Getting carried away with investment schemes

IT appears that some of us can be sceptical about anything except the promise of great investment profits. Although these people automatically dismiss every official statement as spin or a lie, they are willing to believe that those with unproven abilities and fuzzy methods can extract strong and steady returns from unpredictable markets.

These cynics are likely to buy every conspiracy theory out there, yet they see no reason to stay away from “surefire” investment schemes.

What is more remarkable is that they are often instrumental in influencing family and friends to put money into these schemes, thinking that they are sharing valuable information with their loved ones.

Malaysia has no shortage of investment ventures that offer unrealistically high and consistent gains. Most have turned out to be scams that were never built to last long.

These usually work on the basis that each new investor would bring in cash that would be used to pay the dividends or profits of the investors that had joined earlier.

The actual investment operations – if there were any – would never generate enough income to sustain regular payments to investors.

This illusion of successful investing relies heavily on getting people to join the schemes and on persuading existing members to keep investing. Eventually, the music stops and the party ends, but not without first claiming victims.

After some time, the pool of new investors dries up. Without the inflow of fresh funds, the schemes collapse. In many cases, the operators went missing and the investors, particularly the latecomers, became poorer and hopefully wiser.

The thing is, others do not seem to learn from these episodes.

The ongoing JJPTR saga tells us that people are willing to set aside caution as they cannot resist the idea of receiving the extraordinary 20% monthly returns from the troubled foreign exchange trading scheme.

The founder claimed that the scheme lost RM500mil after JJPTR accounts were hacked. He said he planned to repay new investors by mid-May.

At this point, we do not know if the scheme has any element of fraud and whether it will resume, but there is zero comfort in the fact that three forex trading entities linked to JJPTR are on Bank Negara’s latest list of companies and websites that are not authorised or approved under the laws and regulations administered by the central bank.

Despite this financial consumer alert, many people saw no issue with investing in the JJPTR scheme. But they will be very anxious as they wait for signs that their money is safe.

In July last year, Inspector-General of Police Tan Sri Khalid Abu Bakar warned against get-rich-quick scams, saying that there “is no free lunch in the real world”.

“If it looks too good to be true, it probably is,” he added.

These are cliches because they have been used again and again and have lost their impact. But if more people begin to heed these words, perhaps we will hear them less. And that would be a good thing.