceptive money-making promise.

A Brief History of Get-Rich-Quick Schemes

In October 1822, a Scottish adventurer Gregor MacGregor left the shores of Central America for the United Kingdom. On his arrival in London, he earned the title the “Cazique” or prince of the land of Poyais.

He claimed that he discovered a new land, the country of Poyais, and offered people an opportunity of a lifetime. He described Poyais as fertile land that could yield three harvests a year. The water of Poyais was so pure that it could quench any thirst. And on top of it, chunks of pure gold lined the rivers of the exotic land.

Gregor MacGregor opened his office in London and started touting the perks of investing or settling in Poyais. He would point people who needed more convincing to a book by Thomas Strangeways (actually MacGregor himself) that described the virtues of the small island. Soon, people could exchange pounds for Poyais dollars or even buy a piece of Poyais land.

MacGregor raised nearly £200,000, or £3.6 billion in today’s money, but there was one problem. There was no Poyais! The entire project was a creation of his imagination.

The Poyais scheme was the most brazen financial scam but far from being the first or the last.

Get-Rich-Quick Schemes: Examples

Today, we see variations of the same scheme ripping people off their money through the art of persuasion. Here are some of the most popular examples of these scams.

1. The Advance Fee Scams

Advance fee scams are the most common type of confidence tricks. These promise the victim a large sum of money for a small upfront fee. But the money never comes…

When the victim pays the fee, the fraudster either disappears or invents a series of further fees required to obtain the large sum of money.

The most successful version of advance fee scams involves letters from wealthy individuals caught up in a terrible situation. They ask for a little money and promise a handsome reward once they escape the mess.

These letters used to come from supposed prisoners, but recently, the “Nigerian prince” scams have become more frequent.

2. Pump and Dump Schemes

The pump and dump or rug pull scheme is another scam that racks up millions of dollars every year. The fraudster creates a buzz around something worthless and persuades people to invest in it. As the price pumps up, the fraudster dumps their stock at its peak, leaving investors in their wake.

Pump and dump schemes are very common in the cryptocurrency industry. Schemers often send out pump signals in a messaging app, making insiders buy the coin.

This boosts the coin’s price and attracts more users who think it might be a lucrative stock. And then the insiders sell off at the peak price and the rest of the investors lose their money.

3. Ponzi Schemes

A Ponzi scheme is an investment fraud that pays existing investors with funds raised from new investors. It’s named after an Italian immigrant, Charles Ponzi, who made a fantastic promise back in the 1920s. He guaranteed to double your money in 90 days.

Most Ponzi scheme organizers promise to invest your money in high-reward and low-risk ventures. But in reality, the fraudsters use the money to pay early investors and keep some for themselves.

With no legitimate earnings, Ponzi schemes require a constant flow of new money to keep the system afloat. When the cash flow dries up or enough investors ask for their money back at once, the entire scheme collapses. This is what happened in 2008 with Bernie Madoff who ran the largest Ponzi scheme in history—worth $64.8 billion.

4. Pyramid Schemes

Most people confuse Pyramid schemes with Ponzi schemes, but they are different. In Pyramid schemes, the fraudster doesn’t need to borrow from new investors to pay early investors. Instead, members are paid if they can recruit new participants for the scheme.

As the membership pool grows, everyone gets a cut. But at some point, further expansion isn’t possible and the scheme becomes unsustainable.

Pyramid schemes often appear as legitimate Multi-Level Marketing (MLM) businesses. These are businesses that use the profits generated by downstream sales to pay bonuses to their recruiters. But these don’t have any legitimate sales. Instead, investors are paid from incoming funds obtained from new investors.

5. Coaching Schemes

Coaching schemes can be thought of as advanced fee schemes, but instead of paying a little money now in exchange for a large sum of money later, users pay for knowledge that the organizers promise will make them money.

But in most cases, the promises are false. The advertised programs usually don’t deliver and victims are often lured into more expensive classes to materialize that fantastic promise.

Most coaching scheme organizers have compelling rag-to-riches stories and positive testimonials from customers to sell their courses.

How to Protect Against Get-Rich-Quick Schemes

All of these schemes use similar kinds of tactics and thrive in moments of change. When Gregor MacGregor came up with the idea of Poyais, several nations had declared independence, and it wasn’t too hard to think Poyais may be among them.

Con artists typically exploit exciting or scary times like wars and pandemics, and offer opportunities with unrealistic returns. Even if you receive a higher return initially, the funds will dry up, and you’ll eventually lose everything. So, before you make a move, look out for these red flags to prevent yourself from falling into a financial trap.

  • Beware of investment opportunities or schemes that require you to recruit people to earn a bonus.
  • Watch out for schemes promoted as a “once in a lifetime” opportunity and with an unnecessary sense of urgency.
  • If profit-making and profit-sharing details are missing or unclear, it’s probably a scam.
  • If you’ve to pay upfront for a job in the form of an “orientation fee” or “buy in”, it’s also a red flag.
  • Avoid schemes that use exaggerated marketing language like “become your own boss”.
  • Guaranteed income with no experience or skill required is another telltale sign of a scheme you should avoid.

You Can’t Get-Rich-Quick Through These Scams

These are some of the signs to identify fraudulent financial schemes, but in any case, it’s best to consider seeking financial advice before investing in any scheme. And as they say, “if it sounds too good to be true, it probably is”.

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