KAMPALA, The Bank of Uganda has cautioned the public against investing in Ponz or pyramid schemes which are fraudulent investing scams promising high rates of return with little risk to investors.

Money invested by clients is not invested in any legitimate business but used to pay the people operating the scheme as well as those who invested earlier on. This is why Ponzi schemes can sometimes appear to be genuine and profitable investments; because the people who invested first seem to be benefiting, said the central bank in a statement here Thursday.

The statement likened a pyramid scheme to a Ponzi scheme but, like the name pyramid suggests, it is based on a hierarchy whereby new investors are at the bottom of the pyramid.

The income they provide by paying membership fees or an initial investment is used to pay the original investors. These new investments are marked as a profit from a legitimate transaction, the statement added.

However pyramid schemes, like Ponzi schemes, do not sell products or make real investments, they simply rely on money from new investors which is channeled to those at the top of the pyramid. They only generate income by promising extraordinary returns to new recruits to convince them to invest; and may require recruits to bring in additional investors before receiving payment.

The statement warned that both Ponzi and pyramid schemes always collapse when they become unsustainable for those running it to deliver on the promises they had made to investors. Once they collapse, there is often no way for those who invested to recover their money, the Bank warmed.


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