By: Atty. Gregorio B. Austral, CPA
Courting misfortune
“Greed has always been one of man’s failings. The hope of greater gain has lured many a man to throw caution, and his common sense, to the wind. This human foible, known to many, has been exploited throughout the ages by con men, charlatans and cheats to bilk the gullible public of their hard-earned money. History has thus seen the unraveling of various disingenuous stratagems which are at bottom nothing but seams.” (People vs. Priscila Balasa, et.al., G.R. No. 106357 September 3, 1998)
Due to either dire need or pure greed, many people fell into schemes masquerading as the pathway to financial freedom. Now, scammers are here again to rob the people of their hard-earned money. It seems that we have not learned our lessons in the past and that we have completely forgotten big pyramiding and investment scams such as the Legacy Group, Aman Futures, Powerhomes, and many more.
Although we have always been forewarned by legitimate financial and investment advisors that there is always a trade-off between risk and return, we seem to be lured with a promise of high return. The gullible just looks at the side of the return and never realizes that the risk involved is as dangerous as a black hole. Although some high-yielding investments are indeed risky such as equity securities and derivative instruments, these are however registered, regulated and subjected to stringent reporting and disclosure rules under the Securities Regulation Code, the BSP and other regulatory agencies.
An investment scheme offering earlier investors with a very high return by paying the same using the money received from later investors is known as a “Ponzi Scheme”. It is named after Charles Ponzi who was involved in the issuance of bonds offering 50% interest in 45 days or a 100% profit if held for 90 days. However, Ponzi paid his earlier investors from the money received from later investors, thereby luring more people to put their money under a mistaken belief that the investment scheme is legitimate as earlier investors have received extravagant returns.
The scheme promises fortunes without producing goods and performing services. If this promise were true, the world will be four times richer in one year. However, if left uncurbed, world economies will crumble in less than one year as everyone will just be sitting down while waiting for the fortunes to come.
Ponzi schemes have been unmasked to the public through the internet, print and broadcast media and in court cases. However, as Justice Romero wrote in her ponencia, “a sucker is born every minute.” As a result, fraud has evolved along with human civilization. It has many faces, and for some persons, it may be hard to distinguish it from legitimate investments.
Beware!