Oct 28, 2007
Easy money hard
lesson
The MAS alert list of unlicensed outfits offering rapid financial
returns has ballooned from 25 in mid-2004 to 95
today.
Finance Correspondent Lorna Tan
outlines some of the techniques used by these
companies
Invest, The Straits Times
CONSUMERS in Singapore were warned last week to be extremely wary
of unregulated get-rich-quick schemes.
The authorities issued the warning as a multi-level marketing (MLM)
company, Sunshine Empire, hit the headlines over its controversial
business practices.
People signing up to be a 'merchant' of Sunshine's online health
supplements, electronics goods and other products can potentially
make gains of up to 60 per cent on a typical $12,000 outlay.
The authorities are concerned about the fact that 'merchants' can
pocket these hefty returns without ever trading in Sunshine's
online products.
But Sunshine is just one of a growing number of unlicensed entities
offering what appear to be financial services here - even though
such services are regulated by the Monetary Authority of Singapore
(MAS).
On Wednesday, The Straits Times broke the story that Sunshine had
been placed on alert watchlists issued by the authorities, both in
Singapore and in Malaysia.
MAS investor alert list
THE MAS list acts as an early warning alert to investors about
unauthorised companies and individuals who might be providing
financial services regulated by the MAS. The central bank
periodically updates the list, which can be found at
www.moneysense.gov.sg by clicking on 'Check our lists'.
The list has ballooned since it was first made public in mid-2004.
Back then, it contained 25 names of unauthorised firms and
individuals. By January 2005, the number had nearly doubled to 46.
By last week, it had reached 95.
Under the Financial Advisers Act (FAA), no one is allowed to
provide advice in relation to any investment product unless he is
licensed to do so - or specifically exempted - under the Act.
Anyone flouting this regulation faces heavy fines and/or jail time
if convicted.
The MAS administers the FAA and may take enforcement action if it
is warranted. Where there is a breach of the law, it will refer the
case to the Commercial Affairs Department for investigation.
The police told The Sunday Times that, from January last year up to
last month, it had received reports of about 45 cases involving
cold-call investment scams and another six cases involving breaches
under the FAA.
Techniques used in scams
TELLTALE signs can often be spotted that could be a warning that
you are dealing with an unregulated entity. Watching out for these
signs could save you from problems later on.
Cold calls
A cold call is an unsolicited call from a person selling investment
products, usually over the telephone. Cold calling by a person not
authorised by the MAS to market financial products and services in
Singapore is illegal.
According to police spokesman Cheryl Foo, the police have received
reports on cold-call scams involving local as well as overseas
victims.
'Local victims would receive unsolicited phone calls from
perpetrators of cold-call scams offering the sale of securities,'
she said.
'Thereafter, the victims would receive instructions to forward the
payments to an overseas bank account. The perpetrators are believed
to be operating from overseas.'
Mr Goh Yang Chye, the managing director of GYC Financial Advisory,
once had a client who was sold some offshore insurance plans by a
'financial services consultant'.
After the plans were analysed, it turned out that they had higher
fees and offered inadequate cover with no death benefits.
The consultant did not hold a financial adviser's licence
here.
'It is important for the public to engage a licensed financial
adviser. It is like seeing a doctor,' Mr Goh said.
E-mail or bogus Internet websites
Beware of investment opportunities you learn about from e-mail or
the Internet.
Take school teacher Stephen Tang. He bought shares in a foreign
company on the recommendation of an online broker, but when he
wanted to sell the shares a few months later, he could not contact
the broker.
All too often, these online brokers are unable to sell the shares
or become uncontactable when you need them most.
In fact, some scam operators use the Internet to spread rumours in
chatrooms and forums to attract investors to buy the shares they
recommend.
If you come across an offer for a financial product or service on
the Internet or via e-mail, check whether the product is properly
registered and whether those marketing the product are authorised
to do so.
High-pressure sales tactics
Such tactics are used to persuade you to invest before you have the
chance to think carefully about the product or to conduct checks on
the person or company offering it.
To lure investors, the sellers often make urgent claims of a
'once-in-a-lifetime opportunity' or a 'limited time offer'.
Civil engineer Peter Lee recalled how he invested US$15,000
(S$21,884) in a financial product that looked like a unit trust. He
got back just US$3,000 after two years.
It turned out that there were hefty annual fees - buried in fine
print - that added up to more than 10 per cent.
Promises of high returns
Sometimes, sales representatives will claim to have inside or
confidential information that will generate a windfall from
investing.
There will usually be promises of high returns, 'guaranteed'
profits and quick gains. More often than not, these sales
representatives are smooth talkers who give the impression that
they are very knowledgeable about investments.
'Virtual' offices
Most operators of financial scams work out of call centres or
'boiler rooms' based overseas. They use virtual offices to give a
false impression that the company is located within a particular
jurisdiction.
However, the reality is that the company has no operations at that
location, so enforcement agencies find it hard to pursue the
matter.
What Case says
MR SEAH Seng Choon, the executive director of the Consumers
Association of Singapore (Case), said consumers should not be shy
about raising questions, especially when the company is not a
registered investment set-up.
This is because such companies are not subject to the vigorous
requirements imposed on licensed institutions.
'Consumers need to assess for themselves whether such a scheme is
sustainable and whether it will reach a point where the payout
becomes untenable,' Mr Seah said.
'There are many get-rich-quick schemes in the market nowadays, and
consumers should not hand over their hard-earned money to
questionable schemes without a thorough investigation into their
viability. Consumers should not base their assessment on a few
unverified testimonies that claim success.'
Sunshine has come under scrutiny because its business model gives
it the appearance of a financial investment scheme - even though
the firm claims to be involved in networking marketing, which is
legal.
Barely 16 months into its operations here, Sunshine has attracted
20,000 members here who subscribe to its online shopping platform
by forking out initial sums of up to $12,000. In return, they are
rewarded with potentially hefty cash rebates that are
non-guaranteed.
Based on an initial sum of $12,000, a member could make a gain of
60 per cent, or $7,200, over time. The business model is attractive
because, unlike other MLM firms, Sunshine does not impose any
requirement on its members to maintain a sales volume quota, so
members can effectively enjoy their rebates as cash only.
Sunshine has said that it will work with the authorities in
Singapore and Malaysia to remove its name from the alert
list.
Recently, the Direct Selling Association of Singapore (DSAS) wrote
in to The Straits Times Forum stating that Sunshine is not a member
of DSAS, which applies stringent criteria when vetting its
members.
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