Scams are widespread these days. Frequently, you will get emails and text messages stating that you have won a substantial amount in a lottery.

You may also receive an email from a supposed bank employee saying that one of his affluent customers has died, leaving behind an enormous amount of money.

The dead person doesn’t have any relatives, so you are contacted to say that you are related to claim the wealth of the deceased, and the bank employee will retain a part of the money.

The email doesn’t provide the full information. To get the complete information, you will need to respond.

When you do ask for more details, the “bank employee” will state that to process the transfer, you need to pay a small amount of money as ‘’processing fees and other bank charges’’.

Most people don’t fall for it, but there are a few who get lured by this “opportunity”.

The first thing to remember is that there is no free lunch in this world, at least not from strangers eager to give you a big sum of money.

Simple guide on spotting a scam

A scammer will take the following actions to convince you to make a quick decision and send him money:

• Contact you out of the blue.
• Make a promise that sounds too good to be true.
• Tell you to keep the offer secret, to prevent you from discussing it with other more experienced people, who might spot their scam.
• Ask you to pay for services upfront to claim a much bigger prize.

The examples above are just one type of scam, which mainly targets naive people unaware of such phishing activity.

In Malaysia, a common form of fraud is the money game. You can find a list of money game operators at the Bank Negara Malaysia (BNM) website.

BNM updates the list frequently. There are more than 300 companies in the blacklist which are not authorised to offer investment schemes to the public, and this list keeps growing.

These scheme operators promise higher than usual returns, typically more than 30% a year.

Instead of earning 3% from legitimate and insured bank fixed deposits, greedy participants choose to lose their life savings chasing false investment dreams.

These scam operators are intelligent people but they lack the integrity to look after their stakeholders’ funds.

Since the high returns cannot be sustained over the long term from any legitimate business activity, they rely solely on recruiting new investors to pay the earlier participants.

Their schemes promise returns as high as 3% to 6% a month to get your attention. To make their system current, the operators link to hot investments like gold, oil, land, private equity, forex or cryptocurrency.

Many people actually understand that these schemes are Ponzi schemes. They still participate because they believe they can beat the system.

They feel that provided they are the first few original participants, and the program runs long enough for them to recoup their capital within a short period, they will make handsome profits before the game goes bust.

This is an utter waste of your productive time. Why work on something that won’t last?

You are better off using this precious time and effort to build your career, expand your business or develop your skills and knowledge to reap the benefits your entire life.

Simple guide on spotting a Ponzi scheme

• A plan that promises extremely high “guaranteed” returns. The richest investor on earth Warren Buffett only managed to achieve about 20% annual returns.

If a scheme can do better than Buffett, you would all be billionaires for doing nothing.

• Investment products that are too “exotic”. Question them on how they make money with your investment. If you don’t understand, or can’t see how it is possible, then it is probably a scam.
• Always ask for a prospectus – A legitimate scheme will have an approved prospectus to explain the investment objectives, method, strategies, costs and the fine print.
• If the scheme operator can’t produce a satisfactory prospectus, that is a big red flag.
• A Ponzi scheme offers good incentives to recruiters. Ask if you will be compensated well for introducing new participants. If you are offered lucrative remuneration, be ready to run.
• The reason people fall for scams is greed. Humans always want more. Use your head when making a financial decision, not your heart.

Finally, understand that these conmen are outstanding actors. They can perform on stage and display enormous wealth. The simple rule of thumb is that when something is too good to be true, it is most probably a scam.

This article first appeared in kclau.com

KC Lau’s first book Top Money Tips for Malaysians has sold thousands of copies. He launched the first online personal finance course specifically designed for Malaysians, entitled the Money Automation System. He also co-founded many other online financial courses including the Bursa Method, Property Method, Founder Method and REIT Method.