Malaysia has gone through a fair share of investment scams.
Each new one is more complicated and harder to detect than the previous. So,
how do we detect if a particular good offering is legit or illegal? If it is
too good to be true, it probably is a scam.
Credentials
Not A Licensed Company – If a company claims that it is
registered in Singapore or any other foreign country but ‘waiting for approval
for Malaysian office’, please tell him that you will wait for the local office
to be registered. For your knowledge, you can’t claim for damages or refund
from an overseas company not under Malaysian law.
Investment
into foreign products (land, investment, property) is a gimmick these scammers
use to avoid being tracked. The beauty of that investment is what the scammers
paint the picture for you. Even if the company is registered in Malaysia, it
may not be licensed to collect money for the purpose of investment. Investment
related companies need to be registered with Securities Commission or Bank
Negara Malaysia (depending on the type on investment it is related to).
Not A Licensed Agent – An investment consultant in Malaysia (Unit Trust, Stock Broker, or Insurance Agent) is required to take exams to qualify as a registered consultant. If the person is only acting as a ‘referral’ it is a high chance that it is either a multi level marketing (direct selling) or pyramid schemes. Bear in mind, product-related multi level marketing companies registered with Direct Selling Association of Malaysia (DSAM) are legal.
No Product Brochures & Prospectus – Any legal investments would
require having their core values and investment philosophy approved by the
authorities. If brochure or prospectus is not available on the spot, try to
Google for it.
Return of Investment
(ROI)
Investment Return is Exceptionally High & Too Consistent – Market fluctuations usually provides inconsistent investment return. No one has a crystal ball to be able to predict 100% correctly market directions to be able to provide consistent return day by day, week by week or month by month.
The company
could even make impossible claims to ‘double your money’ within a short
duration of time. Even worse, the company even set certain restrictions and
complicated exit procedures for you to withdraw the money so that you will
continue into the scheme. The profits returned to the older investors are from
new investors who just came into the system. Once the system is too big, it
will collapse. This is known as a Ponzi Scheme.
High Commission or Referral Payout – If one of the ‘income’ or
commission an investor could receive includes a high referral percentage payout
for every new investor recruited, this is a sign of a Pyramid Scheme. You are
told that you can recover your investment by recruiting friends and relatives
into the scheme. Upline kept emphasising on recruiting members rather than profits
from the initial investment or business.
Unspecific Underlying Asset – Agent or referral introduces you a
system or trading method which you will not understand thoroughly. It usually
comes with ‘license’ from an overseas government or authorities that you are
not familiar with. No specific answer on who is governing the area of
investment of the underlying asset.
Lure of Early Profits – First strategy of getting a member
on board is to lure them with small starting investment from as low as USD100
to ‘test the system’. Once you tasted your first profit, you will be tempted to
increase your investment through various means such as your hard earn savings,
your entire retirement fund, selling a property, or even getting personal loan
from banks or from money lenders.
Account
Opening
Investment is Not in Your Own Name – A scam can happen if there is no personal account under your name. You would not be able to track your investment and depended solely on verbal promises.
No Independent Third Party Custodian –An individual investment need to be
held by an independent third party as custodian of the money or trustees to
make sure that your money is protected from any issues by the ‘investment
company’.
No Account Statement & Paper
Trail Communications
- Transfer of money
made to upline in order to buy points, virtual currency, or virtual items. No official receipts provided. In
Malaysia, receiving public money for investment without official licensed is considered
as illegal deposit taking.
Over
Promising Statements
‘Next Big Thing’, ‘First in the World’, ‘Never Been Done’ – Some of the promises from these scam companies seems so convincing and would use it to get people on board to be ‘the pioneers group’ to enjoy the maximum benefits.
‘Once in a Lifetime’ & ‘Limited
Time Offer’ – These
deal breakers are meant to convince new prospects on the spot that they are
losing out if they delay their decision to invest.
‘Risk Free Investment’ – No investment is risk free.
‘Everyone is Doing It’ – This final statement is to convince you that all your friends and relatives have invested and you would be stupid if you are the only one left out.
Ridiculously
High Return
First
question: How high is a ridiculously high profit?
 |
| Source: Berkshire Harthway |
These statistics above is the annual rate of return of the world’s greatest investor, Warren Buffet. Even on his best years, he was able to achieve 40% return of investment in a year. However, when there is a market slump, it is still possible for him to get a return as low as 6%.
It is
impossible to hear that there is investment that is providing 20% return a month.
Let’s assume that you have RM100,000 invested. You would be a millionaire on
the 13th month! What investment on earth that can guarantee 20%
return per month for a total of 240% per year?
Types of
Investment Scams or Get Rich Quick Schemes
Forex Trading
Forex
trading on your own is actually an offense in Malaysia. However, there are a
few registered Forex Traders you can trade through. Because of this, there are
companies (especially in the southern region of Malaysia) started to ‘assist’
Malaysians to open Singapore trading accounts. They will charge individuals
some fees and encourage the new investors to attend technical trading workshops
to learn to trade on their own. However it is usually too technical for a
layman to understand so you will prefer to ‘buy’ or use their automated system
for a fee.
It appears
that the profits of these ‘top performers’ are from recruiting individuals to
open accounts and going for the workshops more than actually profiting from the
Forex trading itself.
Crypto-currency
The
popularity of Bitcoin has spawn more and more ‘upcoming’ crypto currencies
systems as well as investment schemes around it. While Bitcoin itself is
recognised by some countries, the demand for the currency is more than the
supply. Thus, making the price at unrealistic speculated levels. However, the usage of the virtual coins are limited and is often associated with illegal activities such as online gambling, money laundering and terrorist funding. There is also upcoming
investment plans to buy ‘Bitcoin miner’ machines which will generate more
Bitcoins.
Illegal Pyramid Schemes
Some schemes
have emerged in Malaysia in forms such as beauty products, earthworm business,
seaweed farming, rare wood planting, gold trading, precious metal trading,
resort investment, online gambling, forex and etc. To get rich quick, you are
required to introduce as many investors as possible. You receive a high
commission percentage by recruitment. Some of the businesses also plants the
hope that the member becomes shareholder of the company and will be
millionaires when the company goes for IPO listing. In the end, only the first
few tiers of individuals would earn the most while those who just came on board
would be the one who losses.
Summary
Always consult others before involving in ‘a great investment opportunity’. Seek advice from others who may have seen similar tricks and would be able to advice you against it. This may not be the first financial scam in Malaysia but it definitely not going to be the last.
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About the Author
| Andy Yap is the CEO of Great Vision Capital Growth. He has been in the financial services industry for the past 14 years. He currently leads the investment arm of the company. Andy has vast experience in the financial planning industry. He is also a public speaker for financial and business seminars both locally and abroad. He believes that hand-holding clients through tough economic cycles is the key to building long-lasting trust. |
