My first thought after reading a warning earlier in The Royal Gazette about yet another pyramid scheme in Bermuda was “oh, no, not again — I am so vexed”. Another set of hucksters scamming honest, decent people of their hard — earned money — right before the holidays.

These fraudsters are truly the lowest of the lowest form of criminals. They aggressively market on the internet, or come into a community touted as outside “experts” from another country, possibly sponsored by well-intended individuals or groups, ie a church, a social organisation, a trade group, a local business, and regrettably, sometimes by those who have already benefited.

Pyramid criminals manage to pull off frauds again and again because genuine people, like us Bermudians, are honest, trusting, respectful, and not as cynical as other societies exposed frequently to the pure deviousness of criminal minds. Pyramid schemers are often well dressed, well educated, very well spoken in talking a good game. The big problem is, the game is rigged and we are the targets for the next unethical play.

According to Investopedia: “A pyramid scheme is initiated by an individual or a company that starts recruiting investors with an offer of guaranteed high returns. As the scheme begins, the earliest investors do receive a high rate of return, but these gains are paid for by the next level of recruits. There is no return on any real investment.

“From the day the scam is initiated, a pyramid scheme’s liabilities exceed its assets. The only way it can generate wealth is by promising extraordinary returns to the next level of recruits; which then have to be paid for by an even lower level of now 36 recruit investors and then 216 so on. See the pyramid chart — it reaches skyward; then collapses when no more recruits are available.” View the Investopedia pyramid scheme video featuring “Mr Sleazy Salesman replete with moustache” at http://www.investopedia.com/terms/p/pyramidscheme.asp

Here is a compiled checklist to follow to help in your investment decision process utilising sources at the US Securities Exchange Commission: http://www.sec.gov/enforce/investor-alerts-bulletins/investoralertsia_pyramidhtm.html

US Federal Trade Commission:

https://www.consumer.ftc.gov/blog/spotting-illegal-pyramid-scheme-101

The Lectric Law Library: http://www.lectlaw.com/files/cos67.htm

The Consumer Fraud Reporting Checklist to Evaluate Multi-Level Marketing Programmes that May be Pyramid Schemes: http://www.consumerfraudreporting.org/pyramidschemes_checklist.htm

List of recent pyramid schemes by name. http://www.consumerfraudreporting.org/pyramidschemes_names.htm

Rule No 1: the most important rule. The few people at the top of a pyramid scheme make all the money. The lowest group loses all their money. Each level of participants pays the level above them to join. The chart enclosed is a perfect illustration! How quickly do you think Bermuda will run out of people willing to participate? Since there is no real rate of return (profit) on the investment, and the top tier is spending all the money. Poof. Pyramid explosion!

Other signs to watch out for and questions to ask of suspected pyramid organisers — and most importantly independently by researching the internet.

• Is there a fee to join?

• Are the promoters promising high rates of return, unrealistic when legitimate capital markets struggle to return 3-5%?

• Are the organisers promising commissions for bringing in new recruits?

• Do you have to buy substantial amounts of high-priced products before you are allowed to participate?

• Do you have to invest a large sum upfront?

• Does it appear that anything is actually sold to regular consumers — outside of the scheme?

• Does the promotional literature offer pie in the sky promises, “a life of happiness and prosperity,” “living the life of your dreams?”

• Are you offered free expensive dinners?

• How about free expensive trips, if you just sign up a group of your friends?

• Are you offered opportunity to get in on the “ground floor” as this venture is going public imminently? Here is your chance to be one of the first investors?”

• Are the testimonials from people you just cannot seem to locate — anywhere?

• And a good one — the brochure states this is not a get rich scheme, but perfectly legal — a truly red flag?

• How about the Minister of Commerce or some other political entity or government bureau endorses this product? Your first phone call should be to them. Verify, verify.

• Do the promotional materials list any real individuals, street addresses, phone numbers, e-mails and contact information?

• Scammers will often lift real e-mails and Facebook pages from legitimate individuals to give their fraud authenticity. This happened two weeks ago to a good friend of mine.

Rule No 2: if it sounds too good to be true, you and I know — it is too good to be true. Nothing is free. There is always a price to be paid for unrealistic investments, generally, a total loss.

We are smart. We all have a great sense of intuition. Pay attention to your inner feelings. All the commonsense warning signs are there.

Trust, but verify. Repeat after me — trust, but verify independently. Google Search is your best friend. Research everything outside of any propaganda you have been handed, I don’t care who gave it to you — even if it is the persons of highest integrity on the Island. They could have been duped, too. Never, never assume that what you have been given is the truth.

Remember that Bernie Madoff got away with his pyramid scheme for years. He cleverly cultivated the most wealthy friends, persons of influence, financial institutions watchdogs and others. Everyone assumed because they saw their friends investing that he was legitimate. It took a modest, sceptic Chartered Financial Analyst and Certified Fraud Examiner and fund manager, Harry Markopolos, to blow the whistle on one of the biggest frauds in history.

Anyone can call himself or herself any kind of any expert — that does not mean they are genuine. If “expert” financial promoters, advisers, etc are truly legitimate, they will have real verifiable (by you) credentials after their name. They will stand on their integrity and do the right thing for you.

Trust no one with your hard earned money. No one — until you are absolutely sure.

Martha Harris Myron CPA PFS JSM Masters of Law: International Tax and Financial Services,

Appointed to the Professional Tax Advisory Council, American Citizens Abroad. https://americansabroad.org/

Principal: The Pondstraddler* Life™ Consultancy providing international financial planning for Bermuda residents, their multinational families and connections. Contact: martha@pondstraddler.com