Subscribe to Entrepreneur for $5

Enter the Flower of Abundance? 5 keys to detect pyramid fraud

Watch out. If something sounds too good to be true, it probably is.

This article was translated from our Spanish edition using AI technologies. Errors may exist due to this process.

Have you ever been invited to participate in investment or savings chains such as the Flower of Abundance ? Beware, this is a scam.

The National Commission for the Protection and Defense of Users of Financial Services ( Condusef ) has constantly warned about this format of pyramid schemes or Ponzi .

During her participation in the MoneyFest 2021 personal finance festival, Karem Suárez , a Colombian YouTubera specializing in personal finance with more than 100,000 subscribers, shared five guidelines to identify businesses that promise to be rich overnight.

According to the specialist, you should suspect an "investment" if:

1. They have a bad reputation

Many of these businesses are accompanied by words like "revolutionary", "innovative" and "trending". That is why it is important to research these investments on Google because it is relatively easy to find headlines that speak of them. If the business is not legitimate, without a doubt you will be able to find complaints in forums, news and mentions on social networks.

2. They ask you to give money to a person and not to a company

According to Karem Suárez this is one of the strongest red flags when it comes to apocryphal investments. A company must have, by law, public information, a clear objective, it is duly constituted. This means that it is regulated by one of the following financial institutions:

  • Finance and Public Credit (SHCP): The head that authorizes how the financial situation in the country will work.
  • National Banking and Securities Commission (CNBV): It is the one that authorizes the operation of banks, brokerage houses, in Mexico it is forbidden to gamble money without being authorized by the commission
  • National Insurance and Bond Commission (CNSF): In Mexico you can only purchase insurance through an agent that is authorized by the CNSF.
  • National Commission of the Retirement Savings System (Consar): The one that regulates the Afores and everything that has to do with retirement money.
  • National Commission for the Protection and Defense of Users of Financial Services (Condusef): It is the PROFECO of all financial services, banking, stock market,
  • Institute for the Protection of Savings in a Bank (IPAB): If you save in a bank and it disappears, the IPAB protects you for up to 400 thousand UDIs. That is why it is very important to diversify.
  • System of the Registry of Financial Service Providers (SIPRES): Here you can see which financial companies that "have already done their job" and are already regulated.

If when someone invites you to an operation that is not regulated, they resist giving you information about the company or ask you to give money to a person directly and not to a firm, abstain .

3. If they tell you that the investment is simple and without risk

We are going to be very clear: there is no investment that is without risk, no matter how minimal .

There are two types of investments:

  • Fixed Income: The one that gives you a very approximate idea of what your return on investment will be (such as CETES and bonds).
  • Equities: They do not have a fixed return on investment because they depend on the environment that can be volatile (for example, company stocks, ETFs, currencies and cryptocurrencies).

No one can tell you exactly how much you are going to earn on investments because by nature they are unpredictable.

So simple: if you really earned so much with that investment, you would not be invited (who gives the goose that lays the golden eggs?).

4. If they push you to enter NOW, NOW, NOW!

This scam recruiting strategy takes advantage of the FOMO ( Fear Of Missing Out ). That is, they convince you that if you do not enter the investment today, the opportunity will not appear again.

The reality is that good investments must be studied and analyzed. Never forget that in fact, the first thing you should invest is your time to know what you are entering, if it fits your short, medium or long term goals, and if an offer is legitimate.

If they insist that you must enter now because the places are running out, "give yourself the luxury" to protect your peace of mind and your money and decline to participate. There are always opportunities for those who seek them.

5. If they ask you to invite other people to win

Did you know that a pyramid scheme can only have 13 levels before the entire human population is depleted? That is one of the great tricks of scams of this type.

Be careful, a legitimate multilevel business that does offer a product and is regulated is not the same as a pyramid scam that works with intangible assets.

Remember, as Karem Suárez says, the only magic formula to get rich is financial education.