Investment scam: Gullibility is stupidity

Recently, the Securities and Exchange Commission (SEC) warned the public about another brewing investment scam.  Truly, after a multitude of scams that victimized the investing public for the past several years, the SEC has stepped up its information campaign against fraudulent business practices.  This time, it is against Xingasia Marketing Corp.  This is a company that offers investment opportunities like “corporate bond notes” through its subsidiaries Xingasia Lending & Investors Corp. and Xingasia Marketing.  These entities, according to SEC, are “not authorized or licensed to engage in such activities and/or solicit investments.”  It further said that “documents would show that Xingasia Marketing is “not a registered issuer of securities.”  Moreover, “it is also not licensed to act as securities broker, investment adviser, investment house and transfer agent nor are there any pending application for said certificates of registration or licenses.”

To recall, in 2012, some of our “get-rich-quick” enthusiasts were grieving for the loss of their hard-earned money or were spending sleepless nights staring at the prospect of losing their homes which were used as collateral to obtain money for very high-yielding investments perpetrated by the Aman Future, a Ponzi Scheme.  Ponzi Schemes, actually, are not difficult to understand.  Commonly, all these schemes have three basic steps.  First, they convince a few investors to trust them with their money for investment purposes with beyond normal but supposedly believable interest.  Secondly, after a specified time, return the invested amount plus the agreed interest or rate of return.  Lastly, emphasizing the historical success, convince paid early investors to tell their friends of the benefits and lure them to reinvest theirs.

However, these steps are easier said than done without the basic ingredients for a Ponzi Scheme to succeed.  There are five key elements and these are beyond normal benefits, a systematic flow of how the rates are achieved, initial credibility of company owners, pay-off of early or initial investors, and the “word-of-mouth” approach in advertising or communicating pay-offs.

Of these five, the four key elements are a lot easier as these will simply require good communication skills and great first impressions on pay-offs.  The initial credibility of the owners though is the hardest to establish.

So that, in the Aman Future scam in Pagadian City, in particular, they (scammers) promised 49% interest in 17 days.  Considering that 91-day T-bills and bank deposit rates then were just even less than 1% to a high of 3% in a year, such yield was suspiciously exorbitant but temptingly irresistible.  Secondly, they were trying to tell prospective investors that their money shall in turn be used to purchase gold or invested in oil exploration related undertaking, thus, the higher yield. Thirdly, they showed good initial track record by paying on time the early investors.  Fourthly, they urged initial investors to tell their friends of these benefits and reinvest theirs to earn more.

Absolutely, the most significant aspect of the scheme, the initial credibility of the business owners is not easy to establish.  For instance, in 2008 we were witnesses of how Bernard L. Madoff Investment Securities LLC pulled the biggest Ponzi Scheme in history by fooling Americans of about US$50 billion.  However, it was able to do it because it had great credibility. The founder, Bernard L. Madoff, had been in the investment business since 1960. Madoff had also been the chairman of the board of directors of NASDAQ, an American stock exchange.

In Aman’s case (the Mindanao Scammers), no one among the incorporators/stockholders were ever known.  Therefore, the initial credibility wasn’t there.  The question was, why do the victims still went for it?  The answer is very simple.  The Aman group used people of great credentials in the area.  For instance, reportedly, the group’s chairman had a picture with the then mayor of Pagadian City.  That’s great packaging.  He got him as initial investor and, probably, some of the areas’ residents who were non-gullible, so to speak.  Therefore, to the naive-minded individuals, who were they to suspect them when the mayor and a few influential or credible people were investing and were getting their returns.

So that, today, as we stare on the prospect that these new scammers will take advantage on some potential investors’ gullibility or lust and greed for money, we should be constantly reminded by the misfortunes the victims have suffered then and have continued to agonize until today.  Moreover, let us all heed the legitimate warning of the SEC.  Ignoring both is a monumental display of stupidity.

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