Pyramid schemes are not new forms of fraud, either globally or in Cambodia. They have been recorded since the 1800s in the US and other countries, with variations depending on the local context. 

Criminals have enhanced their fraudulent activities by exploiting technological advances and the speed of banking transactions, operating pyramid schemes both in person and online, while quietly evading authorities.  

Despite this, the scale of these scams and the number of victims is growing rapidly and is difficult to control.  Authorities typically discover pyramid schemes too late, either just before or after their collapse. As a result, they are unable to take action in time to protect investors from being harmed. 

Pyramid schemes are fraudulent ventures that entice investors to deposit money with the promise of high profits or interest rates, typically much higher than market rates. However, the scheme does not actually invest the money they collect in any legitimate business or project. Instead, the​​ scam operates by taking money from new investors to pay returns to existing investors, disguising deposits as investment profits or interest on funds placed in the scheme. 

The scammer incentivises the recruitment of new investors by offering bonuses to those who bring in new participants, who then become team members. This method makes the scheme seem more attractive and trustworthy to investors. 

Consequently, existing investors often seek additional money to invest, selling assets or taking loans from banks, family and friends, while also recruiting others to join in order to receive bonuses. New members, in turn, follow the same pattern as those previous members. 

Scammers further promote the scheme by presenting it as an investment project or business with minimal or no risk. They build investors’ confidence by providing fake legal documents, offering persuasive answers to all inquiries, and claiming their business is secured. Moreover, scammers organise large-scale advertising programmes at high-end locations and social functions such as charity events. 

The pyramid scheme typically has the following characteristics: 

I. Promising easy and more profitable return than many markets, these schemes prey on investors’ greed. Please do not be fooled, and guard against personal greed!

II. Unregistered or unlicensed investment or business projects. 

III. Non-transparent investment projects that do not disclose investment-related documents or structures but try to conceal what the investor is investing in, citing secrecy or claiming it is too complicated to explain.

IV. The investment or business project that requires payment to become a member or part of a subgroup.

V. Time pressure: If you do not join now, you will miss out on this once-in-a-lifetime opportunity to become wealthy.

Example: Company AAA advertises an investment opportunity in the Hong Kong stock market, promising a monthly return of 10 per cent. This means that investors depositing $1,000 will receive $100 as a monthly return. To attract more funds, Company AAA implements a recruitment-based strategy. Investors are encouraged to bring in new members or establish subgroups. Mr. A convinces a friend to invest $100,000 in Company AAA. As a result, Mr. A will receive $10,000 as a commission for recruiting the new investor.

Like many other countries, Cambodia is also at high risk of being vulnerable to pyramid schemes. With the growth of the securities sector, some criminals have taken advantage of the opportunity to deceive citizens into investing in fraudulent securities.

Media campaigns and rallies are often used to promote these scams. Additionally, scammers organise numerous seminars to attract the public by promising financial gains or other benefits at excessively high rates. However, in reality, no actual investment projects are involved.

Furthermore, due to technological advancements and the ease of transferring money through the banking system, some criminals have created Telegram groups. These groups impersonate senior executives or licenced companies in the securities sector to dupe citizens.

To avoid falling victim to pyramid or fraudulent investment schemes, the public should take the following steps before investing in any project or business:

I. Research the history of a company or individual thoroughly.

II. Request detailed information about the company (business and investment plan).

III. Verify the company is legally licenced or approved and confirm whether products being sold to raise funds are legally registered.

IV. Stay informed and enhance your knowledge by participating in various programmes, such as workshops and training courses.

V. Be cautious of investment projects promising easy and high returns, as they often prey on greed. Do not be deceived!

The public is encouraged to scan the attached QR code to access a video on "Ponzi and Pyramid Scams". Please share this crucial information with your family, friends and community to help protect them against these fraudulent schemes.

Prepared by the Securities and Exchange Regulator of Cambodia (SERC), Legal Affairs Department

***Disclaimer: This article has been compiled solely for informative and educational purposes. It is not intended to offer any recommendations or as investment advice. The SERC and Phnom Penh Post are not liable for any losses or damages caused by using it in such a way.