Parliament passes motion to ban Ponzi and Pyramid schemes – after MPs lost millions

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Members of parliament on Thursday unanimously condemned fraudulent investment firms commonly known as Ponzi or Pyramid schemes.
A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. Money invested by clients is not invested in any legitimate business but used to pay the people operating the scheme as well as those who invested earlier on. This is why Ponzi schemes can sometimes appear to be genuine and profitable investments; because the people who invested first seem to be benefitting.



A pyramid scheme is similar to a Ponzi scheme but, like the name “pyramid” suggests, it is based on a hierarchy whereby new investors are the bottom of the pyramid. The income they provide by paying membership fees or an initial investment is used to pay original investors. These new investments are marked as a profit from a legitimate transaction. However pyramid schemes, like Ponzi schemes, do not sell products or make real investments – they simply rely on money from new investors which is channeled to those at the top of the pyramid. They only generate income by promising extraordinary returns to new recruits to convince them to invest; and may require recruits to bring in additional investors before receiving payment.



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Both Ponzi and pyramid schemes always collapse though, as it becomes unsustainable for those running it to deliver on the promises they have made to investors. Once they collapse, there is often no way for those who invested to recover their money.
A motion moved by Hon Mwine Mpaka, (NRM, Youth, Western) urged government to ban all Ponzi and Pyramid schemes.
April last year, The Bank of Uganda cautioned the public against investing in Ponzi schemes.
Mwine Mpaka, added that the schemes have robbed Ugandans of their money and that bank accounts of the individuals operating the fraudulent schemes should be frozen.



Hon. Lydia Chekwel (Indep., Kween) said that she too was duped into the schemes and that she even failed to take her children to school.
“I was recruited into this scheme; I got excited and recruited my husband as well. We were defrauded to the extent that we failed to pay children’s school fees. I still have receipts to prove this,” she said.
The Deputy Speaker, Jacob Oulanyah, noted that a big number of MPs had been victims of fraudulent Ponzi and Pyramid schemes.
According to Bank of Uganda, some signs that an investment may in fact be a Ponzi or Pyramid scheme; include
1. It guarantees you high returns with little risk of losing your investment. A good general rule to follow is; if it sounds too good to be true, then it is false.



2. It promises you consistent returns regardless of the market conditions. Legitimate businesses usually experience times of profit and times of loss.
3. The investment strategy or business activities are described as too complex for investors to understand, or top secret. If a business idea cannot be explained, it is suspicious



4. The company or proprietor running the scheme focuses all their energy into attracting new clients to make investments. Without a constant flow of new investments to continue to provide returns to the scheme owners and older investors, the scheme falls apart.
5. Both old and new clients face difficulty trying to remove their money from the scheme. Many times, it has already been spent on paying the proprietors or other investors.

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