Pyramid schemes

National Bank Warns Public About the Risk of Pyramid Schemes

კობა გვენეტაძე Photo: ტაბულა

The National Bank of Georgia issued an announcement yesterday warning the public about pyramid schemes, and advises verifying a company’s specific information before entrusting them with one’s funds. The National Bank says the companies deceive consumers by telling them that they are regulated by the National Bank.

“The National Bank of Georgia once again warns the population about the risks of ‘transferring funds.’ Those companies who are not under National Bank supervision may tie-up individuals’ funds in risky assets or business activities. In those instances, the companies’ activities bear signs of “pyramid schemes.” Recently, companies that invite consumers to pay off loans from other organizations instead of investing their account with the specific company have appeared on the market. Companies have also distributed false information, including lying about being licensed by the National Bank of Georgia.

The National Bank of Georgia again advises the population once again that in order to avoid the risk of losing their investment, they should exercise special caution and make informed and thoughtful decisions before investing. Before investing, consumers should also realize that investments with high returns, all things being equal, have the higher risk.

In addition, in order to assess potential risk, review previously-signed contracts and determine whom you trust with your savings,” reads the announcement from the National Bank.

What is a Pyramid Scheme?

Pyramid schemes occur when companies legally attract accounts from the population and then offer return rates that are substantially higher that the current market rate. For the most part, pyramid schemes do not make profits from successful investments but rather pay the consumers the promised benefit from other sources, such as the addition of accounts from new clients. As a result, in order to pay off the required amount at each additional stage, it is necessary to attract more and more accounts. It is significant that no matter how successful this type of company seems in the moment, the scheme will ultimately fail, when the company can no longer attract new members. The company will then no longer be able to pay the required amount to its consumers.

How to Recognize a Pyramid Scheme:

  • The company promises potential clients a profit rate or return that is substantially higher than the current market rate.
  • In order to receive your return, the company asks you to invite new members to the scheme or purchase the specified product at a higher price.
  • Pyramid schemes are mostly registered as Limited Liability Corporations (LLC). It is possible that these kinds of companies play a mediation role for the pyramid schemes registered in the foreign countries.
  • The company offers an investment package that is not transparent, or no record exists of the company’s economic activities, as well as no exact definition of the company’s area of business.
  • Finding information about the company’s financial situation is nearly impossible


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