Residents across the British Virgin Islands are being warned by the Financial Services Commission (FSC) to beware of pyramid schemes and other related investment scams.
This advisory came in a media release from the FSC on Wednesday, which warned residents of the significant financial losses that can occur from these schemes.
Characteristics of a Pyramid Scheme
According to the FSC, a pyramid scheme is a fraudulent money-making scheme which uses an unsustainable business model.
The model usually involves exchanging money for the enrollment of other people into the scheme, without the receipt of any legitimate products or services.
“A pyramid scheme generally requires you to recruit friends or family members to enter the scheme and make contributions. If you do this successfully, you are paid or gifted out of their contributions. Your family and friends are then told to recruit others to keep the chain going. Your money is not actually invested in any product. Instead, it is simply passed in some defined sequence to other members,” the FSC said.
“Eventually, without an unlimited pool of persons, the number of new recruits fails to sustain the payment structure and the scheme collapses with most people losing the money they paid in. This is particularly true for small territories with a small or finite population,” the FSC added.
Recovering monies almost impossible
The FSC – the territory’s single regulatory authority for financial services business – also said persons who are often scammed by these schemes usually are unsuccessful in retrieving their monies invested.
“Because pyramid schemes are unauthorized and make no legitimate investments and therefore no profits, a member is very unlikely to recover any monies contributed, while the fraudster at the top will collect most of the profits. Very often, those who entered the scheme later loses,” the FSC stated.
It added: “Members of the public should seek professional advice from competent persons to help evaluate potential investment opportunities, minimize risks, and avoid becoming victims of fraud.”
Therefore, the FSC is asking residents to be vigilant of all business investment opportunities that may exhibit the aforementioned characteristics.