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How to spot a financial scam
Standard Bank Team
Super Contributor

Con artists trick millionaires, celebrities, and average investors out of their hard-earned dollars with the promise of quick profits.These crooks use ponzi schemes, pyramid schemes, and offshore investment scams to enrich themselves and defraud investors.

Below are a few tips to help you spot a financial scam.

Ponzi Schemes
These “high yield investments” promise exorbitant returns with little to no risk. Remember the old adage that if something seems too good to be true, then it probably is. People that promise instant riches are often scammers just looking to make a quick buck.

Signs of a ponzi scheme:
• The investment returns are abnormally high or unusually consistent.
• The company makes impossible claims and guarantees like “double your money back” in 6 months.
• The company makes it difficult to withdraw your money, claiming that funds are frozen.

Pyramid Schemes
A pyramid scheme is an “investment opportunity” that promises members money based on their ability to recruit new members. Pyramid schemes often sell products which have little to no value and the only way that you make money is by recruiting new members to join the business.

Signs of a potential pyramid scheme:
• The emphasis is on recruiting new distributors, not the products.
• The business has very high start-up costs.
• The company will not buy back unsold inventory.

High-Yield Offshore Investments
Con artists will often tout offshore investments as high-yield and tax-free. Wealthy people made offshore investing famous by using it to reduce their tax burden. Offshore investing involves holding money in a country outside of your legal residence. This normally takes place in less regulated countries. While offshore investing is perfectly legal, it can be a very risky proposition.

Signs of a fraudulent offshore investment:
• The institution promises high interest rates on financial products such as CDs and bank accounts that pay
30% interest.
• The financial institution claims that the investment is free from taxes in all countries. Some countries require
that you pay taxes on income earned in any country.
• The investment is risk-free.