Quick Facts About Forex Pyramid Schemes: How a Fake Broker Looted Billions In Asia

With a daily trading turnover of 6.6 trillion U.S. Dollars, the forex market has always been a potential target of fraudsters. Investors have lost thousands of dollars to money stealers for years. Amongst other forex scams, pyramid schemes are the most prevalent. Since such schemes work the same as Multi Marketing Level (MML) companies offering higher returns, it becomes difficult to tell if it is a legitimate setup or a scam. Investors with little knowledge have a higher chance of becoming the target of these looters. In this article, we discuss the pyramid scheme and how to avoid falling prey to it. 

What is a Pyramid Scheme?

Pyramid schemes are fraudulent money-making schemes that frequently enlist new members looking for an investment opportunity.  In such setups, promoters attract clients who, in turn, attract more investors, and the process goes on. Since the number of clients rises with each level, the system is called a "pyramid". For the tiny number of early investors at the top, the plan needs a vast investor base to maintain it by paying out earnings to the early joiners. 

How Does a Pyramid Scheme Work?

Scammers offer lucrative profits in a typical pyramid scheme - and they keep their promise for a while. However, they don't make any investments. Instead, they borrow money from new clients to cover their previous debts, including the "ground floor" profits promised to those who invest early. The system collapses when the setup fails to bring enough new money to keep it afloat. 

(Image Source: Medium.com)

Example: A pyramid scheme looted RM126.9m in Malaysia

A pyramid scheme called "Guardian Capital Group (GCG)" came into the limelight after getting reported for confiscating RM126.9 million from investors in 2022. The Malaysian Police arrested a gang of ten individuals, including the mastermind "Datuk". After conducting a thorough inquiry, the investigation determined that the syndicate had been operational since 2018, and the mastermind was using the title "Seri" for business operations. Other suspects apprehended were brokers, financial managers, search agents and account holders.

Although Guardian Capital Group (GCG) Indonesia was found guilty of committing the syndicate, AML findings confirmed its owners were based in Malaysia and allegedly defrauded people in different parts of the world. For instance, investors in other countries like China, Thailand, Indonesia, and several other Asian countries also became victims of the syndicate and lost millions.

Further investigation revealed that preparators used to attract local investors by promising them 12-14% returns on their investment every week. By providing online access to investors so they may track their earnings, the suspects used to ensure that none of the funds was redeemable. Subsequently, the syndicate halted its operations after cutting off connections with investors following the receipt of a considerable quantity of investment. Initially, 23 cases were under investigation involving a loss of around RM2.94 million.

How to avoid falling prey to pyramid schemes?

Here are some methods to avoid pyramid schemes:

▶ Check the company’s regulation

Regulated entities are likely to be more secure and transparent than non-regulated ones. Ask your prospective company to provide you with its registration number and trace it on the respective regulatory authority's website to confirm its regulation status. 

▶ Security

Checking what security measures your prospective firm has in place is also crucial. For instance, ensure that the company employs advanced safety features such as SSL encryption and two-step authentication. 

▶ Reputation

Reputable companies are typically safe for investment. Therefore, checking the reputation of your prospective company can be an effective method to avoid falling prey to pyramid schemes. Try reading online reviews of the company's existing clients on third-party rating websites (i-e, TrustPilot, Reddit, Quora, etc.) to know if it is worth signing up. 

▶ Bottom Line 

Most countries have laws against pyramid scams. If you get trapped with such companies, you can take action against scammers, but you might not be able to fully recover your loss. Always remember that it is unlikely for an investor to become a millionaire overnight. So avoid signing up with an entity that promises unrealistic returns.