On Investment Scams

 

Yesterday, the Friday khutbah was about looking for rezeki halal or gains made in the permissible way. In the Khutbah there was a vicious poke at online scammers on whether in the race to accumulate riches in fastest way possible it is rezeki halal (it is not). If it is in the khutbah then things are that bad.

This is not a khutbah. This is just a reflection of mine after having been involved in court cases stemming from scams. More specifically, investment scams. To be clear, I am not an expert on investment scams. I just happen to encounter them regularly for some reason.

 

A.     Scammers show and tell a good story, but not the whole story.

Here is a scenario for you to consider. A nephew who is known to be leeching off his aging parent’s income, no visible employment of what so ever. All the sudden a guy who is known to borrow Dad’s car brought home an expensive car (insert your preferred dream car here). Started to change the unshowered look for the well dressed look and talk about investments with relatives. Sembang crypto. Sembang puluh ribu. Sembang kencang.

Of course the earlier image of a deadbeat is hard to shed with relatives but one gullible uncle took a chance. After all, the investment is in Cryptocurrency and the deadbeat is the go to guy when it come to IT and cyber stuff. It ought to be a legitimate investment. It looks legit, there is a company website to monitor your investment. There is a physical office and the nephew even brought him to see one of the directors for heavens sake!. Confirm legit!

The gullible uncle starts to see the returns in three months time. Pump in RM 10,000.00 and get RM 5000.00 every month for 3 years. Guaranteed. Gullible uncle is now the perpetually smiling uncle. But then looking at the nephews new car the thought crossed his mind, He asked the nephew, how long has he been doing the investment? 6 months replied the nephew sheepishly.

The uncle did the maths. Impossible for the nephew to pump capital to get the kind of returns to afford the car. Even his parents could not raise that kind of capital being retired teachers. When pressed for details the nephew relented. Don’t tell anybody else. I made what I made from my downlines. For every downline I recruit I will get a certain sum every month. The more downlines I have, the more I can make in a month. Exit gullible uncle, enter greedy uncle. Wife, friends, surau members. All fair prospects. All happy, all swimming in money until one day the payments stops, the website went offline. The deadbeat went uncontactable, could not be located. Just plain gone. The physical office is now empty, unoccupied. Angry downlines began to chase after greedy uncle. Dreams of easy life turned into a nightmare. All because he took the bait. The expensive car being the bait. The seemingly to an extra cherry on top of an already profitable (scam) investment.

In a best case scenario the story ends with just loss of money and reputation for the greedy/gullible uncle. Worse case scenario, police reports are made, prosecution in criminal courts and civil suit by investor/downlines to follow.

This is a familiar old story. The difference would be the scam. It could be Palm Oil Investment in Thailand, Investing Coco Plantation in Gabon, Halal Hub investment with cryptocurrency baked into the deal, Insurance cum Investment Account or some Cryptocurrency scam belatedly riding on the already stale success stories of Bitcoin, or whatever. All the story had to do is to part you from your hard earned money. Greed will do the rest.

1.      It starts with Friends and Family

It always began with friends and family. Just like MLM schemes. But I find the middle aged to the elderly are more susceptible to investment scams than the younger generation. It could be because there are the ones with the money to spare. The young are hopelessly broke (okay, maybe not all). So if a friend you have not been in contact with for so long or a nephew or niece suddenly shows up with all the trappings of the newly rich and telling you that you can be like him or her too, beware. If not for yourself, for your aging parents or relatives.

 

2.      Too Good to be True.

Study the brochure or prospectus if there is one. There are bound to be something wrong with the actual document. Crappy printing. Typos. The investment product will sound something similar with a legitimate investment product except this one is better and more profitable (according to the scammer lah). All fluff words or grand promises of better returns than actual investments on the market which at first blush sounds too good to be true (because it is not true). If you are lucky there will be a comparison table. The emphasis will be solely on the profit and nary a word on the risk factor.  With that, it plays into the greed/ hope factor. Okay, maybe greed is too harsh of a word. Let us call it hope then. Hopes of expanding the college funds of one’s children. Hopes of building a bigger and better nest egg for the old age. Hopes of making extra money. Scams prey on that hope.  

 

3.      Consistent Returns, too consistent.

Another signs of a scam would be the consistent payout every month regardless of rumblings of war in Middle East, dropping oil prices, change of government in Malaysia. It would seem that real world happenings has no bearing at all on the investments. Share prices on the Bursa would rise or dip accordingly, the goings on on the Composite Index would affect your Unit Trust investment, even Crypto currencies values ebbed and flowed according to the latest news. Even periodic interest payments of bonds will rise and fall according to interest rates. But not this investment(scam). This investment (scam) impervious to harm. Or so you thought. There is one case where the victim received RM 5000 every month as the returns until the scam imploded at which point the victim received nothing but scorn from relatives who joined the investment at the victims insistence.  The point is, investment scams are immune to fluctuations and this is because they are not real investments rooted in the real world. They are as fake as China copy LV handbags.

 

4.      Short shelf life

From my observations, most scam investments will collapse within 3 years from the date money changed hands. So if in the course of convincing you to invest the number 3 years is thrown around, take care. It could be a scam. My theory is that the convoluted transaction of using Investor C to pay for Investor B’s monthly return while simultaneously using Investor A to pay for Investor D's monthly return creates a tangled web of deceit that will collapse on its own weight after a time. In one particular case the scammer wickedly proclaimed to the victims that their investments will mature at the end of 3 years after which the principle sum and the returns can be collected. By the time that 3 years is almost over the scammer had already milked what could be milked from the unsuspecting victims and are ready to disappear.

 

B.     Minimizing the risk

 

If its looks suspicious and sounds suspicious, check

If the alarm bells are ringing in your head about a proposed investment promising high and consistent yield, get independent verification whether it is the real deal. One way to do that is to go to this PDRM website and this Bank Negara website. The PDRM website is butt ugly but it allows you to check for scams by way of bank account number used, company name or telephone number used for all kinds of scams including investment scams. The Bank Negara Website is more basic but you will find what you are looking for, most of the time and, I consider the BNM list much authoritative since BNM is the body responsible to issue licenses for financial institutions including investment companies and such. So if BNM says it’s an investment scam, it is an investment scam. If the suspicious financial product being offered to you is listed on the Financial Consumer Alert List, kindly tell the scammer that you are not interested and do your duty as a citizen and lodge a police report. Who knows how many life savings and nest egg you will be saving.

Some, not all.

If you keep in mind Items 1 to 4 above, and still think a suspicious looking investment is not a scam and worth venturing into then no power on earth can stop you from investing but for God’s sake please just invest a small sum of your own money. Not your father's, not your mother's, not your aunt or uncle's, not your schoolmate's money. Invest (if you really insist on investing) the sum you are willing to lose. This will vary from a person to person It could be RM 100, could be RM 50,000. If you are not willing to lose any money then don’t invest. Remember the old saying of not putting all your eggs in one basket. Maybe an egg or two will do.

Downlines and investments to greater misery

Like I said, if you are still adamant on investing in a suspicious sounding investment, invest only your own money. Don’t volunteer to take up deposits for would be investor/victims. Don’t fall for the recruitment aspect of the scam investments promising more returns for more recruits or nak kongsi rezeki and what have you. The reason is because it is an offence under Section 137 of the Financial Services Act 2013 (''FSA 2013'') which provides as follows:

‘’ 137.   (1)   No person shall accept deposits except under a licence granted under section 10 regardless of whether the transaction is described as a loan, an advance, an investment, a savings, a sale or a sale and repurchase or by whatever name called. (2)   Any person who contravenes subsection (1) commits an offence and shall, on conviction, be liable to imprisonment for a term not exceeding ten years or to a fine not exceeding fifty million ringgit or to both.’’

Since the investment sounds too good to be true, chances are it is a scam. Since it is a scam it won’t be licensed by Bank Negara Malaysia to operate. Don't fall for the line: we are in the process of applying for Bank Negara license. No license, no authorized to accept deposit. That simple. Since the purported investment is not licensed anybody accepting deposits on behalf of the so called investment is open to prosecution under the above mentioned Section 137 of FSA 2013.

Alternatively, should you have made the unwise decision to collect deposits for the scam you can also be prosecuted for cheating and dishonestly inducing delivery of property under Section 420 of the Penal Code which provides as follows:

‘’ Cheating and dishonestly inducing delivery of property

420. Whoever cheats and thereby dishonestly induces the person deceived, whether or not the deception practised was the sole or main inducement, to deliver any property to any person, or to make, alter, or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment for a term which shall not be less than one year and not more than ten years and with whipping, and shall also be liable to fine.’’

As for the civil side of things, in most civil suit for investment scams, the pissed off downlines will go after their uplines or the ones who talked them into joining the scam most of the time. Having the scamming entity as a Defendant was almost unheard of. At least for me. So, most of the time the upline/recruiter will be the one having to compensate the downlines for their loss while the actual mastermind makes a clean getaway. Don’t let yourself be the patsy. Rein in that greed. Keep your hands off other people’s money/life savings.

Are the losses recoverable?

Not really. You can initiate legal suit in court to recover the losses but unless you drag in the scam company (if it is a registered company in Malaysia but that is highly unlikely. Some I have encountered are based in China or non-existent) I would say there is very little chance of recovering your losses either from the scam company, entity or from the scum sorry scam agent you once called nephew or niece. Most of the time the money collected had already been spent on God knows what. If you are unlucky, the money might still be there but will be forever beyond your reach because it is forfeited by the Government as proceeds of illegal activities. But, no harm in trying though. Who knows, you might be lucky to recover your loss. 

What about the Police, can’t they help me get back my money?

Unfortunately, the police and the criminal courts are not your debt collectors. They investigate, prosecute and punish scammers. Under no circumstances will they recover your money lost in investment scams for you hence my plea to only invest what you are willing to lose if you are really keen on investing.  

In the end

These investment scams prey on the financially illiterate and feeds on blind hope or greed of the victims. Financial education is a must as much as a healthy dollop of skepticism when it comes to parting with your hard earned money. Be vigilant.