I told you so

I hate to say it, but I did. I told you so.

Eurextrade, the Ponzi scheme that has stolen money from many, many people in Botswana appears to have collapsed. Certainly their web site has disappeared and there is speculation throughout the “High Yield Investment Program” community that this particular scheme has finally gone down.

Nobody should be surprised. Eurextrade was one of the best examples I’ve ever seen of a blindingly obvious Ponzi scheme.

The US Securities and Exchange Commission offers a simple definition of a Ponzi scheme:

“A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity.”

The SEC’s web site then asks, “Why do Ponzi schemes collapse?”

“With little or no legitimate earnings, the schemes require a consistent flow of money from new investors to continue. Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out.”

That explains exactly what happened to Eurextrade in the last couple of weeks. Despite many people “investing” their money in the scheme, and despite their best efforts to recruit other victims, something new emerged. Skepticism. More and more people were beginning to suspect that the scheme they had joined was suspicious. Others when they were approached and invited to join though the returns were too good to be true.

That should have been obvious. Eurextrade’s web site said that “investors” could make “up to 2.9% daily”. You might think that surely nobody can believe that? Well, some did, a lot of them.

Like a pyramid scheme, the number of remaining potential victims eventually dried up. The only people left were those who had read the warnings on the web and in newspapers like Mmegi and those who were naturally skeptical.

I met a guy recently who told me who’d been approached at Nando’s by two different people who accosted him and tried their best to recruit him into the Eurextrade. Luckily he’s a skeptic, and also works in the financial arena so he knows a bit about investments. He told them where they could put their Ponzi scheme but I thought this was a good indication of how desperate and how suspicious Eurextrade and its recruiters are. You know a scheme is getting desperate when they’re recruiting in takeaways instead of offices with boardrooms, landlines, fax machines and real email addresses. You can safely judge any investment scheme by the venues they choose to recruit new victims.

The other clue was Eurextrade’s curious reluctance to reveal how they made the returns they offered. They claimed that they used “short term, technical analysis based positions” and “longer term, global events driven long term profitable projections” to make the mythical 2.9% every day. You don’t have to be a financial expert to know that they were talking hogwash.

Above all, there were the unbelievable claims of such high returns. If it was possible to make 2.9% a day then wouldn’t banks be doing it? Wouldn’t pension schemes, orthodox investment schemes, even Governments like those of bankrupt countries like Greece be doing it? The fact that they’re not is evidence enough.

The sad news, now that the scheme appears to have collapsed, is that a lot of people will have lost a lot of money. I haven’t been keeping precise track but of the people I’ve spoken to, and those I’ve heard about, I know of at least P5 million that’s been “invested” in Eurextrade. That’s just the few people I’ve encountered. I suspect the total is many, many times more than that.

Here’s a difficult question. Why were we so gullible? Why did the people of Botswana fall for this is such large numbers? Why, above all, was this particular scam focused on us?

You don’t think this was an international scam, do you? No, this was focused specifically on Batswana. Before it disappeared Eurextrade’s web site gave a list of contacts if you wanted to join. Of the 60 contacts they published almost half of them had phone numbers beginning with “+267”. Even the contacts for South African and Zimbabwe were Botswana cellphone numbers.

So why us? Why were we the targets of these scammers?

The bad news is that I believe that, as a nation, we have a larger than normal proportion of gullible people. We’re not a stupid nation, we’re well-educated and well-resourced but I suspect that our relatively short business history is to blame. We’ve only been trading, banking and investing for a few decades and that shows in our investment maturity. Or lack of it.

So what’s the lesson from the Eurextrade collapse?

Skepticism.

We need to be skeptical about many issues. So-called “alternative” health products, new belief systems, visiting management and leadership experts and just as importantly, anyone who wants you to put your savings in strange places. We need to be very skeptical about all of them.

And the victims of Eurextrade? I’m sorry, but your greed for enormous returns blinded you and your attempts to recruit other people lost you any sympathy I might have had. You were warned.

I told you so.

Breaking news.

Since writing this it appears that Eurextrade is back again using a different web site. It looks very similar but there are some interesting changes. Some of the text is new and other bits have been taken word-for-word from other web sites but there’s no mention of why they disappeared and reappeared with a different address. This isn’t the first time they’ve done this and you can rest assured it’s a sign of something suspicious. We’ll keep you posted!