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10 checks to expose investment fraud

You have to be alert because the art of deception is getting sophisticated

Tan Ooi Boon on 14 Mar 2021

The Straits Times


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While many are reeling from the worst recession ever, crooks and scammers appear to be thriving as never before by taking advantage of people when they are most desperate.


In Singapore alone, ordinary folk lost around $200 million last year when they fell victim to a variety of cons, from e-commerce fraud and social media impersonation to loan- and banking-related phishing scams.


Don't dismiss this as something that will never happen to you. We all think we are not as foolish, careless or greedy as these victims but that can be a dangerous assumption.


Better to be aware that the art of scamming is getting increasingly sophisticated and a single crook can deceive not one but an entire group of reasonably intelligent company executives.


That companies both here and abroad continue to hire people with fake degrees from foreign universities is testament to how easily the mere mention of "high qualifications" can cause people to lower their guard.


Indeed, such "highly qualified" fakes are the hardest to catch because the crooks themselves work hard to come up with a web of deception to dupe companies and make investors part with tens of millions of dollars.


While they may not be as slick and suave as the crooks in Hollywood's Ocean movie series, they can still cause you to lose a lot of money if you are not careful.


Singapore entrepreneur Harry Huo, managing director of Solasta, a green-tech venture capital firm that invests in new technologies and start-ups, has seen his fair share of scammers who tried to dupe his company.


"Some scams are like the proverbial perfect crimes. They reveal themselves only after thorough due diligence. We have been fortunate so far and we have a very sharp team. I think of them as tech detectives," he says.


Despite this, in 2019, the firm almost got duped by a fake overseas "expert" who even got himself featured on an online news site. The man claimed to sell a revolutionary new bio-organic product which turned out to be false.


"But we stopped it before commercialisation took place. It was a humbling learning process for us. It shows that there is always something new out there you can't even imagine."


Mr Huo has helped Invest come up with a checklist of 10 steps that may be able to help you expose con artists.


1. Top school affiliations


When scammers want a lot of money, they usually claim that they hold various degrees from leading universities. They do this to build credibility rapidly so that you will lower your guard.


Instead of being mesmerised, you should follow good practice and do your own checks. Most top universities are proud to make their alumni directories public so a simple search should verify whether the claims are true.


Otherwise, you can send an e-mail to these institutions to check whether the people who make such claims hold the qualifications. As an incentive to encourage these institutions to reply, you should state that you are about to do business with people who are supposedly trained by them.


After all, no top institution wants crooks to abuse its good name to cheat others.


This surprisingly simple step was the deciding factor in exposing the "foreign expert" who almost caused Mr Huo's company to lose millions.


2. Expert knowledge


It is not good enough being a top graduate from a top school. So many self-proclaimed experts like to bandy their supposed doctorate degrees about so that they can be addressed as "Dr" rather than the simple Mr or Ms.


If you are planning to hire or deal with such experts, do not be shy to ask for evidence of their academic work. Earning a PhD from a credible institution means such experts would have had to work on original research, which is usually available online as a published thesis.


A listing of such works is found on Google Scholar. So just keying in the person's name should be sufficient to establish whether the person who sits across the coffee table during the interview is worth the money you are going to spend on him or her.


Frankly, crooks usually choose the easiest way to make money and that is to cheat people, so many won't spend the time and effort to earn a genuine doctorate degree. While there is no guarantee that a highly qualified person won't commit crime, you can at least tell that the one who lies about his qualifications is certainly a crook.


3. Certifications


If you know how to create a good digital presentation, you should also know that there are many online tools that will allow crooks to doctor or create fake documents.


So if someone presents you with a laboratory report that proclaims the effectiveness of a drug or gadget, you should check with the lab that the report is indeed genuine.


This is especially so if the report is sent to you in a digital format.


Mr Huo says: "We have come across many instances of manipulation. The best way is to invest in $400 to $1,000 of your own money to get the specific claims verified independently before you spend more on the supposed new product."


4. Why do they come to you


This question can save you from all crooks. Just like money doesn't fall out of the sky, people seldom turn up at your door to give you a windfall. If someone claims he has a great invention or proposal that can make lots of money, why does he need you when he can do it himself and become rich?


Ask him that question point-blank - those with genuine proposals would have done their research on you or your company and would be able to give an insightful explanation on how you can add value to their proposal.


Otherwise, it is just a case of someone trying to make a fool part with his money.


5. What's with the 'secrets'


If someone wants you to invest in his new product or technology, he must at least be able to explain clearly how it works or give a live demonstration on why his innovation is so special. Most inventors are eager to protect their rights and would have registered a patent if it is truly something revolutionary.


You can ask to see the patent papers, which are public documents.


So if someone keeps citing "trade secrets" as the excuse for not sharing more information, you should be slow to put any money in the product.


After all, you wouldn't hire a chef without sampling his dishes, even though he can keep his recipe secret.


6. Official endorsements


Be careful of people who claim that they are endorsed by government leaders. No credible leaders allow their names to be used to support a private business.


It is actually quite easy to be photographed with well-known people at public events. Such photographs mean little and certainly cannot be used as proof that the proposal or claim is genuine.


A person with a good product or idea to sell will usually focus all the attention on himself rather than use gimmicky marketing plans, which are obvious signs that the product or service is dubious after all.


7. Look for the money


If someone has a good business and is looking for an investor to expand it further, you should be able to check its books to see if it is really making money.


If the business is still struggling, you should do more checks.


Do not get distracted by sob stories. Call up named collaborators, previous colleagues and suppliers for a bigger picture of who and what you are dealing with.


8. Believe only hard facts


Crooks often rely on a very human form of behaviour - people often believe what they see.


If someone claims that he has invented a secret formula using plants that can kill household vermin and you see cockroaches falling dead right before you, chances are you will think it is true. The reality is that until you have the chance to analyse the products scientifically, you won't know whether the formula is indeed genuine or just a concoction of chemicals that can do the same trick.


9. Google is your friend


Most people have some form of social presence. Check if their lifestyle and what they claim fits. If you are going to spend a lot of money on them, better make sure you are free from any scandal that could affect your reputation. Key in their names and purported inventions to see what comes up and whether there are reviews.


10. Your gut feel


Everyone yearns to be rich with the next big thing. Let your own experience and intuition guide you, especially if your checks are also not conclusive. After all, the age-old rule is that if it is too good to be true, it probably is too good to be true.


Be wary when huge profits are offered


When someone offers you an investment deal that promises high returns and yet is scant on details on how this can be achieved, you should just stay away.


If the person can really do this, he would logically just get rich himself with no need of your money. Here are some examples of the most common types of investment fraud:


Ponzi schemes: Victims are paid money from new investors. Crooks who sell such schemes often offer overly consistent and high risk-free returns that are supposedly earned with secretive or complex strategies.


Pyramid schemes: Similar to Ponzi schemes, participants receive commissions for recruiting new participants. It is frequently disguised as a multi-level marketing programme.


Prime investment fraud: The crooks start by claiming to have access to a secret trading scheme endorsed by well-known financial institutions. They draw victims with sophisticated terms and documents, and also lie that investments are insured against loss.


Promissory note fraud: These are generally short-term debt instruments issued by little-known or non-existent companies. The notes typically promise a high rate of return with little or no risk.


Commodities fraud: The scammers often create fake accounts for customers when no such investments have been made. They may trade excessively just to earn commissions for themselves. They usually claim to invest in foreign currencies and precious metals.


Market manipulation: These "pump and dump" schemes are based on the manipulation of lower-volume stocks on small over-the-counter markets. The goal is to inflate the price of the penny stocks so that the crooks can sell their shares at a large profit. The "pump" involves recruiting unwitting investors through false or deceptive sales practices. Once the crooks hit their target price, they "dump" their shares at a huge profit and leave innocent investors to face the losses when the over-priced stock inevitably drops.


Source: The Straits Times © Singapore Press Holdings Limited. Reproduced with permission.



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