SIAS warns against pyramid-type ‘Nanning scheme’ investment arrangements

SINGAPORE: The Securities Investors Association (Singapore), or SIAS, has warned members of the public against investing in pyramid-type investment arrangements under what is commonly referred to as the “Nanning scheme”.The scheme, along with similar schemes, promises exceptionally high returns with low risk through recruiting new participants, SIAS said in a statement on Friday (Sep 4).The warning comes after 52 Singaporeans were arrested and detained in China over suspected pyramid scheme activities and related offences, Singapore's Ministry of Foreign Affairs (MFA) and police said on Friday.A CNA investigation in Singapore found that recruiters had pitched the investment potential of Guangxi, especially the city of Nanning, to prospective investors in Singapore. Potential investors were told they could join at different membership tiers requiring varying upfront payments. The investigation found that they were also encouraged to identify and recruit prospective members in Singapore. SIAS said that reports of such schemes describe investors being introduced to supposedly exclusive investment opportunities overseas.Potential participants may be invited to travel overseas to countries such as China to hear presentations and meet existing investors. Promoters may claim to have secret connections to government officials or say the investments are linked to government-backed projects or economic development programmes.“Investors should also beware that scammers can impersonate government officials by using sophisticated tools such as artificial intelligence,” SIAS said.The association urged investors to exercise extreme caution, noting that "if an investment opportunity sounds too good to be true, it probably is, and more often than not, it is likely to be a scam”.PYRAMID SCHEMES UNSUSTAINABLE Investors should be particularly wary of investment opportunities that promise extraordinary or virtually guaranteed returns, or whose underlying businesses cannot be independently verified, SIAS said.They should also be cautious of schemes that encourage participants to recruit friends, relatives and acquaintances in exchange for unusually high commissions or advancement through different levels of an organisation.A scheme is not necessarily legitimate simply because it has supposedly operated for many years, or because some participants may have initially received payments. This is because “one of the defining characteristics of Ponzi- and pyramid-type arrangements is that early participants may receive money funded by later participants,” SIAS said.Such payments can create the impression that an investment is genuine and encourage existing members to introduce others to the scheme. This becomes unsustainable when the flow of new money slows or stops and the entire pyramid structure collapses, SIAS explained.Investors should also be extremely wary of claims that an opportunity is connected to a government agency or major national development project but is supposedly available only to a privileged group of individuals, the association said.A genuine government-backed investment should be capable of independent verification through official channels. Investors should never accept photographs, presentations, documents, testimonials or statements made by recruiters as sufficient proof. “SIAS is particularly concerned when recruitment takes place through personal relationships,” the association said.Investors naturally place greater trust in friends, colleagues and family members, the association noted.“However, the person recommending the investment may himself genuinely believe in the scheme and may not realise that he has become part of the mechanism through which new participants are recruited,” SIAS said.“Remember: friendship is not due diligence.”Before transferring any money, investors should ask who is holding their money, how returns are generated, whether the investment is regulated and whether they can withdraw their funds freely, SIAS said.“If satisfactory and independently verifiable answers are not available, investors should walk away and not stay because they are tempted by high returns,” SIAS said.“Investors should investigate first, verify independently and never allow greed, secrecy, friendship or pressure to override common sense.”