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Nearly half a decade has passed since
Bernie Maddof’s massive Ponzi scheme was uncovered, and yet every now and
then similar fraud schemes are uncovered all over the world — with
Indonesia being no exception.
As recently covered by mass media, Golden Traders Indonesia Syariah
(GTIS), a Malaysian-based investment company, has been accused of
perpetrating a Ponzi-like fraud using its gold investment scheme.
The investment scheme offered by GTIS is simple. A customer buys its gold
at a higher than normal price and he or she will receive a higher than
normal return. Media reports say at least two high profile figures, the
chairman of the People’s Representative Council and the chairman of the
Indonesian Ulema Council (MUI), have both endorsed GTIS’ investment
scheme.
Recently, GTIS’ customers grew restless after news spread of the
disappearance of its director together with a huge amount of company’s
fortunes. According to the head of the Futures Exchange Supervisory Board
(Bappebti), several investment companies in Indonesia have been running
similar schemes involving investment in gold.
Experts say similar things have happened in Malaysia, where several
companies similar to GTIS have run gold investment schemes and attracted
many customers who then end up not receiving what they have been promised
(i.e. investment returns).
Public suspicion of anything looking like a “get-rich-quick” scheme is
not without reason.
Last year, for example, Koperasi Langit Biru (KLB) made the news by
defrauding its investors with investment packages that were no more than
“robbing Paul to pay Peter” schemes — otherwise known as Ponzi schemes —
that pay investors not from the return on their investments but from
their own money and the money of subsequent investors.
GTIS has denied running an investment fraud scheme, since unlike other
fraudulent investment companies, its customers have received the gold
they have purchased. Nevertheless, there have been reports of late
payments of promised returns to GTIS customers, which indicates possible
problems within the company.
Whether GTIS’ investment is really fraud has yet to be determined by the
authorities’ investigation. However, evidence suggests that just like the
rest of the world, a “market” seems to still exist for Ponzi schemes in
Indonesia with many of the victims those who know almost nothing about
investment.
More than a few of these victims are those who are supposedly smart
enough to realize that such investment schemes are nothing more than
cons. No experts these days know exactly why reasonable and educated
people can still be victimized by a century old Ponzi scheme. One
hypothesis is that the temptation to become a millionaire in a short
period of time overwhelms their logic.
In most if not all cases, a Ponzi scheme is not detected until it
collapses. In the GTIS case, many customers believed that since one of
its websites contained testimonies from two high profile figures, the
company’s activities must be
legitimate.
Also, after expanding its business to Indonesia, the company has also
received a halal certification from the MUI as proof of compliance with
Islamic laws. The certification was believed to be a key factor in
attracting customers in Indonesia.
Anti-fraud experts believe that, based on existing cases, to sustain a Ponzi-like
investment, the number of investors (victims) need to grow exponentially.
For example, it is estimated that to sustain the scheme for six months
alone, 64 investors are needed. To have it running for 16 months, over
65,000 investors are needed.
This explains the need for fraudulent investment companies to rapidly
expand their business to sustain its existence. In cases where there is a
shortage of investors in the country, they may choose to expand to other
countries.
Evidence suggests that not all Ponzi investments began as such. Some
started as legitimate businesses. Bernie Madoff, a former non-executive
chairman of the NASDAQ stock market, was believed by many to have started
out as a legitimate wealth manager but then turned to fraud. One of the
most common reasons why investment managers turn into Ponzi fraudsters is
to save their reputation after making investment mistakes.
Generally, Ponzi fraudsters are often seen as persuasive and charismatic
individuals who are able to influence others to do their bidding. To
ensure that victims place “emotion over logic”, fraudsters use social
engineering methods to explain that, for example, many high profile
figures as well as companies have participated in their investment
products.
There are ways for investors to prevent themselves from being conned in
such a way. The first is understanding what fraudulent investment is in
its various forms. Secondly, always rely on logic over emotion. One needs
to understand, among other things, what is and what is not a legitimate
investment.
For example, a scheme that offers a guaranteed higher than normal return
is almost certainly not a legitimate investment. A scheme that says it
will yield a higher than normal return but cannot be logically explained
by its investment manager is almost certain to be illegitimate. An
investor needs to understand investment’s law of nature — the higher the
return, the higher the risk.
As evidenced by Ponzi fraud cases worldwide, the support, endorsement and
in some cases, the certification from high profile private or government
institutions are sometimes not enough to prove that investment is not a
scam or will not become a scam. The best defense is always the awareness
and common sense of investors. ●
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