How pyramid schemes are conning desperate youth

The youth, moved by exciting testimonies from their friends and sales agents about the pyramid schemes, call back home to ask their parents and relatives for money or to sell property to raise money for investment and upkeep.

Ms Sharon Kugonza from Kakumiro District in Bunyoro sub-region, says she was recently called by her former high school friend telling her about an employment opportunity in Mbarara Town.
She was told she would be working as an administrator earning Shs300,000 per month.
However, when Ms Kugonza arrived in Mbarara, she was told otherwise.

“I was told to pay Shs850,000 to join a company and start earning every week. I had been left with Shs100,000 because my other friend had promised to accommodate me until I am paid a salary. I tried to call home, they could not raise the money,” says Ms Kugonza. After hope of getting money faded, she returned home.

The unlucky ones
However, other youth, who were able to raise money for the investment into the pyramid schemes, have not seen any returns on their investment months later. They are struggling to live, with hope that the money would come as the scheme owners have assured them.

The unsuspecting youth are told that the more people one recruits into the scheme, the more money they earn.
“These young men and women are always dressed smartly in suits, with files and decent bags. You can always suspect them to be working in high profile offices, but they are operating on streets and arcade corridors. They will always approach you to join a pyramid scheme and get an opportunity of making quick money,” Mr Ham Musiime, a resident of Mbarara Town, told this newspaper at the weekend.

The tricks
The companies reportedly convene conferences and present members who give fake testimonies of great earnings and achievements.
Some testify of how by joining the scheme, they have made a lot of money and graduated from riding boda boda to owning vehicles, buying plots of land in town and owning businesses worth millions of shillings.

These testimonies drive the youth to desperately look for money for investment and begin to recruit friends aggressively.
But soon, some recruits discover the testimonies are a hoax.
“I was disturbed when I visited where one of these people who used to give us testimonies stayed. He had become a friend. I found he was living in a slum, in a very small room with no bed or chairs. That was when I realised they are part of the company, and are deployed to con us,” Alex Asaba from Kibura in Ntoroko District, said.

Mr Thaddeus Kangwagye, who says he was once a member of a scheme he did not disclose, said the number of clients is the only investment and survival means for the pyramid scheme owners.
“When you join, it is very difficult to recover your money after you have realised that the promises were nothing but hot air,” he said.
Security officials have tried to close some of the companies and chase away the vulnerable youth who cram in small rented rooms at night.

The office of the Mbarara Resident District Commissioner (RDC) closed one of the biggest pyramid scheme company in Mbarara in May, but it reopened one week after.
“We are closing you for the suffering you are causing to innocent young people,” Lt Col James Mwesigye said at the closure of one of the pyramid scheme companies last month.

The Mbarara Deputy RDC, Mr Emmy Kateera, said the youth, who are members of the schemes are becoming a security threat.
“We carry out operations at night and we round up a big number of them; they don’t have where to sleep. In one of the rented rooms, we found more than 10 boys,” Mr Kateera said.
He said some of these young men and women end up engaging in prostitution and theft. Mr Kateera added that they find it difficult to close some of these companies because some of them are licenced.

“Our attempts are always frustrated by the Ministry of Trade, which licenses them without due diligence, but we will use other laws like child labour because some of these [workers] are below the age of 18 and obtaining money by false pretence,” Mr Kateera said.
The Bank of Uganda, in 2017, issued a warning against the schemes, describing them as fraudulent investment scams.

Police speak out

The Rwizi Region police spokesperson, Mr Samson Kasasira, told Daily Monitor on Monday that most of the cases reported against the pyramid schemes are not handled by police. When complainants report, they are advised to take matters to court because they are civil matters.
“These people have contracts with their clients, both parties agree willingly to do business and if things go bad, they are supposed to get lawyers and not go to police. They market their companies and people join willingly. These are civil matters, not criminal and in this case, the complainant takes them on legally,” Mr Kasasira said.

He added that most of the cases are reported to the office of the RDC. He, however, noted that there is dilemma because the companies are licensed by government and that recent attempts by security led by the RDCs to close them have not succeeded because line ministries order for their reopening.
Mr Kasasira said police have intensified sensitisation of the public to be careful before investing their money in these companies.

Signs to watch

Here are some signs that an investment may be a ponzi or pyramid scheme:
Too good to be true. 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.
Consistent returns. It promises you consistent returns regardless of the market conditions. Legitimate businesses usually experience times of profit and times of loss.
Activities are complex. 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
Focus on attracting new clients. 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.
Difficulty in accessing money. 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.
Source: Bank of Uganda

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