How not to lose money: National Commission names 5 key signs of a pyramid scheme
31 December 07:17
The National Securities and Stock Market Commission (NSSMC) has approved Resolution “On Determining and Publishing an Indicative Non-Exhaustive List of Signs of Creation, Operation and/or Promotion of a Ponzi Scheme”. These rules are based on European consumer protection standards and will help citizens not to lose their savings. This was reported by the press service of the National Commission on Securities and Stock Market, "Komersant Ukrainian" reports
Its goal is to provide clear guidelines for identifying pyramid schemes in order to protect investors and consumers from fraudulent schemes and unfair practices in the capital markets.
What is a pyramid scheme?
A pyramid scheme is a fraudulent scheme where profits are paid to the first investors from funds contributed by new members rather than through real activity or investment; it inevitably collapses when the flow of new people slows down and 90% of the members at the lower levels lose money.
How to recognize a pyramid scheme
We have identified 5 signs of a pyramid scheme’s creation, operation, and promotion:
- Entrance fee. A prerequisite for joining or participating is a contribution in the form of funds, virtual assets, or other means of payment, which can be formalized as an “investment” or as the purchase of a product without real economic value.
- Remuneration for participation. A promise of remuneration in the form of funds, virtual assets, or other means of payment is made not for real activity, but for the mere fact of participation or contribution to a project (scheme).
- Thesource of remuneration is the entry fees of new participants. Payments to already involved participants are made mainly with funds contributed by new participants.
- Lack of real activity. Remuneration is not generated by actual sales of goods or services within the business activities.
- Linkage between contributions from new participants and remuneration for existing participants. Payments to participants depend on the attraction of new participants and are made not from the profits of the real business, but from their contributions.
Investor protection in Ukraine
The new features were developed in accordance with Directive 2005/29/EC of the European Parliament and of the Council. This means that Ukrainian legislation on financial fraud is being synchronized with EU standards.
The NSSMC emphasizes that the list of signs is not exhaustive, but it serves as a clear guide for law enforcement and depositors themselves. The official publication of these criteria will allow for faster blocking of dubious schemes and warning citizens of the risks.
