Over the last few days, there have been a spate of stories in the media about multi-level-marketing schemes that were, apparently, little more than Ponzi schemes. Like all such schemes, these too relied on the perpetrators’ keen appreciation of the general lack of knowledge about how this thing called money works.
It’s interesting to note that such schemes can be completely online. All interactions, as well as the product (or investment) being sold had only a digital existence. To use the latest buzzword, this fraud was deployed completely in the cloud.
But that doesn’t change the fact it exploited an instinct that is probably as old as civilisation itself. There are a lot of people whose idea of investing is that there’s someone out there who knows a secret of making money effortlessly and they too could do the same if only the secret was theirs too.
Now, I won’t argue that such a holy grail don’t exist. To pick some names at random, Mukesh Ambani, Warren Buffet and Goldman Sachs surely have some combination of abilities and knowledge that you and I don’t have.
However, no one is going to make you part of this inner circle for R11,000 paid online. There’s a normal range of how much return an investment can get.
This depends on whether it’s equity or debt, or even employment or entrepreneurship, something that isn’t clear in these survey companies. There are no free lunches, and in fact there may not even be any low-price lunches.
Much of the coverage of Ponzi schemes have focussed on the details of their businesses and how they could/should be detected and cracked down upon. I don’t think this is a useful approach.
As long as a large number of people are willing to believe in such schemes, they’ll keep happening. Among the first few referrals a scheme gets, someone should be able to stand up and say that this must be a fraud because it’s too good to be true.