PROTECT YOURSELF FROM INVESTMENT FRAUD

BEFORE YOU LOSE YOUR MONEY: READ THIS 

So many people have been asked to join an investment scheme of one form or the other. Often the scheme comes with a joining fee which qualifies one to be designated a member. In some cases, the so-called investors are hooked by the promise of significant wealth as they recruit more and more people. In other cases, ‘investors’ are told to leave their finances with a company which promises to return the money doubled or trebled in a few weeks. So widespread are these arrangements, that even the most enlightened, intelligent and wise in society have on occasion fallen prey and lost significant amounts of money. In one such case it was reported that losses were suffered to the tune of close to USD 2.6 million. This amount, well invested, could significantly develop communities and households. The opportunity cost of such magnitude is extremely high, justifying the need for intervention in one form or the other. In light of this, Brentwood Chambers has seen it necessary to outline some of the key features of these fraudulent investment schemes through this brief article. We also outline some useful information to protect the public from investor fraud.

1. Investment professionals are highly regulated 

The starting point is to know that investment professionals are highly regulated and operate under license. This simply means that not everyone can go about collecting investment money from the public. The level of skill and knowledge required to efficiently and effectively invest wealth is extremely high and not every layperson meets the grade. It is therefore logical that whoever is permitted to invest on behalf of institutions and individuals must possess the requisite skill and knowledge. In Zimbabwe, all investment advisers, investment advisors and investment managers must be licensed by the Securities and Exchange Commission if they deal in securities. Securities is given a broad definition to include shares in a company, debt instruments and a contract designed to exploit foreign currency exchange differences. 

“All investment managers and advisers must be licensed in order to advise or manage investments in securities” 

There is therefore scope for arguing that even those individuals who purport to give expert advise regarding investment in foreign currency trading and digital currencies such as bitcoin ought to be licensed by the commission. The objectives of the commission in so doing include protection of the public and enhancing investor confidence. 

2. Unregistered Collective Investment Schemes are illegal 

Next, it is important for the Zimbabwean investing public to know that all unregistered collective investment schemes are illegal. The law goes so far as to prohibit even the mere advertisement of an unregistered collective investment scheme. This again is done to protect the public from fraudulent schemes designed to fleece them of their money through sleight or deceit. The Collective Investment Schemes Act loosely defines a collective investment scheme as an arrangement where participants pool resources together in order to participate in the profits of those resources together. Pyramid schemes in which individuals are asked to pay joining and investment fees, come to mind especially if one considers that they are often incentivised by pay-outs from pooled funds of other investors. 

3. Investors must conduct thorough due diligence 

Before one invests in any venture, scheme, business or trade, one must be careful to conduct thorough due diligence. The due diligence must assess the legitimacy of any investment proposition and will serve to hedge the investor from the risk of fraud. It is therefore imperative that one should contact his or her legal practitioner to assess the legal status of any investment prospect before and not after the investment is done.  

Points to ponder 

In closing, here are a few interesting points to consider before giving away your hard-earned money in the hope of abnormal profits. 

• Why are the networking marketing proponents who promised supernormal profits to individuals in their marketing efforts not significantly wealthier by now? 

• Do I need someone else to buy bitcoin for me and can I not buy it on my own? 

• Is there any logic in paying money to join a scheme that will ask me to recruit more people? Am I not just paying in order to work? 

• If I am actively recruiting people into an investment scheme, am I not actively participating in fraud. 

• Before I invest, do I really know what I am investing in? 

Conclusion 

Due to the wide range of interesting issues related to this topic, this article was one of a two-part series meant to help protect your money.