The greedy and the gullible
Reports on financial scams have again dominated the print, broadcast, and social media this week. It seems that we have not learned our lessons in the past and that we have entirely forgotten big pyramiding and investment scams such as the Legacy Group, Aman Futures, Powerhomes, Kapa, forex investment scam, and many more.
The recent Repa scam does not require any sophisticated knowledge for a person to realize that he is duped with a promise of a high return in a short period of time.
Legitimate financial advisors have always forewarned us that there is always a trade-off between risk and return. But we seem to be lured by the tempting promises of the scammers. The gullible look 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 registered, regulated, and subjected to stringent reporting and disclosure rules under the Securities Regulation Code.
An investment scheme offering earlier investors 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 issuing 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 was 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 would 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.
Due to either dire need or pure greed, many people fell into schemes masquerading as the pathway to financial freedom. Justice Romero, in People vs. Priscila Balasa, et al., G.R. No. 106357 September 3, 1998, summarizes man’s gullibility to financial fraud in this wise:
“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 unsuspecting public of their hard-earned money. History has thus seen the unraveling of various disingenuous stratagems which are at bottom nothing but seams.”
The internet, print and broadcast media, and the courts have unmasked numerous scams in the past. 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 it may be hard to distinguish it from legitimate investments for some people. However, to spot whether an investment offer is legitimate or a scam, the rule is simple. It is always hard work coupled with living in moderation that leads a person to a comfortable and peaceful life. The insatiable greed for more money to fund an extravagant lifestyle is a sure pathway to hell.