Kenyans losing billions to online fraudsters

By Mwaniki Munuhe

KENYA: Kenyans have lost as much as Sh1 billion over the last five months alone in sophisticated online frauds, The Standard On Saturday can report.

The full extent of the losses is unclear as nobody knows how long some of the scams have been running or how many people have been fooled into ‘investing’ in them.

Investigations by this writer show the tricks used to fleece unsuspecting people are no different from those used by the 270 pyramid and Ponzi schemes that cost the country more than Sh8 billion in the run-up to the 2007 General Election.

This is despite the passing of new laws by Parliament last year outlawing such fraudulent schemes. 

Majority of the victims invested millions of shillings in the hope of making more than four times their investment in an incredibly short time.

Many believed they were dealing with legitimate online multilevel-marketing firms or high-yield foreign exchange investment plans (HYIPs).

Initial doubts

Others had their doubts but thought they could get their money out before the whole house of cards came tumbling down.

Several victims of the fraud confessed their frustrations to The Standard On Saturday and narrated how agents of the trade convinced them into joining the business.

Some spoke of dealings with Bullish Trade, an online foreign-exchange investment company that started operations in Kenya in September, last year.

The firm, whose Africa Franchise was run by one Barrack Wamanga, promised investors two to five per cent interest daily on investments that paid out in full within 40 days, among other benefits. A

s the money is not compounded, it works out to tripling the money every six weeks.

Interestingly, the company had no physical address on its website, which has since been brought down, or any form of detail that could point to the ownership or the country in which it is being operated.

At least 300 Kenyans were believed to be members when the HYIP went under this month with hundreds of millions of shillings in ‘investments’.

Bullish Trade explained their high returns on foreign exchange trades as the result of “a volume-driven binary system“. The binary system, they say, is a marketing strategy where compensation is based on “balancing the amount of leg volume flowing through either side of your business”.

Basically, investors made money recruiting new prospects in different ‘legs’ or arms of a pyramid, rather than through forex sales.

Sales points were awarded for recruitments. Unlike in legitimate multi-level marketing where money is made is selling a product; the promise was more money for recruiting others.

A victim of the online trade who did not want to be named for security reasons told The Standard On Saturday she recruited friends and relatives who collectively lost at least Sh73 million, some of it raised from loans and property sales.

Site no longer working

“When we joined the network, we were making a lot of money,” she says. “I decided to recruit my friends and relatives because you also get ten per cent of the investment everybody you introduce makes.

But one morning, when I went to withdraw my everyday profits, the site was no longer working.”

Besides getting between two, five and ten per cent on every investment by people who join the scam under you, there was also the promise of recovering your principal investment after 40 days.

Daily interest on the ‘investment’ would be paid every day, while the commission on any other investment was paid instantly. But these payments were being made from the money being put in by new recruits.

As a result, the Ponzi scheme quickly collapsed when it could no longer being in enough new investors to keep up with the large number of payments required.

No legitimate forex trading company in the world gives a guaranteed five per cent daily return on investments or a guarantee of a refund of your principal investment within 40 days.

Indeed, currency trading is considered a high-risk, high-reward business rather like gambling in which one bad trade can wipe out one’s account. Many of those caught up in the Bullish Trade scam, however, were clearly not trading foreign exchange.

None of the victims we spoke to has reported the matter to the police for investigation.

Director of the Criminal Investigations Department (CID) Ndegwa Muhoro confirmed that the police had not received any reports of money lost in online Ponzi scams.

While warning Kenyans against being tempted by ‘quick money’, Muhoro said it is possible that the frauds were the work of people operating from outside the country.

“Those affected should report the matter to the police so that we can take the necessary action,” he said. “Again people should seek professional advice from the right persons before making any form of investment otherwise you end up exposing yourself to fraudsters. Quick money is dangerous.”

High social costs

But Kenya Investment Authority Managing director Moses Ikiara blamed online fraud on what he termed as laxity by anti-fraud authorities.

He said they should be more pro-active in using intelligence networks to establish existence of such frauds early enough.

“The anti-fraud agency should play a more proactive role in protecting Kenyans from such fraudsters. We are aware of related kills that have happened in the past and continue to happen quietly to date.

Such cases have very high social costs, besides the economic losses. People have committed suicide because of them,” he said.

Ikiara further blamed the Government for allegedly creating too much freedom in relation to investment so that unscrupulous people easily get into the market unnoticed.

“We have allowed too much freedom yet the global trend is such that the threshold is put a little higher for investment in certain areas to protect people from fraudsters,” he said. “We also need to do a bit of civic education to our people so that they can detect such frauds before they get involved.”

Protect society

However, Muhoro urged Kenyans to report any form of suspicious transactions to the police in good time in order to protect the society from fraudsters.

“Online fraud is very common but the problem is that people don’t report it as it happens,” he said. “When they do, it is after the site has already been shut down.”

Another victim who also sought anonymity told The Standard On Saturday that after the collapse of Bullish Trade, a new scheme called ‘Profit 100’ has emerged.

This echoes a pattern seen some six or seven years ago with bricks-and-mortar schemes like Kenya Akiba and Kenya Business.

It is, however, not clear whether the fraudsters who had been operating Bullish Trade as the same people who have introduced ‘Profit 100.’