Financial Scams
Senior 6 · General and Religious Studies
Financial Scams
Lesson 2 of 4
25 min
In 1920, in Boston in the United States, an Italian immigrant named Charles Ponzi promised investors a profit of 50% in 45 days. He claimed to earn it by trading international postal reply coupons, which could be bought cheaply in one country and exchanged for stamps worth more in another. In reality almost no such trading took place. Ponzi paid his early investors with the money of later ones, and the "profits" they boasted about brought in thousands more. When newspapers began to ask questions in the summer of 1920 and new money stopped flowing, the scheme collapsed, and Ponzi went to prison. His name is now attached to every scheme that pays old investors with new investors' money.
A century later, the same idea arrives through WhatsApp groups, online "investment platforms" and fake companies. This lesson sorts the main types of scams so that you can recognise them.
Definition
Ponzi scheme: a fraud that pays existing investors with money from new investors, while pretending the returns come from a real business or investment.
Pyramid scheme: a scheme in which members pay to join and earn mainly by recruiting new paying members, not by selling real products or services.
Advance-fee fraud: a scam that asks the victim to pay a small "fee" now (for tax, delivery, processing or a visa) in order to receive a large prize, loan, inheritance or job that does not exist.
Impersonation: pretending to be another person or organisation, such as a bank, a telecom company or a public official.
Romance scam: a scam in which the fraudster builds a false online relationship and then asks for money.
Suppose a scheme requires each member to recruit six others. Level then needs people. By level 10 that is new members, more than everyone of working age in Rwanda. Recruitment always runs out, and because each level is six times larger than the one above, most members are always in the bottom levels, which are never paid back.
Important
Source A: what the authorities warn about
Rwanda Investigation Bureau (RIB), advice to the public on phone and mobile-money theft (summarised from Kinyarwanda): ignore a caller who says he sent you money by mistake and asks you to send it back; never enter a code or a PIN that a caller dictates; do not follow instructions from callers who claim to be telecom staff reporting a problem with your account; check any SMS saying you have received money through your real balance; never dial a code such as *21* followed by a number, which diverts your calls; and beware of people on WhatsApp or Facebook who offer you a gift and then ask for a "delivery fee". Report to RIB on 166 (free).
National Bank of Rwanda (BNR), public warning of 13 February 2025 (as reported by the press): the public should beware of companies that pose as businesses registered with the Rwanda Development Board but run pyramid and Ponzi schemes, moving money among investors until new recruits run out. BNR has also warned that no Rwandan law regulates cryptocurrency operations, so people who invest in them bear their own losses.
| Type | How it works | Red flag |
|---|---|---|
| Ponzi and pyramid schemes | High "returns" paid from new members' money; pressure to recruit | Guaranteed high profits; pay to join and recruit |
| Fake investments and crypto platforms | An app or website shows growing "profits" but blocks withdrawals or demands fees to withdraw | Not licensed by BNR or the Capital Market Authority; returns far above bank rates |
| Mobile-money tricks | "Wrong transfer" refunds, fake agents, callers dictating codes | A stranger asks you to send money or dial a code |
| Impersonation | A caller pretends to be a bank, a telecom company, RIB or a relative in trouble | Urgency and secrecy; a number that is not the institution's official line |
| Lottery, prize and gift scams | "You have won", but you must first pay a fee | You never entered; you must pay to receive |
| Fake jobs and scholarships | Offers of training or work abroad in exchange for "processing" fees | A fee before any interview or contract |
| Online shopping scams | Goods advertised cheaply on social media; payment first, nothing delivered | Price far below the market; payment only to a personal number |
| Romance scams | An online "friend" or "partner" asks for money for an emergency or a ticket | You have never met; requests grow over time |
| "Black money" tricks | Bundles of cut paper covered with real notes, offered for "cleaning" with expensive chemicals | A secret way to multiply money |
Warning
Ponzi and pyramid are not the same. In a Ponzi scheme, investors usually do not recruit; the organiser pays them with newcomers' money and pretends there is a real investment. In a pyramid scheme, members themselves must recruit and are paid from their recruits' fees. Both collapse for the same reason: new money runs out.
Tip
One question exposes most scams. "Where does the money come from?" If the answer is new members, fees you must pay first, or a secret no bank knows about, it is a scam.
Important
Discuss. Why do many people join a pyramid scheme even after hearing it may be a scam? Think about the friends who invite them, the early members who really were paid, and the hope of quick money.
TED-Ed: "How to spot a pyramid scheme", Stacie Bosley (2019, about five minutes). An animated lesson on how pyramid schemes recruit, why most members lose, and how they differ from legitimate businesses.
Practice
Sources and credits
Written by Ganzaa: Figure 2, the table, the calculations and the exercises.
