WHILE most people would jump at the opportunity to put money into a surefire investment that promises above-market returns, events over the last few days suggest the use of caution if anyone tries to sell you on such a deal. You could become the victim of a Ponzi scheme, a type of ruse that for almost 100 years has ripped off investors of tens of billions of dollars.

And just 15 years after a slew of such schemes emerged in the island, bilking thousands out of US$1 billion to US$2 billion (depending on the estimate used), another has emerged, Warner Jamaica Media, scamming some 50,000 Jamaicans out of millions. The Financial Services Commission (FSC) has already said it will be investigating the entity and will enlist international partners to help. But what can you do to avoid falling victim to these “get-rich-quick” schemes.

First, the FSC, as the regulator of investment schemes in Jamaica, has indicated that there are several “red flags” which any individual should check before investing.

The most obvious of these red flags should be whether the entity offering an investment security is registered with the FSC. Another red flag is a promise of guaranteed high returns over a short period of time. The FSC also said any individual investing in any scheme should take note of whether the organisation has secretive or complex operations that are difficult to understand and whether the investment has no underlying asset. It also recommended that potential investors ask lots of questions about any parts that are unclear or too complex.

But if you are still unsure about the investment scheme, the FSC wants you to contact its office.

“We will check if the investment is legitimate,” the institution which has regulatory oversight of Jamaica’s insurance, pension, and securities industries under the Financial Services Commission Act said.

News swirled last week about the meltdown of Warner Media, an online digital currency scam which involved an estimated 50,000 Jamaicans, some of whom lost between $7,500 and $3 million.

The Ponzi scheme, which lasted a little over six months, promised its members that if they committed to clicking on a few links per day, they would be rewarded with cash, but the faster way to accumulate a lump sum of money would be to get friends and family members to invest cash into the business.

Last week the Jamaica Observer heard that a number of the investors had borrowed money to invest in the scheme and were pleading with those at the top of the fraudulent investment scheme to refund their monies.

“Please, unuh duh, gi mi back. Lord have mercy! A people money mi borrow,” cried one woman believed to be in her mid-50s.

“A $1 million mi borrow fi put inna dis, enuh…” cried another man.

According to Investopedia, a Ponzi scheme is a fraudulent investing scam which generates returns for earlier investors with money taken from later investors. It’s similar to a pyramid scheme, in that both are based on using new investors’ funds to pay the earlier backers.

Both Ponzi schemes and pyramid schemes eventually bottom out when the flood of new investors dries up and there isn’t enough money to go around. At that point the schemes unravel.

The term “Ponzi scheme” was coined after a swindler named Charles Ponzi in 1920. However, the first recorded instances of this sort of investment scam can be traced back to the mid-to-late 1800s and were orchestrated by Adele Spitzeder in Germany and Sarah Howe in the United States.

The world’s largest Ponzi scheme was carried out by Bernie Madoff, conning thousands of investors out of billions of dollars. But locally the Cash Plus scam in 2002 is still fresh in one’s mind. The scheme promised lenders up to 120 per cent in annual returns, with 10 per cent paid back monthly. It collapsed in 2008, owing some $10 billion to more than 40,000 investors.

Other notable failed investment schemes include Olint, World Wise, LewFam, Loom, and Global Manpower.

The FSC says it’s currently conducting investigations into the entity and its principals after it became aware of the financial scheme through its social media monitoring. But, in the meantime, it is advising individuals to follow the tips below before investing their hard-earned money:

* Ensure the dealer/investment adviser is licensed by the FSC.*Check for the last audited financial statements of the firm and seek help from an independent expert to explain the things you don’t understand.*Ensure you are comfortable with any document that you are asked to sign. Take it and get a second opinion.*Ensure you understand the level of risk you are taking.*Ensure you remember that the higher the return, the greater the risk.*Ensure you know what investments you’re buying. Seek advice if you don’t understand.*Ensure you monitor your investment. Get regular statements and make a new appraisal of the firm/individual and the investment instrument.*Ensure you don’t hesitate to contact the Financial Services Commission (FSC) if you are not satisfied with the quality of service you receive.