Experts have warned people against con men operating pyramid investment schemes in the country aimed at stealing money.

These operations are also named Ponzi schemes, after Charles Ponzi, the American businessman who used the technique in 1920 to defraud investors out of $20 million.

A typical pyramid scheme involves offering people huge returns on their investments. Each new member in the scheme has to attract other people to join and thus increase his or her profits. Such a scheme often has no business at all, or is a business such as a hedge fund that runs into trouble and has to attract more people to cover its losses. Eventually the entire scheme collapses because it is unsustainable.

Economist Norah Al-Shahri said these schemes are being used in Saudi Arabia to cheat women who are cash strapped or need jobs. They offer “tempting profits and commissions” to attract people, including new graduates, she said.

Economic expert Abdullah Al-Maghlouth said that criminals operate on the Internet or the telephone marketing certain products or offering jobs. They use the names of well-known people to win the confidence of their victims. “Their only aim is to make money by cheating others,” he said.

There is a greater prevalence of these schemes in the country because people lack market knowledge, or are desperate for money and work. The government should create more awareness about such operations, particularly among young Saudi women, and act harshly against the fraudsters involved, he said.

Economist Fadl Al-Buainain said innocent investors can become accomplices in criminal operations if they partake in such schemes because they often market prohibited financial and other products.

He said Islam and international legislation outlaws these kinds of activities. The media can play an important role by exposing such schemes, to prevent people from losing their money, he said.

“I advise women not to respond to such promotions when looking for jobs. They should accept jobs in ordinary marketing companies that adopt traditional marketing practices. They should work from home or remotely only after ensuring that the companies are following the country’s regulations.”

The Islamic Fiqh Academy has issued a fatwa declaring pyramid schemes un-Islamic based on several reasons, including that they are a form of usury because they do not involve the selling of real products, or products that do not match the size of the huge commissions.

In addition, these schemes involve “cheating, deceiving and tricking people, by showing the product as if that is the purpose of the transaction, when that is not the case, and by enticing them with the idea of large commissions which people do not usually earn. This is the kind of deceit that is forbidden in Islamic law,” the fatwa stated.

“It is a kind of gharar (ambiguous transaction) that is forbidden in Islamic law, because the participant does not know whether he will be successful in finding the number of purchasers (participants) required or not.”

“The fact of the matter is that most of the members of the pyramid lose out, except for the few at the top. So what usually happens is loss, which is the case of all ambiguous transactions,” the fatwa stated.

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