A Ponzi scheme is a fraudulent scheme. Much like Pyramids, they promise huge rewards without disclosing how exactly they are investing your funds. Stay alert and look out for key features in order to avoid falling victim. When in doubt, contact the Securities and Exchange Commission or EOCO.

Ghana is hard for everybody. Ever since the banking sector cleanup by the Bank of Ghana, it seems all the cash has been squeezed out of the economy. Small finance institutions have found it difficult to fulfil withdrawal claims. Rent is high. The price of a tin of milk keeps flying like a kite! This hardship might be easing now, but it can make any half-decent investment scheme to look kosher. The need to earn extra cash can lead unsuspecting persons into falling for Ponzi or Pyramid schemes. Rather than make your situation better, though, these schemes will leave you worse off, eventually. Here’s what to look out for in order to avoid such scam networks.

What is a Ponzi scheme?

Ponzi scheme founder

Charles Ponzi (source:

Ponzi schemes are named after Charles Ponzi, an Italian swindler who duped people into buying discounted postal coupons from other countries. He promised them the full value of the coupons when they redeemed them in the USA after a set date. The unassuming investors expected returns equal to the difference between the price for which they bought the coupon and the price at which they would sell them: arbitrage. To pay the increasing number of investors, the man who was born Carlo Pietro Ponzi would take funds from new members to settle payments to older members. Pietro Ponzi popularized an old scheme and lent his name to the illegal scheme. Since then, many Ponzi schemes have been set up in different ways.

One of the biggest Ponzi schemes in recent times was perpetrated by Bernie Madoff. Using his investment company, Bernard L. Madoff Investment Securities LLC, Bernie pretended to be investing funds entrusted him by his friends and business associates. When the banking crisis of 2008 made it difficult to secure more clients, the entire scheme unravelled, costing billions of dollars to investors.

In a Ponzi scheme, you invest with a type of Fund Manager or Investment Broker who promises to invest your money in a legitimate business which will earn you a high return. You might have little to no information about the underlying investment that is earning such high yields. The hook in a Ponzi scheme is simple: invest X amount of money and receive Y amount at regular intervals.

What is a Pyramid Scheme?

pyramid schme


A Pyramid is similar to a Ponzi in that it is also an investment fraud. In a Pyramid scheme, the clients will have to recruit new customers in order to reap the benefits of their investments. For the new customers to also reap their rewards, they too will have to recruit new clients, and so on and so forth. This creates a hierarchy of members with the oldest being at the top and the newest at the bottom to form a ‘pyramid’ shape. So long as there is a steady flow of new customers, the scheme might be able to pay each member a generous reward. Once people start withdrawing their investments, however, such a scheme will collapse, sending people’s funds down the drain.

In some Pyramid schemes, there is normally a legitimate product being sold. This could be a unique apple drink flavour or a herbal mixture that is only available to members of the circle. In order to join, you are normally required to make a huge financial commitment in terms of start-up cost to tie you down. This means you have no choice but to recruit more people and earn a portion of their commissions. You earn a commission on what you sell. The person who recruited you also earns a percentage of your commission while you too earn a commission on the sales of everyone you recruited; the one who recruited you also earns a commission on the sales of everyone you recruited…the earning potential is nigh limitless.

This is different from a genuine multilevel marketing (MLM). Unlike a Pyramid scheme, genuine MLMs do not require costly start-ups. They also offer inventory buy-back options. In a Pyramid, you lose everything if nobody buys your product. Another difference is that genuine MLMs want you to sell their products; Pyramids want you to recruit more people!

Three Ways to Spot Ponzi Schemes and Pyramid Schemes

Both Pyramid and Ponzi schemes are fraudulent and as such illegal. While a Ponzi (or Pyramid) scheme can only be declared by an official investigating body like the Economic and Organised Crime Office (EOCO), SEC, or any such unit, you can spot suspicious business ventures by paying attention to the following features.

1. Low risk but high returns

This is not a sufficient rule in detecting investment frauds, but it is enough to raise eyebrows. The general principle in investment is that the higher the risk, the higher the expected return. If any investment scheme promises you returns higher than the more secure Bank of Ghana Treasury bill rates, it is time for you to ask more questions about the kind of investment. On the surface of it, Ponzi schemes are low risk; due to their opaque nature, though, they are inherently high risk.

2. Consistent returns

Unless you are receiving interest on a debt investment instrument, your returns should not be stable. Yields from stocks and other derivatives tend to move with market conditions. If you are promised a fixed return regardless of inflation or interest rate fluctuations, then you should start asking questions about the underlying assets.

3. Not registered

An investment bank or investment company needs to be registered at the Registrar General’s Department and licensed by the Securities and Exchange Commission to operate an investment business in Ghana. The same applies to any brokerage firm promising to invest your money in reputable firms. If the organisation starts giving you stories when you ask about their license, you should do two things: never give them your money. Two, report them to the SEC. They have no business running a business without a business license.

As a consequence of running non-licensed organisations, managers of Ponzi schemes are sometimes vague and secretive about their dealings. For those already public, they fail to renew their licenses while still operating. Others will miss their payment schedules or prefer paying you in cash rather than through the bank. Paying through the bank leaves behind a paper trail, something that many illegal businesses try to avoid.


Remember that you are not in a position to declare someone’s business as a fraud or a Ponzi scheme. Not all MLMs are Pyramid schemes. There are many companies in Ghana doing the right thing. Wrongful accusation could destroy decent businesses. If you find any investment activity suspicious, quickly report to EOCO, SEC or Bank of Ghana. Don’t keep quiet because you are not investing your money in those ventures. If a huge chunk of the population invests in the scheme and it collapses, it will have dire consequences on the whole economy. Just look at the ramifications of the banking sector cleanup.

You can call EOCO on +233 302 66 55 59


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