A pyramid scheme is one in which there are no real assets or investments to support it, where a person or company promises high returns to future investors in exchange for receiving their contributions. At first, the person or company meets the interest payments, using the investors’ own money (not from the investment profits) to pay them or from the money collected from newer clients.
To attract investors, they not only offer high returns, as the well-known swindler Carlo Ponzi did, they often use the recruitment made by the clients themselves through a compensation system, where the investor they refer receives commissions for the new members they bring, and in turn receives commissions for the referrals of their referrals and so on to infinity, or until the pyramid collapses.
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To give credibility to the seriousness of the business, some hold events in the most luxurious hotels in each city, hire celebrities from social networks, even as the scammer Enrique Blaksley did, in 2012 he sponsored a tennis match played by the Swiss Roger Federer for to play an exhibition match with a local tennis player.
But how to know if the performance offered is much higher than normal?
A fixed-term deposit in a well-known bank in the country has an annual rate at 366 days of 10.44%. The American Warren Buffett, known for being one of the best investors in history, if not the best, has an average annual return of 23%.
So if they offer you a return of 3% per month, it means that the return is 36% per year, much higher than the average of the best investor in history, and for you to be even more alert, Warren Buffett does not promise profitability guaranteed to your customers.
emblematic cases
AC Inversions was a Chilean company that called itself a leading provider of financial services, such as account management, investment, capital and private funds, through the foreign exchange market with promising returns on investment and at all risks, from 2.5% to 7, 5% per month, since many clients who contributed large sums of money were attracted, which allowed the scam to continue, since with the contribution of new investors, old investors were paid, and with this way of operating automatically converted into a pyramid scheme.
Raphael Garay, an engineer by profession, was the main defendant in the Think & Co case, which provided investment advice for an amount that exceeded $1,300 million pesos, he offered an annual return of 18% and a commission of 7%, this was done between 2011 and 2016, the date on which he announced that he had cancer and would travel to France to undergo treatment, promising to return the money to his clients, a fact that did not happen. In 2018 he was sentenced to 7 years in prison for repeated scams.
Mastery IM Academy o IMarkets Live, a company that sells a course for buying and selling currencies, with an initial cost of $235 dollars, having access to the company’s educational material, with a monthly renewal cost of $175 dollars, but the company urges the client to get new customers and thus the fee is free, you can even receive commissions in dollars for paying customers, both direct and indirect referrals. This company became known in 2019 after being linked by some former television faces, such as Karol Lucero or Flaviana Seeling.
The case KnightsBridge As of 2022, the scam consisted of buying products abroad through this company, offering returns of around 300% for each transaction and the refund of the taxes resulting from the transactions. This case has received 410 complaints with a defrauded amount of about $612 million pesos.
The scam in our legislation
Article 473 of the Penal Code states: “Whoever defrauds or harms another using any deception that is not expressed in the previous articles of this paragraph, will be punished with imprisonment or minor relegation in its minimum degrees (from 61 to 540 days) and a fine of eleven to Twenty monthly tax units.
Here fraud is punished when it is committed with any type of deception that is not included in the previous articles (insolvency, misappropriation, concealment of seized species, etc.).
To end
Before investing, make sure that the institution is regulated by the Commission for the Financial Market, who attend inquiries and complaints, also issue reports warning of companies that are not regulated or reports from international regulators that have described certain companies as pyramid scams.
If you want to file a complaint, you can do so at the Carabineros, the Investigative Police, the Public Ministry, so that the latter gives an order to investigate, prosecuting the perpetrators, and you can also file a complaint with the Financial Market Commission, which, as has been Said issues communications to help other people not to fall for scams.
In addition, you must go with your identity card, indicate your address, the information you have about the perpetrator of the crime and sign the complaint.
Writing: Ricardo Obando Márquez, 5th year Law student, Universidad San Sebastián.
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