Recurring investment fraud, a delusion of grandeur

Recurring investment fraud, a delusion of grandeur Hendi Yogi Prabowo ;  Director of the Centre for Forensic Accounting Studies at the Islamic University of Indonesia, Yogyakarta; He obtained his Masters and PhD in Forensic Accounting from the University of Wollongong, Australia

JAKARTA POST, 21 Maret 2013

  

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. ●

The awesome power of sausage politics

The awesome power of sausage politics Julia Suryakusuma ;  The Author of Jihad Julia

JAKARTA POST, 20 Maret 2013

It’s hard to take a public servant seriously when you see him waving a sausage in the air and singing “It’s so nice”, with a motley crowd of backup singers sashaying behind him. Yet that’s precisely how Deddy “Demiz” Mizwar recently became deputy governor of West Java — and his awesome sausage-waving skills helped secure winning votes for his running mate, incumbent Governor Ahmad “Aher” Heryawan as well. Yes, that’s right, Aher, worried that his own popularity would not be enough, decided to “buy” sausage-star Deddy to shore up his reelection bid. In fact, Deddy has a solid reputation as an award-winning actor and film director, but that’s not what made him a familiar face nationally. Nope, he became a star by constant appearances in TV ads for a mobile phone network operator, bottled mineral water, motorbikes, toothpaste, heartburn medicines and others — including, naturally, the oh-so-nice sausages. Of course, most of these products could be linked to politics in one way or another (especially mobile phones and heartburn!) but sausages are the closest connection. Think about it. Sausage-making is smelly and made up of unhealthy, disgusting and even dangerous ingredients, including preservatives and the dreaded “pink slime” (blood, fat and bits of meat trimmings disinfected with ammonia, all colored with dye — and not always food dye). Same with politics! It’s also too often made up of unsavory ingredients, including, of course, ambitions, egos, greed, corruption, manipulation and outright lies. Ah well, perhaps Deddy’s career in advertising has prepared him well for the horrors hidden within. Just look at the sausage ad he did for Ramadhan in 2011 and 2012. Wearing Indonesian Muslim garb, Deddy exhorted viewers to gobble sausages for sahur (the early morning meal before commencing fasting), and again sausages first thing for iftar (breaking the fast). Get real? Touting this junk-filled product as healthy? In the fasting month to boot? Well, that’s advertising for you — and that’s politics too. Besides riding on the back of Deddy’s sausage-stardom, Aher’s win was also allegedly the result of pork barrel politics (not to be confused with the recent pork-tainted meatball scare). In January 2013 — just before the elections! — Aher’s West Java provincial government allocated “grants” and “social funds” of Rp 100 million (US$10,303) per village for 5,304 villages in West Java, Rp 50 million for 2,000 agricultural extension workers, and Rp 90 million for 400 private universities. Big buck handouts and a big banger TV star! What’s not to like? No wonder he won. Politicians like Aher, who are in “low-batt” mode (i.e. low popularity) don’t usually resort to the sausage for salvation. Instead most simply go to their political party for a “recharge”. Political parties often act as a power-bank — you know, those portable chargers you carry around so your smartphone doesn’t run out of power — for candidates. The trouble is that Aher, who hails from the Prosperous Justice Party (PKS), doesn’t seem to want to advertise the fact that he’s a PKS man too much. You see, in recent years, his party has become pretty low-batt itself. Initially touted as clean and free of corruption and sex scandals, it has since had its fair share of both, and is in no position to help anyone anymore. The most recent uproar involves Luthfi Hasan Ishaaq, former PKS president, now embroiled in the imported beef scandal, and an alleged sex scandal involving a 19-year-old student, (“Agriculture minister faces further grilling over beef”, The Jakarta Post, March 15). At least the beef makes a change from sausages. But let’s face it, all Indonesian political parties are in serious low-batt mode at the moment. In fact, Susilo Bambang Yudhoyono’s (SBY) Democratic Party (PD) seems to have completely short-circuited. With Anas Urbaningrum, the former chairman, finally forced to resign after being declared a suspect by the Corruption Eradication Commission (KPK), it looks like not even sausages could save the party now. The way things are going, lame-duck SBY will soon be able to hold the PD’s annual general meeting in the bathroom, all on his lonesome. So, who’s winning from this situation? The business cronies are, because our low-batt politicians are increasingly desperate for campaign funds as elections daily creep closer. This means they are also vulnerable to cronies pressuring them for policies that will benefit their businesses. That is maybe why recently economic policy has suddenly swung protectionist, and with trade barriers soaring, imports have fallen. Slowly but surely, technocrats are being marginalized and the free-trade reforms of the last decade seem to be unraveling fast. The Coordinating Economic Minister, Hatta Rajasa, in-law of SBY and presidential candidate from National Mandate Party (PAN), has been pushing protectionism. He claims it will strengthen domestic businesses, deliver food self-sufficiency and give added value to raw materials. But, in fact, the main results are a general increase in food prices, including basic commodities — most notably the recent spiraling price of onions and garlic — and now serious food shortages as well. Could it possibly be because his policies are motivated not by economics but political interest? In the end, the push for power is pushing policy aside. At least the scarcity of garlic is good news for vampires. They can roam freely now. But what to do with the political vampires whose blood-sucking ways don’t depend on the absence of garlic, and who operate in broad daylight? Perhaps we should force-feed them all smelly sausages till they burst? ●