What are they and how to avoid them?

You are scrolling through your social media feeds. You saw it: “Double Money” programs or courses that teach you how to make money fast!

These get-rich-quick schemes appear on every platform in one form or another. The wording and call to action may change, but the tone remains the same. Unfortunately, we keep falling for it. Why is this happening? What can you do to avoid being fooled?

What is a get-rich-quick scheme?

The term “get rich quick” is used to describe shady investments with unrealistic returns. They give the impression that users can achieve such high returns with minimal risk with very little skill, effort or time.

Most of these programs are advertised through spam, cold calls, or social media ads. They date back hundreds of years and can take the form of systems, coaching services, work-from-home opportunities or other variations with deceptive promises of money making.

A Brief History of Get Rich Quick Schemes

In October 1822, Scottish adventurer Gregor McGregor left the coast of Central America for England. Upon his arrival in London, he was given the title of “Cazique” or Prince of Poas.

He claimed that he had discovered a new land, the kingdom of Boas, and offered people the opportunity of a lifetime. He described Boas as fertile land that could be harvested three times a year. The water in Poyais is so pure that it quenches thirst. On top of that, chunks of pure gold line the rivers of exotic lands.

Gregor MacGregor opened his office in London and began touting the benefits of investing or settling in Poyas. He would point to a book by Thomas Strangeways (actually McGregor himself) describing the virtues of the island to those who needed more persuasion. Soon, one could exchange pounds for boas dollars and even buy a piece of land in boas.

MacGregor raised nearly £200,000, or £3.6 billion today, but there was a problem. No Poyais! The entire project is the creation of his imagination.

The Poyais scheme is the most outrageous financial scam, but it is far from the first or last.

Get Rich Quick Schemes: Examples

Today, we see variations of the same scheme to scam people out of money through the art of persuasion. Below are some of the most popular examples of these scams.

1. Prepaid Fee Fraud

Prepaid fee scams are one of the most common trust tactics. These promise victims a large sum of money for a small up-front cost. But the money will never come…

When the victim pays the fee, the fraudster either disappears or invents a series of further fees to get the big bucks.

The most successful version of prepaid scams involves letters from wealthy people in trouble. They ask for a little money and promise a big reward once they get out of the way.

The letters used to come from so-called prisoners, but recently, the “Nigerian Prince” scam has become more frequent.

2. Pumping and dumping scheme

Pump-dumping or carpet-pulling schemes are another scam that makes millions of dollars a year. Fraudsters create buzz around worthless stuff and convince people to invest in it. Fraudsters dumped stocks at their peak as prices rose, keeping investors away.

Pull and dump schemes are very common in the cryptocurrency industry. Planners often send pump signals in messaging apps for insiders to buy tokens.

This boosted the price of the coin and attracted more users who thought it could be a profitable stock. Insiders then sell at the top price and the rest of the investors lose money.

3. Ponzi schemes

A Ponzi scheme is an investment fraud that uses funds raised by new investors to pay existing investors. It was named after Charles Ponzi, an Italian immigrant who made a wonderful promise in the 1920s. He guarantees to double your money within 90 days.

Most Ponzi scheme organizers promise to invest your funds in businesses with high returns and low risk. But in reality, the fraudsters used the money to pay early investors and keep some for themselves.

With no legitimate income, Ponzi schemes need a steady stream of new funds to keep the system going. When cash flow dries up or enough investors demand refunds immediately, the whole scheme falls apart. That’s 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 a pyramid scheme, fraudsters do not need to borrow money from new investors to pay early investors. Instead, members get paid if they can recruit new participants to the program.

As the membership pool grows, everyone gets a share. But at some point, further expansion was impossible and the plan became unsustainable.

Pyramid schemes often appear as legitimate multi-level marketing (MLM) businesses. These businesses use the profits from downstream sales to pay bonuses to recruiters. But these don’t have any legal sales. Instead, investors get paid from the money they receive from new investors.

5. Mentoring Program

Coaching plans can be thought of as premium fee plans, but instead of paying a little money now in exchange for a big buck later, users pay for knowledge that organizers promise will make them money.

But in most cases, the promise is wrong. The shows advertised often don’t deliver, and victims are often lured into more expensive classes to fulfill this fantastic promise.

Most coaching program organizers have compelling self-made stories and positive testimonials from clients to market their programs.

How to prevent get-rich-quick schemes

All of these programs use similar strategies and thrive in times of change. When Gregor MacGregor came up with the idea of ​​Poyais, several countries had declared independence, and it’s not hard to imagine Poyais might be one of them.

Scammers often take advantage of exciting or scary times, such as wars and epidemics, and offer unrealistic opportunities for returns. Even if you get higher returns initially, the money will dry up and you will eventually lose everything. So before you take action, keep an eye 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 bonuses.
  • Beware of plans advertised as “once in a lifetime” opportunities with unnecessary urgency.
  • If the details of earning and profit sharing are missing or unclear, it is likely a scam.
  • It’s also a red flag if you have to prepay for a job in the form of an “onboarding fee” or “buy-in.”
  • Avoid plans that use exaggerated marketing language, such as “be your own boss.”
  • Guaranteed income without experience or skills is another clear sign of a plan you should avoid.

You can’t get rich quick with these scams

These are some of the signs that identify a fraudulent financial scheme, but in any case, it is best to consider seeking financial advice before investing in any scheme. As they say, “If it sounds too good to be true, it probably is”.

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