KAMPALA – The Bank of Uganda (BOU) has warned the public against investing in businesses which sound too good to be true also explaining that such dealings could be Ponzi or pyramid schemes.
In the statement dated Monday 17, central says that’s Ponzi or pyramid schemes are fraudulent investing scams promising high rates of return with little risk to investors.
The BOU says that if a business guarantees an investor high returns with little risks of losing the investment, it is false.
“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 benefiting,” reads the statement.
The statement further adds that “If the investment opportunity promises you consistent returns regardless of the market conditions, legitimate businesses usually experience times of profit and times of loss. If the investment strategy or business activities are described as too complex for investors to understand, or top secret and cannot be explained, it is suspicious.”
The Central Bank also warns that if the proprietor running the business 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 will fall apart.
“If both old and new clients face difficulties trying to remove their money from the scheme, many times it has already been spent on paying the proprietors or other investors,” reads the statement.
The public is urged to trust their investments with licensed investment firms regulated by Capital Markets Authority and licensed deposit-taking institutions which are regulated by the Bank of Uganda and for which there is a clear recourse mechanism.