An online investment scam is a type of scam where you are convinced or pressurized into investing money with the hope of getting high and fast returns. They are usually propagated on social media because the internet offers anonymity to scammers, and the reach is also wider.
This year, a scam investment company called ‘charge anytime’ has folded up & defrauded Ugandans of almost 1 Billion UGX. It was a classic Ponzi scheme playbook where older investors were paid with funds of new investors, and you also get a commission each time you introduce a new member.
The thing about Ponzi schemes is that though they pay you returns initially, they eventually fold up when new members stop coming or when the government is on its trail.
In the case of the charge anytime Ponzi scheme in Uganda, the operators left a message on their now blocked WhatsApp and telegram channels, saying the Ministry of Finance asked them to suspend payments. However Jim Mugunga, a staff of the ministry said they didn’t know anything about them.
The Capital Markets Authority (CMA) Uganda has issued warnings to the public on fraudulent financial schemes and urged caution when dealing with any investment firm. We will discuss five ways to stay ahead of online investment scams.
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1. Check If the Investment Is Government Registered
When you are being convinced to invest in an investment, it is easy to get so carried away by the promise of high returns that you fail to check if the investment is government-approved.
In Uganda, the Capital Markets Authority (CMA) is responsible for regulating the capital market. For any investment to be legitimate, it has to be approved by the CMA.
Failure to do this may put you at risk of being scammed. Note that if an investment isn’t registered with the CMA, you won’t be compensated from the investor compensation fund if you’re scammed.
Scammers can fake government registration documents, so you should not expect to get information about their CMA license from them.
To verify if an online investment has the approval of the CMA, visit their website to view a list of licensed firms. Check if the name of the investment provider is on the list and if not, then it isn’t government recognized, and you are at risk of losing funds.
In the case of a Forex trading & investment, since retail online forex trading is not regulated in Uganda, the forex broker should have a license from regulatory bodies outside Uganda. Kenya is one of the only two countries in Africa with government regulation for online forex trading, and the CMA of Kenya has regulated forex trading & have approved a few brokers that also accept clients based in Uganda that meet their account opening requirements.
Online forex brokers licensed by the Kenya government are considered trustworthy by traders in Africa, and you can verify their authenticity by visiting the Capital Markets Authority website to download the list of licensees which is updated regularly. Currently, 7 online forex brokers are licensed to operate in Kenya.
2. Compare Their Returns with Those of Traditional Investments
Before making any investment, ignore the surrounding pressure to invest in a hurry and carefully compare the promised return to that of traditional investment.
The returns most online scammers promise are usually unrealistic. For instance in the case of a government bond, the latest bonds issued in Uganda have an interest of 14% for 2 year bonds maturing in 2024 , & 15% for 10 year bonds maturing in 2032.
An investment scam will attempt to lure you by claiming to offer mouthwatering returns on bonds that are higher than what the Uganda government is offering. A simple comparison of their rates with that of the government will reveal this discrepancy.
If an investment promises you exact figure returns example 100,000 shs every time, it is suspect because legitimate returns on investment always fluctuate at least in decimals.
3. Don’t Pay For an Investment via Gift Card
Scammers like to get paid in a way that it will not be traceable. Giving you a bank account number to make payment is too risky for them, so they often resort to alternative methods like gift cards.
Gift cards are small cards issued by retailers or banks that can be exchanged for money, goods or services by a particular store or business. Gift cards are usually given as a gift and are not payment methods for investments.
These investment scammers would request that you buy gift cards liken Amazon, Google play, iTunes, steams etc., then send them the code at the back of the card. Immediately they get the codes, the money is theirs and you can not trace it.
When an investment requests that you make payment using gift cards, you may want to think twice. Ask yourself why it has to be an untraceable method like gift card, what is the person on the other side trying to avoid?
Even if it is a sudden call or message to buy and send gift card to someone you don’t know, watch it! No government authority, or brand will suddenly request for a gift card from you.
Peradventure after buying and sending the codes on the gift card you realize that it may be a scam, quickly reach out the gift card company to report it. However this does not guarantee you will get your money back.
4. Don’t Take Investment Advice from Social Media
It is not uncommon to login to your social media accounts to find messages from people who claim to be brand representatives, trying to convince you to invest in a low risk but high return investment.
Yes, this person has your number or user name, sounds convincing and professional. But, it doesn’t mean the investment is legitimate. Some scammers even go as far as using romance bait. They connect with you on dating apps, WhatsApp etc.
The scammer would spend time, chat with you and build trust. When they feel you have let your guard down, they introduce an investment to you.
To make you feel safe, they may even make the first investment on your behalf, or request that you invest a small sum and you will get your returns initially. When you finally invest a larger sum, that’s the last you hear from them.
Sometimes, to make the investment look more legitimate, scammers use fake celebrity endorsements. They use celebrity names, and pictures to entice you. Always remember that your favorite Celebrities are probably not financial advisors but entertainers.
Scammers also use social media to perpetuate pump and dump schemes. The idea behind pump and dump schemes is that of demand and supply- the higher the demand for a stock, the higher its price climbs. They spread misleading news to entice people to buy a stock they have invested in as well.
When the price of this stock rises a result of the heightened demand, they sell the security they own (that has appreciated) causing a massive dump in the price of that security. You are left as a ‘bag holder’ with stocks that have collapsed in price and your loss, is their gain.
5. Beware Of Phishing
Phishing is a strategy used by scammers. It involves sending emails claiming to be a reputable company or brand, to convince you into revealing personal information like financial details, passwords and login details. Armed with this information, the scammers can steal your money and identity.
To make your feel safe about releasing information, scammers use logos, brand names, and even phishing websites that are similar to that of real and legitimate companies.
They propose lofty and unconventional investments like building an airport, starting a wine brand, or even importing goods from China. The potential profits are so enticing that you may be tempted to empty your account and borrow from friends to invest.
Pause for a second, don’t click the link they send. If you feel convinced by their email, search for the brand yourself and do a proper investigation. Will a renowned brand come to your DM or send you a mail to invest? Are legitimate brands that desperate?
Sometimes these scammers can claim to be from your bank, brokers or someone you know. they will request that your quickly tell them your credit card codes, or reveal some sort of personal information.
Some will send you emails containing links to copycat websites claiming you have won a free gift and once you attempt to login, your login information is stolen and then you are redirected to the original page to login again so you don’t suspect foul play. Be careful, call your bank, broker, friend or family member to confirm.
Wrap-Up: If an investment is too good to be true, no matter how convincing it sounds, then it is probably not worth the risk. If you feel it is legitimate, still do proper investigation before investing. Thankfully, CMA is there to guide you.