Hachigabalala needed money to pay off 25% of his son’s tuition fees. His son was about to sit for end-of-year examinations and needed to clear outstanding balances.

Where was he to get the 25%? As he sat down in the staff room, trying to open his email to look at his payslip for the 11th time that day, he knew he had to do something real quick, or else his son was not going to write his examinations. Studying his payslip, he had no hope of being eligible for a loan top-up, with kaloba people on his neck. The only money he had was the funds for the men’s church group, which was intended for an upcoming conference, and as treasurer, he was to hand over the money to the district in a few weeks’ time.

As he sat with a splitting headache, Mubita, his Lozi mbuya and head of department, came through to speak to him about this new company that was offering bonuses if he joined and invested money. At the point Hachigabalala had reached, it was a job 13 vs 13 situation — whatever was to befall him would befall him.

He needed to raise money for his son’s education. He got the entire 3,500 for the men’s church group and invested in the scheme. He was immediately given a chance to spin a wheel, which gave him bonuses and awarded money to his account. He was informed to keep the money intact for a week before withdrawing and was given a day when he could withdraw if he so wished. He impatiently waited for the day he was given and was able to withdraw from his account, with a bonus awarded to him. He could not believe that from a simple 3,500, he now had 15,000. From that amount, he was able to pay back the church money, pay his son’s fees, and remained with something to reinvest.

He ended up buying a drink for Mubita and reinvested the rest of the bonus money. Hachigabalala was now on a mission to recruit more members, as this raised his bonuses. The more members he recruited, the more bonuses he received. He eventually started considering applying for a loan from a micro-financing company so that he could reinvest in the same scheme. He applied for a 100,000.00 loan, whose bonus was pegged to be 500,000 after 50 days.

On a Monday morning, Mubita walked into the classroom sweating. “Our money is gone, cousin! We have lost it all! The scheme is down, nothing is working!” Hachigabalala started adjusting his necktie. He was finding it hard to breathe. He had invested a total of 115,000.00. The 100,000.00 was a loan, and he had even topped up 15,000.00 from the church money, which was in his possession as treasurer. “This is God punishing me,” he exclaimed!

Scammers often try to lure people into investment schemes with the promise of easy money at a high return. These include pyramid and Ponzi schemes.

A pyramid scheme is a form of investment scam that offers you quick and easy money in return for cash. It offers you an opportunity to buy into a scheme or market a particular product. You then make money by recruiting others into the scheme rather than selling the product itself.

A Ponzi scheme is a form of investment scam where the money victims “invest” is used to pay returns to people who have already invested. Because of this, early investors sometimes make returns and, believing it is legitimate, are encouraged to keep investing. Money goes round and round without any real investment. This continues as new investors join, but once the scheme runs out of new investors, it collapses, and everyone loses their money.

Ponzi scheme promoters promise a high profit at little to no risk. Investors will often encourage their friends and family to invest. Ponzi schemes typically pretend to be financial service products like equities, bonds, shares, or cryptocurrency.

In multi-level or network marketing (MLM), individuals sell products to the public. They usually do this by word of mouth or direct sales and earn commission. The commission made is not just on their own sales but also on sales made by the people they recruit to the scheme.

A legitimate MLM scheme uses the profits from sales to pay bonuses to recruiters, but not all MLM schemes are legitimate. If the money made is based on your sales to your customers, it may be legitimate. If the money made is based on the number of people you recruit and what you sell to them, it’s probably not — it could be a type of pyramid scheme and therefore illegal.

There are certain clues you need to be alert for to know whether you are getting involved in a pyramid or Ponzi scheme, such as:
• Your income from the scheme is based on introducing other people to the scheme rather than selling a product or service.
• You are told about the scheme by word of mouth or personal invitation rather than it being openly advertised.

Pyramid schemes now come in so many forms that they may be difficult to recognize immediately. However, they all share one overriding characteristic — they promise consumers or investors large profits based primarily on recruiting others to join their program, not based on profits from any real investment or sale of goods to the public.

Some schemes may purport to sell a product, but they often simply use the product to hide their pyramid structure. There are two signs that a product is simply being used to disguise a pyramid scheme: inventory loading and a lack of retail sales.

Inventory loading occurs when a company’s incentive program forces recruits to buy more products than they could ever sell, often at inflated prices. If this occurs throughout the company’s distribution system, the people at the top of the pyramid reap substantial profits, even though little or no product moves to market. The people at the bottom make excessive payments for inventory that simply accumulates in their homes.

A lack of retail sales is also a red flag that a pyramid exists. Many pyramid schemes will claim that their product is selling like hotcakes. However, on closer examination, the sales occur only between people inside the pyramid structure or to new recruits joining the structure, not to consumers in the general public.

A Ponzi scheme is closely related to a pyramid because it revolves around continuous recruiting, but in a Ponzi scheme, the promoter generally has no product to sell and pays no commission to investors who recruit new “members.” Instead, the promoter collects payments from a stream of people, promising them all the same high rate of return on a short-term investment.

In the typical Ponzi scheme, there is no real investment opportunity, and the promoter just uses the money from new recruits to pay obligations owed to longer-standing members of the program — which is like stealing from M to pay N.

Both Ponzi schemes and pyramids are quite seductive because they may be able to deliver a high rate of return to a few early investors for a short period of time. Yet both pyramid and Ponzi schemes are illegal because they inevitably must fall apart. No program can recruit new members forever, and when the scheme collapses, most investors find themselves at the bottom, unable to recoup their losses.

Why do people join pyramid schemes? Some reasons are “participant-dominant,” including the vision of high reward for little work and the attraction to a better lifestyle. Other reasons are “organiser-dominant,” including the exploitation of specific groups and high-pressure sales.

Even though we hear of people losing money to these schemes every now and then, one might wonder why people still fall for them. Others will want to blame the economic challenges, such as unemployment and loss of income.

What is special about pyramid schemes is that they are enabled by the active participation of victims. While many participants in pyramid schemes lose cash and/or suffer other harms, the vast majority of participants also facilitate illegal pyramids by actively recruiting new victims in an attempt to turn even more people into active recruiters.

Some participants know what they are doing might be a pyramid scheme but think they are in a position to recruit a large number of other victims to join the scheme so as to earn more money. This puts most participants in the position of a victim who is effectively trying to become a perpetrator — with the vast majority of them failing to do so.

Some victims are attracted to the lifestyle joining pyramid schemes enables. The promoters of pyramid schemes exploit the presentation of an achievable and desirable lifestyle to involve victims. Some schemes, for example, offer opportunities for social gatherings of like-minded individuals at events or even online meetings.

In some cases, events are used to build up the loyalty of new members, including schemes related to improving physical fitness and schemes focusing on members who might lack social networks.

Pyramid schemes are increasingly enabled by social media. A scheme has the potential to grow exponentially when large groups of like-minded people are encouraged to promote the scheme to others. This is often founded on promoting individuals who have done exceptionally well from the scheme, with messaging that others could also achieve these outcomes.

The scheme can reach even higher levels of interest if celebrities or social media influencers endorse such schemes. Members involved in selling through pyramid schemes are often encouraged to post signs of their success — especially when they are on holiday or in a good restaurant — to highlight the successful lifestyle associated with participation in a pyramid scheme.

Family members, friends, or trusted persons are used to contact associates about an exciting business opportunity. They are invited to an event or meeting, which is only scheduled once in the locality. They attend the event with the associate and are subjected to a highly persuasive and pressured sales presentation. They are then offered a unique, sometimes “time-pressured,” opportunity to join.

Once at a meeting or event, the attendees are subjected to an intensive sales programme that might last several hours. The meetings are usually started with a number of questions to the newcomers: Are they happy with their standard of living? (The answer is mostly negative.) Do they have debts? (Always positive answers.) Could they use more money? (Well, who doesn’t need more money?)

Most pyramid scheme victims are subjected to long training periods in isolated locations to secure their commitment — which is basically brainwashing.

If we adults are becoming too lazy to work and want to earn the easy way through Ponzi and pyramid schemes, then what are we teaching the younger generation about hard work?

We live in a society where we are always ready for a reward but rarely ready for hard work. If it’s too good to be true — making money by simply watching movies or making beads — then walk away from such.

Seek help when in need. Visit a counsellor near you!

About the author

Aka Monde, is a licensed Professional Counsellor who holds a Master of Science in Counselling from the University of Zambia. She believes in the adage “a problem shared, is a problem half solved.” Speak to your pastor, church elder, elderly family member or see a professional counsellor when in need.

Email: [email protected]