The Public has been urged to beware of investment schemes that promise exaggerated and unrealistic earnings in returns on their investments.
Dr Benjamin Amoah, Lecturer, Central University, who gave the warning, also urged the public to verify the investment details and backgrounds of such schemes before committing their funds into such schemes.
Dr Amoah also advised Accountants and Auditors against accepting auditing and accounting contracts from such financial institutions, and was emphatic that such investment schemes were bound to collapse, adding that the longer the schemes existed, the greater damage it would cause to members of the public who patronized such schemes.
He stressed the need for financial market regulators to co-operate and collaborate to be able to effectively deal with the fraudulent activities of illegal, unregistered and unlicensed financial schemes.
He also underscored the importance of sustained financial literacy awareness creation campaigns to inform the general public about investment frauds.
Dr Amoah was a delivering a lecture in Accra on Friday, March 29, 2019 on the topic: Addressing the threats of Ponzi Schemes―A shared responsibility.
The lecture, organized by the Institute of Chartered Accountants, Ghana (ICAG), was the first of the quarterly public lectures in the year 2019. The quarterly public lectures were instituted to provide a platform for ICAG to present its views on national issues or discuss national and key government policies.
This lecture, therefore, aimed to interrogate the issues for possible interventions in overcoming the challenges arising from the fraudulent operations of illegal financial institutions known as Ponzi schemes.
In another presentation on the topic, Dr Settor Amediku, Director, Payments Systems Department, Bank of Ghana, attributed the manipulation of the public by Ponzi schemes to greed on the part of the victims.
Dr Amediku said vigilance was required and urged the public to examine the prevailing financial market data to determine whether or not such schemes were genuine.
He said wealth was built gradually and that unrealistic returns on investments were baits to rob victims of their acquisitions. He, therefore, called for intense and sustained awareness creation in churches, schools, homes and marketplaces as a way of addressing the investment fraud menace.
Mr Emmanuel Ashong-Katai, Head of Research and Policy, Securities and Exchange Commission, who also spoke on the topic, reiterated the need for an intensive financial literacy media campaign.
Mr Ashong-Katai said addressing investment fraud would require the removal of regulatory gaps and overlaps in the non-bank financial institutions sector, and called for a re-definition of Ghana's financial regulatory architecture.
Furthermore, he said, a comprehensive legislation on Ponzi schemes was required to address the vacuum created in the Criminal and Other Offences Act, 1960 (Act 29) as Amended.
Welcoming participants to the lecture, Professor Kwame Adom-Frimpong, President, ICAG and Chairman for the occasion, explained a Ponzi scheme as an investment fraud that paid existing investors with funds collected from new investors.
Professor Adom-Frimpong said the basic premise of a Ponzi scheme was "to rob Peter to Pay Paul".
"Initially, the operator pays high returns to attract investors and entice current investors to invest more money. When other investors begin to participate, a cascade effect begins. The scheme pays a 'return' to initial investors from the investments of new participants, rather than from genuine profits," Prof. Adom-Frimpong explained.
He continued: "Often, high returns encourage investors to leave their monies in the scheme, so that the operator does not have to pay very much to the investors. The operator simply sends statements showing how much they have earned which maintains the deception that the scheme is an investment with high returns."
Prof. Adom-Frimopong explains further: "Operators also try to minimize withdrawals by offering new plans to investors whereby money cannot be withdrawn for a certain period of time in exchange for higher returns. If a few investors do wish to withdraw their money in accordance with the terms allowed, their requests are usually promptly processed, which gives the illusion to all other investors that the fund is solvent and financially sound.
He said Ponzi schemes could continue in existence for as long as they could continue to attract new investor.
However, he said, all Ponzi schemes would eventually crash with the operator disappearing with the remaining invested funds when investors tried to recover their investments and he could not pay the unrealistic returns, or Government uncovered the fraud and intervened.
Prof. Adom-Frimopong said the wide gap between 'money in' and 'fictitious gains' made it virtually difficult to assess loses in any Ponzi scheme.
He, therefore, urged the public to exercise due diligence in selecting investment schemes as well as consult third party―licensed financial advisors― before taking investment decisions.