THE Covid-19 pandemic has caused a financial strain on many South Africans who are struggling to make ends meet.  To make matters worse, scam artists are using these unfortunate circumstances to their advantage and are preying on unsuspecting people.

This is according to Farhana Sewpersad, regional general manager at Momentum, based in Berea.

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Sewpersad said scammers feed on current and pressing needs during times of economic hardship, claiming high returns, offering guarantees when there are higher levels of uncertainty and volatility, or promising ‘too-good-to-be-true’ tax-efficient investments to attract investors. 

What’s more, using social engineering tactics, scammers draw would-be investors into schemes by appealing to their sense of trust or hope with the most common investment scams being Ponzi or pyramid schemes.

“Fraudsters infiltrate a community using a trusted financial adviser, who themselves have been lured in by the exuberant commission structures, to win over potential investors. “

As the adage goes, ‘if it’s too good to be true, it probably is,’ says Sewpersad.

She explained that although scammers may present a good case for joining their investment using attractive statistics, would-be investors should approach any investment opportunity promising high returns with caution.

“The risk with investment schemes of this nature is that they cannot deliver on their promise of high returns.

“The money you invest may even be used for something completely different to what you were led to believe, which could result in you losing the full initial investment,” she said

Sewpersad added that in most cases the money you ‘invest’ is used to generate returns for earlier investors, depending on your ranking in the scheme.

“Once the number of existing members outweighs the number of new members joining the scheme collapses, and all the money is lost.” 

“Like any service that promises results that are too good to be true, there are always indicators that should make you want to ask more questions,” she said.

Sewpersad highlights three red flags that will help consumers to avoid being misled.

Lack of transparency

Ensure that you have all the details in writing and that there is paperwork you can refer to. Find out how the investment actually generates returns. “For example, a property investment cannot offer an outside investor ‘double the returns’, especially in the short-term, explained Sewpersad. “If you don’t understand how the money is generated, then this is a tell-tale warning sign that something is amiss.”

Terminology and time pressure 

“If you hear or see the words ‘act now’, warning bells should start to ring. You need to do your research and exercise due diligence with any investment – and any financial adviser worthy of the title will encourage you to do this. You cannot make a fully informed decision in a matter of minutes or even hours, and if you are pressed to respond immediately, rather do not opt in,” said Sewpersad.

Third party payments

Sewpersad highlighted that no reputable investment house will ever ask you to make a payment to a third party without explicit reference to the investor as the beneficial owner. He/she explains that if the investment product is not registered or offered by an authorised financial services provider, you can assume that it is not a trustworthy or genuine investment opportunity.

“As a potential investor, the onus lies on you to do your homework. Do not take opinions or information at face value – never trust someone blindly, not even family. Request a reference, ask for a second opinion, and don’t ever feel that someone is rushing you to reach a decision”, said Sewpersad.

“When in doubt, consult a financial adviser from an accredited financial services provider such as Momentum, who will be able to assist you with your money-related questions.”

Caxton Local Media Covid-19 reporting