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Help Line: Financial advice for migrant domestic workers from the team at Enrich HK

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Have you ever been invited by a friend to invest in a company, asked to sell a product, or to work from home and earn a huge commission? If an opportunity promises to help you ‘get rich quick,’ it can certainly be tempting – especially right now when you may well be sending extra money home because of the pandemic. However, there are many scams which specifically target domestic workers in Hong Kong and understanding how to identify them is extremely important.

Before we get into this topic, you need to know about the Anti-Deception Coordination Centre (ADCC), run by the Hong Kong Police. If you suspect something is a scam, call 18222, the ADCC’s 24-hour hotline, even if you’re unsure. Talking to an officer at the ADCC is not the same as making a formal police complaint. It is simply the opportunity to speak to an officer who can give you advice. It’s also a good way to do your own research about an ‘opportunity’ you’ve been offered before investing your money.

Ponzi schemes
Your sister is encouraging you to invest in a great low-risk investment opportunity that promises guaranteed high returns.  She says she will receive some payments soon and she has a lot of faith in this company. Should you invest?

You’re absolutely right to take a moment to think before investing, because this might well be an illegal investment scheme, known as a ponzi scheme.

Organisers of ponzi schemes often trick new investors by promising high returns with little or no risk of losing money. Investors may be asked to invite new investors in order to participate, such as family and friends. They contribute money which they believe will be invested in a company, but it is actually used to pay earlier investors as so-called ‘returns.’

We encourage you to take a deeper look at the investment opportunity you’re being told about and see whether you can identify any of these red flags – warning signs
that it might be a ponzi scheme.

The first red flag is the promise of low risk and high returns. Know that there is no ‘guaranteed’ investment opportunity. Every investment is risky and higher returns usually involve more risk. If an investment pays back regular, positive returns despite overall market conditions, it may be too good to be true. Investment  values tend to go up and down over time, especially those with the potential for high returns.

The second red flag is that you’re not being given much information about the investment/company. The key to protecting yourself from investment scams is to avoid investments you do not understand or for which you cannot get complete information. Ponzi schemes are typically not registered with government regulators – they involve unlicensed individuals or unregistered firms. Registration is important because it provides investors with access to key information about the company’s management, products, services and finances. Do not be afraid to ask for such information about an investment, and never accept the claim that you cannot review this information in writing. If you’re looking at an investment in the Philippines, know that the Securities and Exchange Commission regularly issues advisories on entities or individuals which are operating illegally.

The third red flag is that you are being asked to recruit friends and relatives. Victims of ponzi schemes are often required to recruit others into the scheme. What they don’t realise is that the money invested by the people they recruit is used by the organisers to stand as the ‘profits’ from the socalled investment. Eventually, the ponzi scheme organisers will flee with the accrued funds. Make sure there is a clear explanation of how returns are calculated.

The fourth red flag is that it looks like it will be difficult to receive payments. Ponzi scheme organisers often encourage investors to ‘roll over’ or ‘reinvest’ payments by promising higher returns. Be suspicious if you have difficulty cashing out or receiving payments on your investment. There should be a systematic process of how investors can cash out investments at any time.

Pyramid schemes
Your friend bought some health products from a company and she is selling them to everyone she knows. She took a loan to buy these products, but she says she is earning the money back. Is this an investment scam?

It sounds like your friend could be an agent for a multi-level marketing scheme (MLM) which may not be a bad thing but you need to be very careful, because MLMs can be
very similar to pyramid schemes.

As an MLM agent/ distributor, you make money by selling products to other people, and signing them up to become agents too (you might also earn a commission on the sales generated by the agents you recruit). Pyramid schemes similarly recruit people as agents/ distributors for the product, but operate differently to MLMs. While MLMs focus on selling the product and building the network, pyramid schemes target your money, and then use you to recruit others who will also invest money to become agents.

Here are some things to think about when considering whether your friend’s investment opportunity is in fact a pyramid scheme.

Firstly, are you being asked to ‘invest’ a large amount of money to become an agent or to pay for an inventory charge? Legitimate MLMs do not ask for large start-up costs.

If you do have to buy the goods you are being asked to sell, does the company commit to buying back any unsold products from you? Legitimate MLMs will usually offer this up to a certain amount of your initial investment.

Is there demand for the MLM’s product or services among potential customers? If the company doesn’t seem interested in customer demand, that’s a warning sign. In fact, be careful about believing that the products are actually useful, saleable and effective without clear evidence. Also, remember that targeting friends and family as immediate
customers is not a sustainable marketing plan.

Does there seem to be more importance placed on recruiting other agents than on selling the product? If you receive commissions for recruiting new members, or if you earn more from recruiting members than from selling the products, that’s definitely a pyramid scheme looking to make a quick profit from keen investors.

Be careful about investment opportunities you see on social media even if they are from trusted friends or family members, as these could well be pyramid schemes too.

One thing we would say for sure: Never, ever borrow money or take out a loan for investment purposes. Money for investments should be any extra money you may have that
you do not need in the short term. You need to protect your hard-earned money – never invest more than you can afford to lose.

Enrich HK is an award-winning Hong Kong charity providing financial and empowerment education to migrant domestic workers. For a free, confidential one-to-one financial counselling session and to learn about the courses on offer, visit www.enrichhk.org. If you have a question you would like to have answered on this page, email [email protected].

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