SCAM-PROOF Your Investments · SCAM-Proof Your Investment Page 5 of 60 Apar from making losses in...

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SCAM-ProofYourInvestmentsByTheresaGroyonCopyright©2015TheresaGroyonandWealthAffinityGroupPrivateLimited.Allrightsreserved.Nopartofthisbookshallbereproduced,storedinaretrievalsystem,ortransmittedbyanymeans—electronic,mechanical,photocopying,recording,orotherwise—withoutwrittenpermissionfromthepublisher,exceptfortheinclusionofbriefquotationsinareview.Everyefforthasbeenmadetomakethisbookascompleteandasaccurateaspossible,butnowarrantyoffitnessisimplied.Theinformationisprovidedonanas-isbasis.Theauthorsandthepublishershallhaveneitherliabilitynorresponsibilitytoanypersonorentitywithrespecttoanylossordamagesarisingfromtheinformationcontainedinthisbook.


TableofContentsFOREWORD 5

CHAPTER1:WHYPEOPLEFALLFORSCAMS 7

CHAPTER2:HOWSCAMSARESTRUCTURED 12

CHAPTER3:HOWTOAVOIDFALLINGVICTIMTOSCAMS 22

CHAPTER4:HOWTORECOVERFROMTHEFALL 38

CONCLUSION 44

APPENDIX 49


FOREWORD

MynameisTheresaGroyon,creatorofFinancialFridaystrainingandseminar.Thisprogramhelpspeopledevelopknowledgeandskillsoftheproperwayofgrowingandmanagingwealth.Italsodealswiththemindsetandbarriersthatpreventedthemfromachievingtheirgoals.TheconceptofgrowingwealthenticedmewhenIwasjuststartingintheworkforce.Iwasuninformedandmisguidedbypeoplewhowereunknowinglyengagedinsomenetworkmarketingscam.Irememberbeinginvitedtoaseminaraboutgrowingmyhard-earnedmoneyandmakeitworkhardformeinstead.Irememberthecrowedwasinhighenergy,thespeakerwassocompellinglygoodandhiscatchymomentwaswhenheshoutedthefamouswordbyWilliamWallaceofthemovieBraveheart,“FREEDOM!”.Peoplewereshoutingandscreamingaskingfortheirfreedomfromtoomuchtimeatworkandbusinessandwantedtojustspendmoretimewiththeirlovedones.Andthesolution?-theinternetproducttheywereselling.Presentersenthusiasticallypresenttoinvitedpeopleoneononeandeachtimeoneagreestojoin,thepresenterwillringabellandthereastofthepeopleintheroomwillshout,‘Freedom!’.Needlesstosayattheageof21IlostthemoneyIinvestedinthisbusinessandtheowners,foundersmyfriendcametoknow,suddenlydisappearedwiththemoney.Lookingback,Iwasjustlaughingatthewholescenebutthetruthoflosingmyhard-earnedmoneywasnolaughingmatter.


AparfrommakinglossesinthatdodgyNetworkMarketingscheme,Ihavealsolostmoneyininvestment-linkedproducts,unittrustsandstocks.Iamthankfultohavemetgoodmentorsalongthewaywhoturnedmylifearoundandgotmebackontrack.I’mnowrunningasuccessfulpracticehelpingclientsnottofallonthesametrapIgotinwhenIwasyounger.Ialsoleadateamofdynamic,purpose-drivenconsltants.Together,weworkonimpactinglivesbeyondfinance.Overthe8years,Ihaveseensomanyfriendslosingtheirhardearnedmoneyandlifelongsavingsto“Toogoodtobetrue”schemessuchasSwissCash,Genevagold,GoldGuaranteeyounameit,leavingthemhighanddry,hopelessanddevasted.Assuch,withthehelpofacommunityofpassionatepeoplewhowishtomakeadifference,myteamandI,compiledthismini-booktoeducatemorepeopletomakebetterinvestmentdecisionsandtakebettercontroloftheirfinancialfuture.Ifyouhavebenefitedfromreadingthisbook,pleasehelpmereachouttomorepeoplebyrecommendingthistothem.Theycandownloadafreecopyfrommywebsite.

www.theresagroyon.com


CHAPTER1:WHYPEOPLEFALLFORSCAMS

“Thegreatest trick thedevil everpulledwas convincing theworldhe didn’t exist,” said a familiar line from the famous movie TheUsualSuspects.Similarly,scamartiststrytheirverybesttoconvincetheunsuspectingvictimthatwhattheyaretryingtopulloffisnotascam. But even in this post-BernieMadoffworld, investment andother financial scams are still aplenty, from small time swindlingoperations to grand Ponzi schemes, just waiting for the rightopportunity, preying on the perfect combination of financialilliteracy andgreed.Despite all theavailable information,be it onthe internet or other media, and the constant stream of bustedpyramidschemes,fraudstersstillplayonthesameoldunfairgamethattheyaresousedtoplaying.But really, what does it take to fall victim to an investment orfinancialscam?Thesefourwordssumuptheattributesofaperfectvictimofascam:greed,pride,fear,andtheherdmentality.Inthebook“FinancialSerialKillers:InsidetheWorldofWallStreetMoney Hustlers, Swindlers, and Con Men,” Bruce Kelly and TomAjamiesay:

Greed is a natural occurrence in each of us. We allcovet something.Thequestion iswhat lengthswewillgotogetit.


Somestockbrockerscertainlyknowhowtoidentifythegreed in investors’heartsand turn that intogold - forthemselves. Finanncial serial killers push investors’emotional and psychological buttons and turn themintosuckers,allbecauseofthepromiseofearlyriches.

First.Greedofitselfisnotnecessarilyabadthing.Butcoupledwithlackofknowledgeandblindedbythepromisesofquickreturnsandovernight gains, this can lead one to gamble his/her hard-earnedmoney in thehopesof cashing inbig time. This canbringout theclosetdegenerategamblers,whocan’twithstandthetemptationtokeeprollingthediceagainandagain,eveniftheyknowthediceareloaded against them; and, second, that contrary to previousassumptions, young men and women who possess the collectivesocial graces of a herd of sex-crazed water buffalo and have anintelligencequotientintherangeofForrestGumponthreehitsofacid,canbetaughttosoundlikeWallStreetwizards,aslongasyouwriteevery lastworddownforthemandthenkeepdrilling it intotheir heads again and again—every day, twice a day—for a yearstraight.1Second.Pride,again,iscommoninhumans.C.S.Lewisdescribeditas“theoneviceofwhichnomanisfree.”IfyouwereashumbleasMotherTeresa,youwouldstillhaveenoughprideforascamartistto fan into a blaze thatwould consume your nest egg unless yousmothered itwith an understanding of your nature and the scamartist’s manipulations. 2 Thus, despite the age-old mantra in

1 Kelly, Bruce and Ajamie, Tom, Financial Serial Killers. Skyhorse Publishing, New York: 2010 2 Huddleston, Patricia. The Vigilant Investor: A Former SEC Enforcer Reveals How to Fraud-Proof Your Investment. American Management Association: 2012


investingto“neverinvestinanythingyoudon’tunderstand,”pridetakesovereventhemosteducatedand financially literatepeople,andloseallsenseofvigilanceininvesting.Oneundoubtedlybrilliantman,whowroteabookongullibility,hasaPh.D.indevelopmentalpsychology,andfacultyoftwowell-knownuniversities,hashimselffallen victim toan investment scam.Heevenwroteabookabouthisexperience.3Simplyput,prideissimplybeinghuman.Third. Fear of losing, or as millenials these days put it, fear ofmissing out, #FOMO. With so much economic uncertainty andmarketvolatility,whatwithwholebanksfoldingup,orevenentirecountries defaulting on their debt, it comes with not much of asurprise that most everyone is concerned with his or her ownpersonal finances. Even avoiding themarket altogether isn’t eventhemostsavvysolutiontoavoidlosingmoney–thevalueof$100today may only be $70 ten years from now, thanks to inflation.Scamartistspreyon this fearof losing,and targets those thataredesperatefinancially.Fourth. Herd mentality. As social beings, when something goodhappenstous,wetendtosharethesemomentswiththosethatareclose to us, both family and friends. The classic pyramid or Ponzischemeplaysonthisinstincttosharesomethinggoodtoothers.Atfirst, investors are promised big returns on their investment, andpromised even bigger returns if they bring inmore investors. Themoreinvestmenttheyhaveandthemoreinvestorstheyrecruit,thebiggertheirrewards.Littledotheyknowthatthereturnstheyaregettingdonotcomefromactual investments,butsimplyfromthemoneycominginfromnewinvestors.Assoonastheentirescheme

3cf. Greenspan, Stephen. The Annals of Gullibility: Why We Get Duped and How to Avoid It


hits a critical mass, the entire system falls crumbing down like ahouseofcards,andbringingdownallofitsinvestorswithit.Aggravating these personal attributes is the social mores ofconsidering social discussions on finances, specifically personalfinances, as tabboo. In most instances, we are alone in our ownpersonalfinancialconcerns.Thismakesiteasierforscamartiststoplay on, coming to us with messiahnic promises of making ourmoneygrow.Another aggravating factor is themindset that scam artists don’tpreyonsmallinvestors,becauseifIwerethescammer,whywouldItarget thosewhowill investamere$1,000 if I can just selectonewhowill“invest”$1,000,000inmewhichIcanabscondwitheasilyandwithoutfearthatalotofpeoplewillcomeafterme?Iwillhavetoconvince1,000peopleto invest$1,000eachtomatchthatonetimebiginvestment.Wrong.Nomatterhowsmallorhowbigofaninvestoryouare,scamartistswilltrytolureyouintotheirschemes.Besides, if they’re trying to pull off a Ponzi scheme, they needconstantstreamsofcashtosupportthepyramid–andtheywilldowhateverittakestogetthatstreamofcashflowing.Astimepasses,theywillpreyevenonthesmallestof investors.AsKennethFisherputsit:

Theyhavenohesitationat all to takeall yourmoneyandleaveyoupenniless,knowingfullwellwhatthey’redoingandhowitwillimpactyou.Thereisnosympathythere. No soul. No guilt or remorse. It is a form ofintentional activity that is no different from simplestealing—just gone about differently so they can get


muchmoremoney fromyou than they could steal atgunpoint.4

Butreally,ittakeslittlemorethancommonsenseandalittlebitofdue diligence to avoid falling victim to the attractive scams theseconartistsaretryingtopulloff.Thisbookwillaimtodojustthat–tohelppeoplefromavoidingthese investmentfrauds.Findingoutourflawedattributesisthefirststepinspottingandavoidingthesescams,becausethesescamartistsplaythesameschemeoverandoveragain.Knowingandacknowledgeingour flawswillhelpus toseparatethosegenuine investmentopportunitiesfromthosescamartists that prey on the emotions with promises of solving ourfinancialwoes.

4Fisher, Kenneth L. “How to Smell a Rat.”


CHAPTER2:

HOWSCAMSARESTRUCTUREDThe first question you probably have is, so how do I know ifsomething is a scam or a genuine financial opportunity? KennethFishersaysthattherearefiveredflagstolookoutfortoseeifyourfinancialadvisermightcurrentlybeinvolvedinafraud,orwhetherthepresentschemeofthingsarelikelytoevolveintoaswindle:

1. Youradviseralsohascustodyofyourassets—thenumberone,biggest,reddestflag.

2. Returnsareconsistentlygreat!Almosttoogoodtobetrue.3. The investing strategy isn’t understandable, ismurky, flashy,

or“toocomplicated”forhim/hertodescribe.4. Your adviser promotes benefits like exclusivity, which don’t

impactresults.5. You didn’t do your own due diligence, but a trusted

intermediarydid.

Tom Ajamie and Bruce Kelly, meanwhile, came up with a set ofquestions to think about that are helpful in detecting fraud andavoiding lossofmoney from theseunscrupulous scammers. Someofthemare:

• Is the broker or adviser using high-pressuresales tactics and telling you that thisinvestment is a great offer and you have toinvestrightnow?

• Isthebrokeroradviserpursuingyourbusinessandpressuringyoujustasyouaredealingwith


adramaticlifechangelikethedeathofalovedone, particularly a spouse who handled themoney?

• Is the broker or adviser telling you theinvestment has a guaranteed return of 10percent, 15 percent, or higher? Does herepeatedly tell you that the return isguaranteed, and there is no risk to yourinvestment?

• Does the broker or adviser hold his clients’assetswithafirmoroutsidecustodianwhosename you know and whose history you canresearcheasilyonline?

• Doesthebrokeroradvisersimplynotexplainhis investments or strategies, saying they aretoo complex or of a top-secret proprietarynaturethatnoonebuthecanunderstand?

• Does he spend money in a lavish andextravagantmanner,withhomesandcarsthatdon’t match the level of income you believeheismaking?

• Are you desperate for money? Or are yougreedy?Isyourbrokeroradviserpushingyourgreedbutton?5

Whenyouseeoneormoreoftheaboveredflagsinaninvestmentscheme, it might be better for you to avoid that investmentaltogether.Sure,theopportunitymightturnoutnottobeascam,but it’s better to take precautions than get swindled out of yourhard-earnedmoney. Inmany cases of financial fraud, the scheme

5Supra Note 1


wasn’treallyplannedouttobeascam,butagenuineopportunityto take advantage of the financialmarkets. But somewhere alongtheway,perhapsaftertakingsomemisstepsduringabearmarket,andinanattempttosaveface,theinvestorsaredeceivedthattheyare stillmakingmoney. That iswhere things start to spiral out ofcontrolandturnintoonebigscam.

Personally,myruleofthumbisthis:ifanyoneoffersreturnsbetterthan 25% per annum, the average returns made by some of thebest self-made billionaires like Warren Buffet, then you bettercheckoutthefineprintandlookattheworstcasescenario.I’mnotsayingthatanyoneofferingreturnsupwardsof25%perannumareall scammers, but if these finance managers can do better thanWarren Buffet, who can only do so much throughout the yearswithout leverage, then there’s a big chance theywill do anythingand everything to make it appear to investors that they canwithstandthegreatvolatilityofthemarket–andnomarketintheworld,andImeannomarket,canbesparedfromvolatility.Letuslookintomoredetailthetwotypesofscams:thescamsthatwerereallymadetoconpeople(scamsthatarefraudperse),andtheinvestmentsthatwentwrong(scamsthatariseoutofunsoundinvestingpractices).

A. SCAMSTHATAREFRAUDPERSE

First, let us look at those schemes that are scams right from thebeginning. Most unfamiliar investors may think that scam artistsconstantlythinkofnewinvestmentscamstokeepthemselvesawayfromthelongarmofthelaw.Butreally,mostswindlingtechniquesweseetodayarejustthesameoldtrickspackageddifferently.Scam


artists usually just use, reuse, and rehash old schemes that havebeentestedtoeffectivelyrobpeopleawayoftheirmoney.Investopedia listed the following most “successful” investmentscamsandswindling techniques that scamartistshavebeenusingovertheyears:

Ponzi Scheme - A type of pyramid scheme, this iswheremoneyfromnewinvestorsisusedtoprovideareturn to previous investors. The scheme collapseswhen money owed to previous investors is greaterthan the money that can be raised from new ones.Ponzischemesalwayscollapseeventually.

Pump and Dump - A highly illegal practice where asmall group of informed people buy a stock beforethey recommend it to thousands of investors. Theresult is a quick spike in stock price followed by anequally fast downfall. The perpetrators who boughtthestockearlyselloffwhenthepricepeaksatahugeprofit. Most pump and dump schemes recommendcompanies that are over-the-counter bulletin board(OTCBB) and have a small float. Small companies aremore volatile and it's easier to manipulate a stockwhen there's little or no information available aboutthe company. There is also a variation of this scamcalled the "short and distort." Instead of spreadingpositive news, fraudsters use a smear campaign andattempt to drive the stock price down. Profit is thenmadebyshortselling.Off Shore Investing - These arebecomingoneof themore popular scams to trap U.S. and Canadianinvestors. Conflicting time zones, differing currencies,and the high costs of international telephone calls


made it difficult for fraudsters to prey on NorthAmerican residents. Be all the more cautious whenconsidering an investment opportunity originating inanother country. It's extremely difficult for your locallaw enforcement agencies to investigate andprosecuteforeigncriminals.

Prime Bank - This term usually describes the top 50banks(orthereabouts)intheworld.Primebankstradehigh quality and low risk instruments such as worldpaper, International Monetary Fund bonds, andFederalReservenotes.Youshouldbeverywarywhenyou hear this term--it is often used by fraudsterslooking to lend legitimacy to their cause. Prime bankprograms often claim investors' fundswill be used topurchaseandtrade"primebank"financialinstrumentsfor huge gains. Unfortunately these "prime bank"instruments often never exist and people lose all oftheirmoney.6

In recent years, investing through the internet has gained muchpopularity, especially with millenials. With brokers allowing theirclients tomanage their investmentportfoliosonline, goneare thedays when only those who have time to visit their brokers caninvestmoney in themarket. The internet hasmade it posible formillions of people to get involved in the market and personallycontroltheirowninvestments.

Forexample:withafewclicksofabutton,aninvestorinSingapore,can not onlymonitor but alsomove around stocks to beef up hisNYSE portfolio – all before he can grab breakfast and head to his

6 http://www.investopedia.com/university/scams/scams4.asp


own full-time job back at home. Another example which a lot ofmillenials can relate to: a travel blogger can be whiling away histimesippinghorchatasandhappilymunchingtamalesallthewayinMexico, but using his mobile pone, which he always carries withhimanyway,hecaneasilycheckandconfirmthathis investmentshavegoneup3%inthepastweek. Inafewshortminutes,hecanmaximizetheopportunitiesavailableonline,andmakesurehehassufficientfundsavailabletosupporthis3-monthtriparoundSouthAmerica.

Withtheeaseofinvestingusingtheinternet,itgoeswithoutsayingthat scammers will take every opportunity to swindle money offunuspecting investors using the internet. While most of theswindling techniques off the internet have originated long ago –from telemarketing to direct mail to door-to-door schemes, theinternethadaddedanewdimensiontopullingoffthesescams,andintheprocessmadethemawholeloteasier.TheU.S.SecuritiesandExchangeCommission listed a few common scams that fraudstersarepullingoff–unsurprisinglysuccessfully–offtheinternet:

Online Investment Newsletters: While legitimateonline newsletters may contain valuable information,others are tools for fraud.Some companies payonlinenewsletters to "tout" or recommend their stocks.Touting isn’t illegal as longas thenewslettersdisclosewhopaidthem,howmuchthey’regettingpaid,andtheform of the payment, usually cash or stock. Butfraudsters often lie about the payments they receiveandtheirtrackrecordsinrecommendingstocks.Fraudulentpromotersmayclaimtoofferindependent,unbiased recommendations in newsletters when theystand to profit from convincing others to buy or sell


certain stocks. Theymay spread false information topromoteworthlessstocks.Online Bulletin Boards: Online bulletin boards are away for investors to share information. While somemessagesmaybetrue,manyturnouttobebogus–orevenscams. Fraudstersmayuseonlinediscussions topump up a company or pretend to reveal "inside"information about upcoming announcements, newproducts,orlucrativecontracts.You may never know for certain who you're dealingwith, orwhether they're credible, becausemany sitesallow users to hide their identity behind multiplealiases.Peopleclaimingtobeunbiasedobserversmayactually be insiders, large shareholders, or paidpromoters.Onepersoncaneasilycreatetheillusionofwidespread interest in a small, thinly traded stock bypostingnumerousmessagesundervariousaliases.PumpandDumpSchemes:“Pumpanddump”schemeshave two parts. At first, promoters try to boost theprice of a stock with false or misleading statementsabout the company. Once the stock price has beenpumped up, fraudsters move on to the second part,wheretheyseektoprofitbysellingtheirownholdingsofthestock,dumpingsharesintothemarket.Theseschemesoftenoccuronthe Internetwhere it iscommontoseemessagesurgingreaderstobuyastockquickly. Often, the promoters will claim to have"inside" informationaboutadevelopment thatwillbepositive for the stock. After these fraudsters dumptheir shares and stop hyping the stock, the pricetypicallyfalls,andinvestorslosetheirmoney.


Spam:“Spam”–junke-mail–oftenisusedtopromotebogus investment schemes or to spread falseinformation about a company. With a bulk e-mailprogram,spammerscansendpersonalizedmessagestomillionsofpeopleatonce formuch less than thecostof cold calling or traditional mail. Many scams,including advance fee frauds, use spam to reachpotentialvictims.7

B. SCAMSTHATARISEOUTOFUNSOUNDINVESTINGPRACTICES

Letusnowlookintoinvestmentopportunitiesthatdidn’tstartoutas scams,but resulted inonedue tobad investmentdecisionsonthe part of the fund managers. By way of an illustration, let usexamine the now infamous case of Bernie Madoff, who wassentencedto150yearsinprison8afterpleadingguiltytosecuritiesfraud after caught commiting in an investment scam commonlycalledPonzischeme.

BernieMadoffwasawell-versedandactivememberofthefinancialindustry.Hestartedhisownmarketmakerfirmin1960andhelpedlaunch theNasdaq stockmarket.He sat on the board ofNationalAssociation of Securities Dealers and advised the Securities andExchange Commission on trading securities.9Hewas a very activeplayerinthehedgefundindustrypriortohisconvictionforfraud.

7 http://www.sec.gov/investor/pubs/cyberfraud.htm 8 http://www.nytimes.com/2009/06/30/business/30madoff.html 9 http://www.businessinsider.com/how-bernie-madoffs-ponzi-scheme-worked-2014-7


Madoff’s Ponzi scheme was only discovered when his clientsrequestedatotalofUS$7Billioninreturns,butheonlyhadbetwenUS$200-300 Million left to give. 10When his Ponzi scheme wasdiscovered,hisclientsclaimedthathecheatedthemoutofUS$65Billion, although due tomarket losses he probably onlymade offwith around US$20 Billion.11Supposing he did his entire businessstructureasagrandPonzischeme,giventhesizeandsheeramountofmoneyflowingthroughhissecuritiesmanagementcompany,itisinconceivable thatheonly got awaywithUS$20Billion.Hewouldhavegottenmuchmuchmore.

An analyst therefore posits that at first, Madoff’s investmentstrategy actually did deliver smoothly positive results. At somepoint,thosereturnsbecamelessreliable,butMadoffoptedtokeepreportinggood returns.Thatwentokay forawhile,butwhen themarket continued falling,Madoff doubled down in an attempt torecoup losses. Again due to the downward trend of the market,Madoff lost even more money. An analysis postulates that hislegitimatebusinesswasonlyturnedintoaPonzisometimein2001,whenMadoff’sinvestmentstrategywassubjectofseveralskepticalarticles.Heattempted toprove thearticleswrong,butsince2001sawthestartoftheearlystagesofthebearmarketthatwouldlasttwoyears,Madoffstartedtomakeitappearthatheisstillearningmoneyevenifthemarketforceswereagainsthisfavor.12

In the case of Madoff, then, trying to impress his investors andrefusingtoacknowledgelossesledhimtocommitabigscamoutof10Id. 11Id. 12 Fox, Justin. “When did Madoff go from legit to Ponzi?” http://business.time.com/2008/12/15/when-did-madoff-go-from-legit-to-ponzi/


his legitimate business.WhilemuchofMadoff’s scheme’s successcan be attibuted to the lack of oversight by the Securities andExchangeCommissionof theUnitedStates,byand large,hisscamwasanoffshootofhisunsoundinvestmentpractices.


CHAPTER3:

HOWTOAVOIDFALLINGVICTIMTOINVESTMENTSCAMS

Therearetwobasicthingsthatyoushouldalwaysexercisetoavoidfalling victim to the schemesof investment scamartists: commonsenseandduediligence.Scamartists knowhow to play on your emotions,most especiallygreed. You on the other handmust stay grounded on reality anddetectwhensomethingisbeyondtherealmofrealityandgoesintotherealmoflies–thatiswherecommonsensecomesin.Goodscammersalsodotheirhomework.Soyoushouldtoo–thatiswhereduediligencecomesin.Makesuretoasktherightquestionsbeforewritingthatcheck.(Andbytheway,makesurethatyou’rewritingthechecktothecorrectpayee– it should alwaysbewritten in thenameof the company,andnotpersonallytoyourownfinancialmanager.)

A. COMMONSENSE

Thefirstthingascamartistwillusetoconvinceyoutoinvest istoshow how much money other people have earned using theirinvestmentscheme.Theywillgiveyoutestimonials,evenshowyoucopiesofchecksthatotherpeoplehavesupposedlyearnedthroughthem.Theywillbeginwithflashingyouwithmoney.Theywillwanttogetyourattentionbyshowingyouthatyoucanearnhugesums


ofmoneyby investingwiththem.Theywill showyouthatdespitetheodds,despitethevolatilityofthemarket,theyhavebeenableto give their investors high returns. This is a surefire way ofseparating scam artists from genuine and reputable financialmanagers.This ishowscammerswork– theymakepromises theyknowtheywon’tbeabletokeep,andwilldotheirverybesttokeeptheirpromiseevenattheexpenseofothers.

Let us look at famous scammerswho have been caught:NicholasCosmoclaimed48percentanualreturns.DarenPalmerclaimed40percent. Charles Ponzi himself promised returns as high as fiftypercent in justninetydays. These scams smacksof fraud, andyetthese scam artists were able to fool and convince hundreds ofpeople, and enabled them to abscond with millions from theirinvestors.13

Commonsensewouldsaythatareturnaverageofaround10%perannum is reasonable to believe. The operative term here is“average”–meaning returnsmeasuredover longperiodsof time.Meanwhile,aconsistentreturnof10%perannumoveranumberofyears should be suspect. Remember that your money growsdepending on how financial markets perform during the year. Afinancial manager cannot consistently give returns of exactly thesame percentage precisely because the returns should bedependentonhowmarketsperformed–andevenanoviceinvestorwouldknowthatnomarketissparedfromvolatility.Ifallthemajormarketsperformedparticularlybadduringayear,perhapsduringabearcycle,yetyouarepromisedwitha50%returnthatyear,Iwillbetallmymoneythatthatisascam.

13 Fisher, supra


Butreally,canafinancialmanagerdo50%inoneyear,orperhaps50% two years in a row? Definitely, and some particularly goodfinancialmanagerscandoit.Canamanagerbeatthemarketonce,twice,oreventhreetimesatsuchawidemargin?Yes,absolutely,andithasbeendonebefore.Buttoseparatescamartistsfromgoodfinancialmanagers,youhavetostop lookingatthetreesand lookat thewhole forest.Not even the bestmanagers can consistentlybeatthemarketatsuchwidemarginsforsuchlongperiodswithoutviolatingregulationsordefraudingpeople.Eventhebestmanagershavelosses.

Neithercanpastperformancebeusedtoguaranteefuturereturns.Whensomeonepromisesyouthesamereturnthattheircompanyhad last year, chances are, they are committing fraud. Even if afinancialmanagerhashadstellarreturns inthepastyears,noonecan guarantee that theywill reap the same returns in the future.The best promise they can give is to stick to their strategywhichtheythinkissuperior.Howthatimpactsfutureperformanceisuptotheficklemarketandtheirskill.14

Onthe flipside, losingmoneyby itselfshouldnotbeequatedwithfraud.Icanneveremphasizeenoughthatthemarketisvolatile,andis inherently risky. It is the duty of the good financialmanager tomanage that risk for you, and not to eliminate it altogether.Marketsgothroughbullcycles,whenreturnsareusuallyhigh,andthrough bear cycles, where losses are usually expected. For theuninitiated, it isdifficult todifferentiate losingmoney froma thiefand losing money when the market affects your portfolio.Remember: Market volatility is normal, and thievery is not. Even

14Fisher, supra.


blue chip firms experience wild stock swings, depending on themarket.

Anhonestfinancialmanager isupfrontwithhisclients:hisreportswouldaccuratelyreportthelossesoftheinvestors.Scamartists,ontheotherhand,neverdisplaysbadyears.Theirreturnsaretoogoodto be true, because by definition, they aren’t true. Scam artistsknow that some investors shy away from volatility and give themwhattheywant–smooth,neverscaryreturndisplays.15Therealityisthatinvestingisnothingmorethantheapplicationofcapital to business. Hence, the return on the capital must beconsistent with the rules of a competitive business environment.Belowarequestionsthatyoucanaskyourselftohelpyouaddressifthe alleged promised return is consistent with business commonsense:

(1) How exactly does this investment strategy createabovemarketreturns?Whatisthecompetitiveadvantage?Ask yourself if the answer you are given is complete,thorough,andmakesbusinesssense.Istheanswerisglib,lacedwith jargon and techno-babble, or is it simple andstraightforward? Do you understand the competitiveadvantagewellenoughtoexplainexactlyhowitworkstosomeone else? If you can’t explain it then you don’tunderstandit.(2)Whatarethebarriersthatwilllockoutcompetitorssothatadditionalcapitalandsupplydoesn’tforcereturnsdowntomarketlevel?

15Id.


Theremust be a legitimate business reason that returnswill remain excessive. Again, does the answer pass thecommonsensetest?Canyouexplainthereasonwhytoafriendineverydaylanguage?16

B. DUEDILIGENCE

Common sense, tobeusedeffectively,must be coupledwithduediligence. As a novice investor, do your research – knowhow themarket works, even on the elementary levels. At the very least,when meeting your financial adviser, know to ask questions; orbetter yet, know to ask the right questions. A scammerwillmostdefinitelyevadeansweringyourprobingquestionsandsticktothescriptthathe’sgivencountlesstimestovictimizepeople.

Remember: serious questions are a sign of a serious buyer, andhonest salespeopleknow it,welcome it,and respect it.Theyhavenothingtohidesotheywillattempttosimplifytheiranswerssoyoucan understand the investment and make an informed decision.Buyinginvestmentsshouldbeaprofesional,businesslikeexperience– not warm and fuzzy like a trusted friend, nor too cold and tooabrasivelikeacompetitor.17

Knowingtoasktherightquestions,orperhapsevenknowingwhereto ask the right questions – that formspart of duediligence.Due

16 Due Diligence Checklist to Prevent Investment Fraud: Reveals the Crucial Questions to Help Prevent Investment Fraud and Send the Con-Artist Ducking for Cover. http://financialmentor.com/free-articles/investment-advice/due-diligence/due-diligence-checklist-to-prevent-investment-fraud 17Id.


diligenceinitsbasicformisbasedonacertainstandardofcareorlevelofprudence.Itcaninvolvetheevaluationofaperson,agrouporaspecificactorsetofevents.Itisconsideredanopenformatforthepartyorpartiesunderevaluation,meaningthatanysegmentofthebusinessisopenseasonforreviewandunfetteredaccessmustbe granted. Businesses themselves conduct frequent internalevaluationsaspartofthenormaloperatingprocedure.18

Most investors might not realize it, but when they review aprospectus before investing in amutual fund, they are doing duediligence. But to be more effective in exercising due diligence,investors must have a plan that includes a comprehensiveevaluationnotjustofthecompanytheyareinvestingin(or,inmostcases,theirfinancialmanager),fromthestatedinvestmentpolicytothe audited financial statements. Michael Schmidt suggestsevaluatingthefollowingítemstoeffectivelydischargeduediligence:

1. Strategy

A defined, written investment strategy must bedetermined. This is usually termed an “investmentpolicy statement” or "investment managementagreement"whenwrittenforspecificclients.

2. HistoricalReturnsYour portfolio's historical returns, preferably in theformat accepted by the Global InvestmentPerformanceStandards(GIPS),shouldbedetermined.GIPSisverycomprehensiveasit includesanaccuraterepresentation of a client's historical performance inbothrelativeandabsolutereturns.Thefactthatafirm

18 Schmidt, Michael. “How to Avoid Falling Prey to the Next Madoff Scam.” http://www.investopedia.com/articles/fundamental-analysis/09/investing-due-diligence.asp


has adopted the standard also suggests itscommitment to honest reporting and accountabilitybecausedoingotherwisewouldputitscredentialsonthe line. While there is no guarantee that theperformance is100%accurate,at leastthere issometransparency for the evaluation party to locatepotentialgaps.

3. AuditedFinancialStatementsAudited financial statementsare required if the fundis registered and regulated by the SEC. Federal lawsrequirecompanies that registerandare regulatedbythe SEC to submit complete, accurate and truthfulstatements, which are prepared according toGenerallyAcceptedAccountingPrinciples(GAAP).Itisalsoimportanttoknowwhotheindependentauditorisandtodosomeresearchonitasthey,aswellasitsopinions, will provide a significant weight in theoverallevaluationoftheduediligence.

4. CurrentProspectusAcurrentprospectus-ortheequivalentofoneintheformofanADV-andacompleteoutlineoftheassetsunder management risks taken, investmentprofessionals' biographies and actual copies ofinvestment statements, preferably from a reputablecustodian, are must-haves in the due diligenceprocess. These documents should contain detailsregarding the valuations of investments, particularlythose investment that are not actively traded withcurrentmarketvalues.19

19Id.


For most investors, the above items seem too technical, andperhapsyoudonothavesufficientbackgroundnortimetoinspectsuch items.Besides, youmightask, that’swhat I’mgettinga fundmanager for, to deal with the nitty gritty of investing, so I don’thave to? To a point, there is merit in that argument. Financialmanagers should be responsible to invest your money only onlegitimatebusinesses,and theyhave theduty toensure thatyourmoneyisn’tgettingscammedaway.

But just like the old saying, you have to ask, “Who watches thewatchmen?”Whomakessurethatyourownfundmanagersdon’tcommitlarcenyandrunawaywithyourmoney?Orperhaps,toputthings into perspective, the question should be phrased: “Whodecidedtoentrustmoneywiththisparticularinvestmentvehicle?”Theanswer isyou. It isyourmoney that theyaredealingwith, soyouhavetheresponsibilitytoensurethattheycanbetrustedwithit.

Toacertainextent,therefore,duediligenceinvolvessomeresearch– you as the investor should be diligent enough to do your ownresearch.And inmost cases, itdoesnot take toomucheffortnoreconomicorfinancialsavvynesstodischargesuchduediligence.Inthisdayandage,duediligenceisnotlimitedtothosewithenoughacademicbackgroundinfinanceandaccounting–mostinformationto watch out for are available for the public’s evaluation andperusal.

Howdoyoustartdoingdiligence, then?Google it. Seriously.Doagooglesearchof thenameof thecompanyyouare investingyourmoneyin.Whilegooglemaynotbethebestsourceofinformationin doing due diligence, it is without question the most accesible.Youcameacrossa term in financewhichyoudonotunderstand?


Google it.Try itwith the term“hedge fund,” forexample,amuchmalignedinvestmentvehiclethankstoitsconvolutedstructureandtheBernieMadoff scandal, andyouwill get about14millionhits.From a crudeWikipedia entry on hedge fund to the latest hedgefund successes or failures, to hedge fund índices,Googlewill giveyouthatmuchinformation.Justtakethingswithagrainofsaltandyouwillbeonthesafeside.

The same will hold true in investigating the legitimacy of thecompanyyouwanttoinvestin.Alotoftheinformationavailableintheinternetwillhelpyouassesswhetherthecompanyislegitimateornot.Insomecases,especiallyifthecompanyhadbeenpreviouslyinvolvedinalawsuit,informationonthemwillbeavailableonline.

Second, ask lots of questions. Ask the right questions beforehanding off your money to anyone for investment – it doesn’tmatterifit’sfamily,friend,orevenabigfinancialinstitution.Belowareexamplesofsomeofthesequestions:“What’sthebasisortrackrecordofyourprojected/guaranteedreturns?”“Tellmemoreaboutyourselectionprocess,entryandexitstrategies.Howarethedecisionsmade?”“Howisthisentiredealconstructed?Howiseveryoneinthechainpaid?”“Whataretheunderlyingassetsinvestedwithinthisinvestment?”“Areanyofthesereturnsguaranteed,andbywhom?Whataretheworstcasescenarios?”“Whataretherisksinvolved?”“Howliquidisthisinvestment?HowandwhencanIgetmymoneyoutifIneedit?”


“Canyouexplainclearlytheentirefundflow?”“Howarethereturnsgeneratedandsustained?Isitadrawdownfromthecapital?”Beingmorefinanciallyliterateandspendingtimewiththosewhoarewillequipyoumoreinthis.Keepaskingquestionsuntilyouaresatisfiedwiththeanswers.20Asthesayinggoes,bettersafethansorry.Third, ask where your money will be held. Regardless of who ismaking the investmentdecisions, yourmoney shouldbekept inaseparate and independent financial institution.21A lot of schemesthrive inblurring theboundariesbetween fundmanagerand funddepository.Topreventthat,makesurethattheseparationisclear.Yourfundmanagershouldnotbeabletoaccessyourfundswithoutyourpermission.Ontheotherhand,youshouldbeabletomonitoryourfundsfromthedepositoryatalltimes.Thatway,youknowifyouaregainingmoneyor suffering from lossesnot fromthe fundmanagerbutdirectlyfromthefunddepository.Also,makesurethatthe account is in your name personally, and not with the fundmanager,asthatwillgivethemaccesstoyourmoneywithoutyourpermission.Fourth, ask to see written materials about the firm you arepotentiallydoingbusinesswith.22Alegitimateinvestmentcompanywill be able to give you sufficient documentation about their20American Association of Individual Investors. “Due Diligence: 10 Steps to Avoiding Ponzi Schemes and Financial Fraud.” http://www.aaii.com/financial-planning/article/due-diligence-10-steps-to-avoiding-ponzi-schemes-and-financial-fraud 21Id. 22Id.


business, from primary and secondary licenses, to marketdisclosures,andeventhecompany’shistoricalprofile.Whileittakesalittlebackgroundinfinancetobeabletounderstandsomeofthedocuments, any legitimate company will have these readilyavailableforyourperusal.

Fifth, feel free to bring a trusted advisor whenmeeting with thefirm.23Alegitimatecompanywillnotrefuseyourrequesttobringinyourlawyeroryouraccountantwhenmeetingwiththem.Insomecases,itmayevenbejustafriendwhoismoreknowledgableinthefieldoffinance,orperhapsanyfriendwhoissimplytheretogiveathird-person perspective on things. The important thing is, thepresence of such third person should be allowed by yourinvestmentcompany.

Sixth, check the profile of the firm. Make sure that they havephysicalofficesthatyoucanvisit,andwheretheyareknown.Iftheyinsist in meeting somewhere else other than their office despiteyourrequest,thatshouldraisearedflag.24

Seventh,ifsomethingsoundstoogoodtobetrue,itmostprobablyis. 25 To reiterate, all investment opportunities involve risk. Alegitimate company will not evade questions about risk, and willgladlyprovideyouinformationaboutit.

Eighth, take time to think before investing.26“Flash deals” do notexist ina legimate investmentenvironment.A legitimatecompanywillgiveyousufficienttimetothinkbeforeinvesting.Don’tsignup23Id. 24Id. 25Id. 26Id.


for anything that are only available within a particular, usuallylimitedperiod.

Ninth, avoid investments, advisors, and approaches that areopaque.27Investmentprofessionalswillbeable to talkabout theirproducts with transparency. They will be able to guide you andshowyouhowyourmoneywillbespent.Theywillnothidebehind“proprietary,not-available-to-the-public”tradestrategy.Whentheygive you such answers, chances are, they are committing fraud.While itmaybe true thata lotof informationarenotavailable tothe public, as an investor, you have the right to know how yourmoneywillbeinvested,albeitinalayman,non-technicalway.

Tenth, don’t discount evasiveness.28Evasions and distractions arenot substitutes for clear, easy to understand answers to yourquestions.Legitimatefundmanagerswillanswerallyourquestionswithcandorandcandidness.

Lastly, trust your gut. This is your radar for what feels right andwhatcouldbewrongforyou.29

C. TIPSINAVOIDINGINVESTMENTSCAMSWith common sense and due diligence as your ammunition,hopefully,youwillnotfallintothetrapofschemingfraudsters.Butremember that there will always be crime in society. Just likemugging in the streets, thefts, andmurders, there will always be

27Id. 28Id. 29Id.


financial crimes, frauds, and scams. The key is to not be gullibleenoughtofallintotheirschemes.AsTomAjamieputsit:

“In making our investment decisions we need to avoidbeing gullible and follow a sensible approach toevaluatingourchoices.Therearestepsthatwecantake.Cialdini defines gullibility as “not just an action in aparticular situation that turned out to be wrong, but atendencyacrossallsituationsinwhichapersonfindshimorherselftogoalongwiththeappealsorthepersuasivecommunicationswithotherswithoutthinkingthroughthemerits of what that person is offering.” In other words,being ledby the fraudsterandnotobjectivelyevaluatingwhatheorsheissayingtous.”30

Asanadditionalinformationforeveryone,Ihavegatheredtipsfromathink-tankandaregulatoryagencyinavoidinginvestmentscams,especiallyinthesedaysofinvestingthroughtheinternet.Asawayto complement all the information above, these tips will helpsafeguard your hard earned money from the hands of white-collaredthieves.TheNationalEndowment forFinancialEducation(NEFE)hadthesesuggestionstoavoidinvestmentscams:

1. Choose a money manager who is well-known,regulated by the Securities and Exchange Commission(SEC), and who has been in the industry for severalyears. Carefully examine testimonials you read or seeadvertisedaboutamoneymanager.

30Supra


2. Bewareanymoneymanagerwhowantstotalcontrolofallyourmoneyorwhodeliberatelyoveremphasizeshistrustworthinessandhonesty.

3. Choose everyday investments that canbebought andsold through well-known brokerage firms or mutualfund companies. Make sure your statements comefrom your brokerage firm, not the individual moneymanager.

4. Makeyourchecksouttoyourbrokeragefirm,nottoanindividual money manager or a company that personcontrols.

5. Beware promises of high or unusually steady rates ofreturn. If amoneymanager can’t easily explain his orherinvestmentprocess,that’saredflag.31

Meanwhile,TheU.S.SecuritiesandExchangeCommissiongivesthefollowingtipstoavoidinternetinvestmentscams:Get the factsbefore you invest, and only investmoney you canaffordtolose.Youcanavoidonlineinvestmentscamsbyasking–andgettinganswersto–thesethreesimplequestions:

• Istheinvestmentregistered?To findout, check the company’s SEC registration.Manyonline investment scams involve unregistered securities.But the fact that a company has registered and filesreportswiththeSECdoesn'tguaranteethatthecompanywillbeagoodinvestment.

• Isthepersonlicensedandlaw-abiding?

31 http://www.nextavenue.org/how-identify-and-prevent-investment-fraud/


Findoutifthepersonorfirmsellingtheinvestmentneedstobelicensed.Callyourstate/countrysecuritiesregulatorand ask whether the person or firm is licensed to dobusinessinyourstateandwhethertheyhavearecordofcomplaintsorfraud.

• Doestheinvestmentsoundtoogoodtobetrue?If it does, it probably is. High-yield investments tend toinvolveextremelyhighrisk.Neverinvestinanopportunitythatpromises"guaranteed"or"risk-free" returns.Watchout for claimsofastronomical yields ina shortperiodoftime. Be skeptical of "off-shore" or foreign investments.And beware of exotic or unusual sounding investments,especially those involving so-called "prime bank"securities.Make sure you fully understand the investment beforeyoupartwithyourhard-earnedmoney.Alwaysask for–andcarefullyread–thecompany'sprospectusandlatestfinancialstatements.32

Personally, Iwillalsoaddthefollowingpiecesofadvice,whicharemypersonalstandardsinmakinginvestments.First,dononotextendpayment toanyonewhomyouhavenevermet before in person. Someone offering you a true investmentopportunity will always make time to meet you in person andexplain to youpersonallyhow the investmentwillwork. Theywillalsomakesurethatyouhavesufficienttimetoaskthemquestions,andtheywillbeabletoanswerthemadequately.

32 http://www.sec.gov/investor/pubs/scams.htm


Second,dealwith localswhoyoucanmeet inperson.Whilemanylegitimate opportunities exist where almost all transactions aredone virtually through the internet, it is always best to go to thefinancemanager’sofficefirst, ifonlytoseethattheofficeactuallyphysicallyexistsinbrickandmortar,whichisinitselfaformofduediligence. It is also best to invest using local companies, becausethey are covered by existing rules and regulations within yourcountry,Third, never wire funds. Legitimate investment companies andfinance managers will always have facilities to facilitate suchtransfers of money, and they will never resort to wiring moneydirectly to them through a bank or a remittance company likeWesternUnion.Fourth,donotacceptcashierorcertifiedchecksormoneyorders.Iftheyturnouttobeforgeries,evenifthebankhadalreadyencashedthem,youcanbeheldliablefortheforgery.

Fifth,enteronly intoarrangementswhere transactionsare limitedbetweenusers only, and no third party is called to guarantee thetransaction.Sixth,nevergiveoutyourfinancialinformation.Somescamsinvolveidentity theftaswell–bewary ingivingoutsuch information lestyou fall victim to suchscams. Legitimate investmentopportunitiesdonotrequireyoutogiveoutyourbankaccountinformation,noryour social security number, and other such personal financialinformation.


Seventh, do not purchase things you have not seen. Someinvestment scams are packaged in a manner that makes themappear as “an amazing, available-only-now” deals. This createspressure on the part of the investor to quickly grab the deal,withoutfirstinspectingthematerialorsupportingdocuments,onlytofindoutlaterthatnosuch“deal”wasavailabletobeginwith.Eighth, refuse background checks before meeting personally withthemanager.Thismightbeaploy to trickyou intodivulgingyourpersonal financial information, or a way to get such informationfrom third parties. This results in identity theft that forms part ofthescam.


CHAPTER4:

HOWTORECOVERFROMTHEFALLUnfortunately,ifyouhavebeenscammed,thechancesofyoubeingable to recover your money are not high. Expert scammers areusually difficult to track – their businesses might not be legallyregistered, they might have falsified their identity, they could’veprovided their victims just temporary contact information, andthey’reprobablyhighlymobile.Alotofthemareknowledgeableinoperatingingrayareasofthelawsotheymayhaveconnedyouintosigning a contract/agreement that would leave you at a legaldisadvantage.So if you’ve been scammed, what do you do to correct it andrecoverfromit?Herearesomestepsyoucantake:Takefullresponsibility.Acknowledge the fact thatyouhavebeenscammed,and thatyouare the one accountable for it. Know that you are the primaryperson who’s responsible for verifying the authenticity of theperson/companywhom/whichyouweredealingyourmoneywith.By admitting to yourself that you were scammed, you preventfurtherlossesthatmightbeincurred.


Often, scam victims are in denial. Theywould blindly continue tobelieve the scammer, rather than heed all the warning signals,perhaps because their pride couldn’t easily accept that theywerefooled and that their money is gone for good. Scam artists areawareof thisandtheywouldtakeadvantageof this– theywouldkeeponcomingbackformore.Soitisbettertoacceptthefactandadmitthatyoumadeamistakeso you can start recovering from the loss and rebuilding yourfinancesagain.Whileitwouldbehighlyunlikelythatyouwillgetyourmoneyback,youcanreporttheincidenttotheappropriategovernmentagencyto help warn others about the scam. Themore people aremadeaware of it, the better are the chances of it not spreading anyfurtherandluringmorevictims.Youcanalsofilea lawsuittotrytorecoveryourmoney(althoughthere are a lot of variables to be consideredwith this – like howmuchassetsthescammer/fraudulentcompanystillhas).According to Boyd Page, a lawyerwho specializes in representinginvestorsatthePagePerrylawfirminAtlanta,"Generallyspeaking,legalactionsdirectlyagainsttheperpetratorhavelittlelikelihoodofbeing economic." There are several reasons for this. For one,chancesaregoodthatwhoeverranthePonzischemewaslivinganextravagantlife.Also,onceafraudisexposed,whatremainsoftheassetsofthefirmanditsoperatorsarealmostalwaystakenbythegovernmentorcourt-appointedtrusteeinbankruptcycourt.3333 http://www.bankrate.com/finance/personal-finance/5-ways-to-recover-from-a-ponzi-scheme-1.aspx


A legal consult can help you decide as to whether or not it iseconomicalforyoutopursuealawsuit.Learnfromtheexperience.

Mistakesarelessonslearnedwhennotrepeated.Perhapstheonlygainyouwillgetfromthelossarelessons--onlyifyouwillnotmakethesamemistakeoftrustingeasily,ignoringwhatyour common sense tells you, and not conducting due diligenceproperly.By knowing what to avoid on your next financial investments ortransactions, by beingmore cautious on thepeople or companiesyouwillbedealingwith,andbydoingyourhomeworkwellbeforereleasing your hard-earned money, you will be in a much bettercapacitytomakesoundfinancialdecisionsthanbefore.Taketimetoeducateyourself.Readandresearchabouthowscamswork and operate, about sound investing strategies, and aboutwhattheusualreturnsareforeverytypeofinvestment.Based on my own investment experience with the investmenthorizonfor5to10years,herearetheaveragereturnsIget:ValueInvesting:20-25%p.a.Leveraged Property Investing: usually 70% to 80% gearing (notadvisablefortheinexperienced);or30%-100%p.a.(thisiscyclicalandhighlydependentoneconomiccycleanditismoreilliquid)PrivateEquityandVentureCapital:oftenabove50%to100%p.a.overaperiodof1to3years(highlyrisky)


Icannotoveremphasizetheimportanceofnotfallingintoscamsinthefirstplace,soeducatingyourselfshouldactuallybedonepriortomakinganyfinancialdeals.However,ifyouwerealreadyconned,thebestprotectionyoucanarmyourselfwiththenexttimewouldbetobeknowledgeableaboutfinanceandinvesting.Developmasteryinyourcorecompetencetocreatewealth.

“Master1waytosucceed,insteadoftrying99waystofail.”

With regard to investing, it could be tempting to try a lot ofdifferent approaches to earn money passively. After all, it is acommonfinancialadvicetonotkeepallyoureggsinonebasketinorder to reduce risk. But the risk comes in when you becomeexperimentalinyourinvestingstrategies.For example, you might hear a lot of good feedback about aparticular investment, so you plunge in even without fullyunderstandinghowtheschemeactuallyworks.Takethispieceofadvice:ifyoudon’tunderstandit,itishighrisktoyou.Yes, itmightnotbeascamor itmightnotberiskytoothers,but it might be to you. It’s a lot like driving. Not everyone whodriveswillmeetanaccident,butrecklessdriving itselfpossessesasignificantly higher risk than driving safely. Likewise, recklessinvestingcouldbeacquiescingtolossesforyou.Attheendoftheday,ratherthanriskmanagement,it’smoreaboutself-management.Contemplateonwhethertheriskisnecessary.If


you can safely get 8% to 10%p.a. froman established, delegatedinvestment,whyisthereaneedforaninvestmentpromisinghigheryieldsevenifyoudonotfullyunderstandhowitworks?The key is to keep investing simple and structured. If you havemasteredasystemof investingthatgivesyousatisfactoryreturns,sticktoitsoyouwon’tbevulnerabletorisks.DIscoverYourUniqueMillionaireDNAAfterthefall,youshouldpickyourselfup.Thebestwaytorecoverfrom your losses and accelerate the time you build your wealthagain (andmore than ever) is by redirecting your resources, yourefforts,andyourenergytoacareerthatwillunlockyourmillionaireDNA.ThismillionaireDNAis inherenttoeveryone.Unfortunately,onlyahandfulofpeopleareabletodiscover this.A lotofpeopledonotreallydiscernthat theyarenotusingtheir faculties to their fullestpotential. This leaves people hopping from one job to another,earning a low ormediocre salary, struggling with a job that payshighbutisn’temotionallyrewarding,orgettingfrustratedaboutnotbeingabletoachievethelifethattheydesire.These lead people tomake hasty and unsound financial decisionswhentheyaretemptedwithhighandfastreturns-- inhighhopesthattheycanbecomefinanciallyfree,escapetheircurrentsituation,andliveabetterlife.Once you’ve discovered what your true strengths are, alongsidewithyourpassions,youwillbeabletounleashyourownmillionaire


DNA,andyouwillbeabletostartamassingwealthwhichwillbethefoundationofyournextmillions.ItcanbechallengingtryingtounlockyourmillionaireDNAonyourown.Howdoyoustart?Howwouldyoudiscoverthatuniquegeneinsideyouthatwillgeneratemillionsforyou?Howcanyouusethatblueprinttodirectyourcareerintoapaththathasagreenergrass?Inmydesiretohelppeopletoinstantiatefinancialfreedom,IhavedesignedtheMillionaireDNAProgram.Thisprogramhashelpedalotofpeopletouncovertheirbestcoursetoachievingmoreinlife.Knowingwith better certaintywhat you should pursue to achieveyour financial independence would help you not to be desperateandsusceptibletoscams.Ontheotherhand,ifyou’vealreadybeenscammed, knowing your unique millionaire DNA would help youmakeup for the losses you’ve incurred, and even risewayhigherthanyourpreviousfinancialstate.


CONCLUSIONTherewill always be peoplewhowould take advantage of othersandrunawaywiththeirmoney.Evenwiththeadventofmorelaws,ofinstantinformation,ofbooksaboutinvesting,peoplestillfallforscams.Infact,morethanever,itisnowaloteasierforprofessionalscammers to victimize more people as we have become moreaccessibletoalmostanyonebecauseoftheinternet.No one deserves to lose legally, hard-earned money and soeveryone should protect themselves from falling prey into thesefinancialcriminals.Takebabysteps.When building your wealth through investing, do not make hugeleaps if you are inexperienced. I will stress it again that evenseasoned investors are not exempted from risks. So imagine howmuch worse it could be for novices. There is no 100% guaranteethat there won’t be any losses – even for the most establishedcompanies.Theonlyapproachtothisistoreducetherisks.Bytakingsmallstepsintotheworldoffinanceandinvestments,youdecrease the dangers of you falling into scams. Start by investingonly what you can afford to lose. Do not gamble your lifetimesavingsbecauseIamcertainthatyoudonotwanttowakeuponedayandfindoutthateverythingyou’veworkedhardforisgoneandthat your daily existence is now hanging at themercy of you stillhavingajob.


This goes without saying that before you make any financialinvestment, you have to build your savings first. Save first foremergencies.Somepeoplealsosavefirstfortheirretirement.Thenthat’swhentheystartinvesting.Despite all the risk though, avoiding investing altogether mighthinder you from achieving financial independence. The averageannual percentage gain for a high-yield savings account is only at1%. This is a stark contrast to the average 10% yield on valueinvestment.Educateyourself.Become financially literate. What are stocks, equities, securities,bonds,marketreturns,mutualfunds,dividends?Howdoesinflationaffectyourmoney’sworth?Whatarebullandbearmarkets?Whenwouldapropertyappreciateordepreciateinvalue?Learnmoreaboutthepersonorcompanyyou’dliketoinvestyourmoney in. Is that person/companydevoidof fraudulent schemes?Were there legal suits filed against the company or theincorporators behind?Does the company have a stellar history ofachievementsandtrackrecordsofsuccess?Dotheawardsreceivedbythebusinessoriginatefromlegitimateandtrust-worthyagencies?Weretheygivenbecauseofmeetingcertainhighstandardsorweretheypaidfor?Ifyouaretoinvestonanything,startbyinvestingfirstinyourself–inyourfinancialknowledge.Thiswillsaveyoufromalotofpossiblefinancialpaininthefuture.


Inthestockmarket,youdonotneedtobeageniustoinvestwell,but it is a must for you to master at least the basics. InWarrenBuffet’s“Chairman’sLetter”toBerkshireHathaway,Inc.,hesaid:

To invest successfully, you need not understand beta,efficientmarkets,modernportfoliotheory,optionpricingor emerging markets. You may, in fact, be better offknowing nothing of these. That, of course, is not theprevailing view atmost business schools, whose financecurriculumtendstobedominatedbysuchsubjects.Inourview, though, investment students need only two well-taught courses - How to Value a Business, and How toThinkAboutMarketPrices.34

DevelopmasteryInvestingisasemotionalasdieting35–thereareoverahundredandonestrategiesfor investingastherearefordieting.Peopleusuallytryseveralapproachestolosingweight(andalotoftimes,theygetdepressedwhentheyfail),butoncethey’vediscoveredwhatworksforthembest,theymasterit.Yourfinancialhealthisas importantasyourphysicalhealth. Ifyouaren’t an investment expert, it is best to master one investingstrategythantoputyourfinancialhealthatstakeintryingalotofinvestingsystems.The path to financial masterymight take long, but it is definitelyrewarding. Even if youdonot intend to become an “expert,” you

34 http://www.berkshirehathaway.com/letters/1996.html 35Id.


should still strive to become better. Take time to read. Talk topragmaticpeoplewithyearsofsuccessininvestingbasedonsoundphilosophyandgroundedinvestmentprinciples.Seekopinionsfromestablished institutions and financial authoritiesover the years. Intime,youwilldevelopmasteryoveryourstrategy.Masterywillgiveyou confidence. Confidence will lead you to success and betterdecision-makingovertime.Whenyoufall,getupandmoveforward“A teachable spirit and a humbleness to admit your ignorance oryourmistakewillsaveyoualotofpain.However,ifyou'reapersonwhoknowsitall,thenyou'vegotalotofheavy-heartedexperiencescomingyourway.”36If you’vebeenscammed,being toostubborn toadmit thatyou’vemade amistake inmaking an investmentwill do youmore harmthangood.Actually,itmightnotdoyouanygoodatall.Ifyoupointfingers onwho should be blamed and if you do not acknowledgethefactthatyouhadresponsibilityoverthedeal,thenyouwillnotbeconsciousthatyouneedtochangesomethingwiththewayyoudoyourfinancialtransactions.Whenyoustartblamingotherpeople,youdistanceyourselffromanypossiblelesson.37Ifthatisthecase,thenyoumightfallpreyagaintoanotherscam.Itisnoteasytoconcedethatyouwereatfault,butit’sacrucialstepto learn from the experience. Accepting the fact that you had

36Carpenter, Ron Jr. The Necessity of an Enemy: How the Battle You Face Is Your Best Opportunity. Waterbrook Press: 2012 37Id.


shortcomingswillcommenceforadeeperunderstandingonhowtodealwithfuturefinancialtransactionsbetter.Getting scammed might be a setback for your financial goalsespecially if it involvedahugepercentageof your savingsor yourportfolio,butitisbesttodivertyourattentionintorecoveringfromthelossthansulkingovertheunfortunateevent.Youwillbeabletobuildyourwealthfasterifyouwouldbeabletodiscover youruniquepath to successwhich isbasedonyourownmillionaire DNA. If you have been spending most of the workingyearsoflifewithonlyamediocreincomewithdiscontent(notonlyfinancially,butalsomentallyandemotionally),then,youarereallynotlivingyourfullestpotential.Thekindoflifethatyoudeservewillcomeslowly,ifitwillreallyevercomeatall.Thebestway foryou tonotbeaffectedbyscams is tobeable tohave a strong financial foothold. That even if you incur lossesbecauseofthevolatilityofthemarket,youwouldstillbefinanciallyfreeregardless.YourmillionaireDNA is theonlykey foryoutobeable to unlock the path that will lead you to achieving financialsuccessmorethanyou’veeverimagined.


APPENDIX

ListofSomeofthePreviousScamsinSingaporeandMalaysiaWe could learn a lesson or two from previous scams that werebusted or that have eventually crumbled down. This list is by nomeans exhaustive and updated (there is still a whole lot more,believeme),butwiththesefewisagoldmineofredflagsweshouldall bewaryof.While reading thedetails of these scams, togetherwith thepointersyouhave learnedonhowto identify scams,youwill be able to know their common characteristics and what theinvestorsshould’vedonebeforeinvesting.APropertyPonziScamThe mastermind behind this $60 million scam (in capital alone),Leong Lai Yee, sustained this Ponzi scheme for 15 long years.Ms.Leongallegedlydupedmorethan100investorsintoasweetdealofbuying and selling properties in Singapore’s prime districts withpromised returns of 10% to 48% by over a period of only 4 to 8months with virtually no risks (since potential buyers aresupposedlyrequiredtopay40%asdownpaymentforthepropertywhich is non-refundable and will be used to pay investors). Theschemeworks like this:upon the “advice”of abanker,Ms. Leongwould buy distressed properties in Tanglin, Orchard, or Newton(whichareonthevergeofbeingrepossessedbybanks), then,shewouldsellthemmarked-uptobuyersinChina.


AninvestorwhowasconnedbyMs.Leongsaidthattheywereluredinto the program (despite the lack of documents to prove thepurchase of the properties) because of the testimonies of thosewhoknewherforalongtime.Ms.Leongandherfamilyeveninvitesome of the investors in their posh home in Tanah Merah tocelebratewith themwhen they have parties like on ChineseNewYearsandare treated to lavishbuffet spreads. Shegoes todinnerwiththem, laughswiththem,evengoestooverseasholidayswiththem–andsonoonesuspectedheroffraud.Shebuiltuptrustandgoodwillformanyyears,andinvestorsneverreallyencounteredanyproblems. Itwas reported that therewereeven investors who exited early and got pro-rated returns back.Several investorswherewith the scheme for10years, reinvestingtheir returns back each time. In recent years though, Ms. Leongtried to raise more funds by offering higher returns in shorterperiodsoftime.InSeptember2014,Ms.Leongadvisedherinvestorsthatpaymentswill be postponed to December. Later, she postponed it again toMarch2015,andfinally,toMay.WhenMay2015came,insteadofmoney,whattheinvestorsreceivedisaletterinformingthemthattheirmoneyisgoneandthatshewouldkillherself.This scheme is inherently Ponzi in nature in that it needed to besustained with fresh funds from new investors to pay those whoinvestedearlier.Source:http://www.straitstimes.com/singapore/courts-crime/investors-caught-in-60m-ponzi-scam


AWineInvestmentScamMr.MohanNainanfoundedAssettonPte.Ltd.inDecember2007asacompanysellingFrenchwineinvestments.Heconvincedinvestorsthatin3to5yearstime,theywouldbeableto make profit from their sale. Investing in wine appealed to anumber of investors as they were told that this alternativeinvestment appreciates its value even when the market is down.Plus,theyweremadetobelievethatpriceappreciationofthefinestFrench wines has been incredibly profitable because of theaggressivebuyingbytheChinese.By 2011, investors had experienced difficulties in contacting him.Oneinvestor,whoinstructedhiminJanuary2011tosellherwineson her behalf, did not hear anything from him after the next 6months. That’s when she finally checked with Grand Cru Storage(thenameofthewinewarehousewhichappearedinthecertificateissued to her byNainan). She found out that nowines under hername were stored in that facility -- Nainan never purchased thewines.Itthenbecameclearthatalotofthecertificateissuedwerefaked by Nainan. In other instances, Mr. Nainan pocketed theproceedsofthewinesthatwereactuallyboughtbutwhichhesold.Nainanwas sentenced to 11months of jail time after he pleadedguilty to embezzlement and to abetting in the forgery of thecertificates.Sources:http://www.straitstimes.com/singapore/former-director-of-wine-investment-firm-jailed-for-forgery-embezzlementhttp://www.masteryourfinance.com/forum/phpBB3/viewtopic.php?f=5&t=2040&start=15


Scratch-and-WinScamAccordingtoreports,acrosstheCauseway,aconsiderablenumberofpeoplefallforthescratch-and-winscams.Thisishowthescammersoperate:apersonclaimingtobeworkingforlargecompanies(likesupermarketchains)wouldapproachtheirvictimandwouldenticethemtotrytheir luckwithascratchcard.When the victim does so, they would be told that they won amystery prize. They would then persuade the person to go withthemtotheirofficetoclaimtheirprize.Oncethevictimis intheir“office,”thecrookswillrevealthemysteryprice–whichisusuallyacheapelectronicproductlikefootmassagers.Afterwards,thevictimisofferedachancetowinabiggerprizebutheorshewouldneedtopayforfake“expensesorcosts”liketaxesbeforetheycouldgettheprice.For example, in July 2013, amiddle-aged secretary, a certainMs.Gong, was approached by two women at the pedestrian bridgelinking the Sultan Iskandar Customs, Immigration and QuarantineComplex,andCitySquaremall.Afterbeingconvincedtoclaimhermysteryprizeintheiroffice,theconartistsluredherforachancetowinaluxurysedanbypaying$25,200inadvanceasexcisetax.Theyconvinced her by showing her newspaper clippings andphotographsofpreviousbig-prizewinners.TheythendrovehertoSenaiairportwheretheytookthesaidamountfrom4ofhercreditcardsatamoneychanger.Source:http://www.straitstimes.com/singapore/singaporeans-still-falling-victim-to-scratch-and-win-scams-in-malaysia


AGoldInvestmentScamSuisse International, another gold buy back company has beenreported to have scammed over 150 investors with an estimatedtotalof$35million.The firm is supposed tobebuyinggold for thepurposeof turningthem into novelty coins and selling them at a profit to local andoverseas companies. Investors were promised a monthly payoutamountingto$1,000foreverykiloofgoldthattheybuy--areturnoninvestmentofapproximately20%to25%.People were easily convinced that this is a legitimate investmentopportunity as the company had big and nice offices and themonthly payouts were real. This even encouraged investors toinvitetheirfamilyandfriendstoinvestinSItoo.However, after a few months, the payouts stopped (afterSeptember of 2014) and investors were told that they would bedelayedandwouldbegivenoutbyJanuary2015.Mr.JeffreyChow,the firm’s general manager and son of registered owner, toldinvestors that to avoid the Monetary Authority of Singapore’sscrutiny,theyneededtocloseSI’sSingaporeaccountsandhadthemoney transferred to theirHongKongbranch.The investorswereurged by Mr. Chow to open up Hong Kong bank accounts tocontinue receiving payouts, but even when they did so, nopaymentswerereceived.When the company failed tomake the payouts on the extensiondatetheyhaveannounced,that’sonlywhensomeoftheinvestorsdugup,anduponaquickcheckon theMinistryof Law’swebsite,


Mr.JeffreyChowshowedupasanundischargedbankruptandthatabankruptcyorderwasissuedagainsthimin2005.Thecompanyofficialshavesincebeenuncontactable.Source:http://www.todayonline.com/singapore/over-260-investors-lodge-police-reports-gold-buyback-schemeAnotherFormofGoldScamMr.andMrs.Garg, restaurantowners, lost their life savings toanAfrican scammer (knownasMr.T)whomthey thoughtwasa richbusinessman.Mr. T was introduced to Mrs. Garg by a Chinese national ofPakistanioriginwhomsheknewthroughherhusband’srestaurantbusiness.TheAfricannationalimpressedthecouplebytellingthemhow much money he had spent to go to Singapore like havingbusiness class tickets which cost around $30,000 and anaccommodation at theMarina Bay Sands. He then asked them iftheywantedtoinvestinhisgoldbusinesswithapromisedreturnof5%monthly(that’seasily60%p.a.).To remove any of their skepticism, before he left Singapore, hepassed9kg.ofgoldbarstoMrs.Gargandtoldhertosellthem.Shedid,andsheearned$20,000fromthesale.Three months later, Mr. T. e-mailed and called her about hisinvestmentoffer.Heaskedthattheinvestmentbeintheformofabankguaranteeof805,000euros–meanttoguaranteehisloansin


BurkinaFaso(hiscountryoforigin inWestAfrica)whichhewouldusetobuymoregold.After setting up the bank guarantee and no returns were everreceived,thecouplefeltuneasy.ButsincethemoneyisstillsittinginMrs.Garg’saccountinSingapore,shedidn’tthinktherewouldbeanyproblem.Mr.Talsokeptassuringthemthathewouldsendtheirreturns,andeven invited Mr. Garg to a fully-paid trip in December 2012 toBurkinaFasotoattendhiswedding.Whilethere,Mr.Gargaskedhimforthemonthlypromisedreturnsas they haven’t received any. The con man just provided moreexcusesandkeptontellinghimtojusttrusthimandthattheywillget their money back. He also showed him how wealthy hesupposedlywasbygivinghimatourofhisofficeandhisgoldmines.After a few months, in February 2013, 400,000 Euros had beenwithdrawn fromMrs. Garg’s account. She tried to have her bankstop the transfer, but shewas told she needed to prove that thebankinBurkinaFasowasfraudulent.LittledidsheknowthatifMr.T fails to settle his loan, the bank in Burkina Faso could take hermoneybecauseitwasusedashisguarantee.Mr. Thas since changednumber, and theyhavenotbeenable tocontact him. Lawyers told theNewPaper that itwouldbe almostimpossible forMrs.Gargtorecoverhermoney-- itwouldbeveryexpensive to pursue an overseas legal case, and it doesn’tguaranteeanysuccess.Source:http://news.asiaone.com/news/singapore/couple-lose-13-million-scam


AMLMBusinessScamThe Sunshine Empire scam is considered to be one of the mostfamousscamthathaseverhappenedinSingapore. It isstructuredas a multi-level marketing (MLM) business which sold lifestylepackages that has corresponding membership points which couldbe exchanged for products in the Sunshine empire online store.Asidefromthat,theywerealsopromisedreturnsof100%inayear!For example, if youwere to invest $12,000, you are promised toreceive$1,000forthenextnineyears.Asitistobeexpected,thepayoutseventuallystartedtofadeawayuntilitfinallystoppedaltogether.Three years after it was founded in 2006, the companywas shutdown. Its president James Phang, his wife Neo Kuon Huay, andJackie Hoo (the company’s former director) were found guilty offraudulenttrading,falsifyingofaccounts,andabetmenttocriminalbreachoftrustasanagent.It is estimated that the company scammed $180 million in total.According to the district judgewhohandled the case, the returnswereunsustainably highwhichmeant that new investmentswereneededtosupplyforthereturnsofthosewhoinvestedearlier.


Common unregulated schemes Belowareweblinkstoinformationonsomeunregulatedschemesandkeyrisksconsumersshouldwatchfor.Thislistisnotexhaustive.Itisupdatedfromtimetotime,basedoninformationreceivedbyMAS.Virtual Currencies Youmayhaveheardofvirtualcurrencies.Ifyouarewonderingwhattheyareandhowtheywork,readthisarticletofindoutthefeaturesandrisksinvolvedinvirtualcurrencyschemes.Overseas Property and Crop Schemes Receivedanoffertoinvestintrees,cropplotsorplantations?Considercarefullybeforedecidingwhethertoplaceyourmoneyintheseschemes.ClickheretoreadanarticlebytheUnitedKingdomFinancialConductAuthority.Online Trading Platforms / Forex Trading Classes / Software Enrichment classes: Gain a new skill, enjoy new riches? Think again! Youmayhavecaughtattractiveadsonforexorothertradingseminarsinthemedia.Theysometimescomewithamazingsuccessstories:thechancetoretireearly,earnextraincomeormakesomemoneyafteryearsasahome-makerareappealing.Buttherehavebeenmixedreviewsoftheseseminars.Someinvestorshavealsolostmoneytrading,ontopofpayingoutheftycoursefees.Clickheretolearnmoreaboutwhatforextradingisaboutandkeythingsto thinkaboutbeforepartingwithyourmoney. Unregulated online trading platforms


‘Getupto85%profitinjust60seconds!’,‘make81%profitinjustquarterofanhour!’,‘makemoney24/7,whereveryouare!’Findthesecatchyphrasesattractive?Thinkagain.Consumerswhoplacetheirmoneywithunregulatedonlinetradingplatforms,someofthemofferingexceptionallyhighreturns,foregotheprotectionaffordedundertheregulatoryframeworkadministeredbyMAS.Theseinvestors,whenfacedwithproblemsfromtheseunregulatedentitiessuchashavingtheirfundstransferredtootherentities,notbeingabletoclosetheiraccountsordifficultiesinhavingtheircapitalreturnedtothem,willnotbeabletorelyonMASregulationstosafeguardtheirinterests.Tofindoutmoreontherisksoftradingonunregulatedonlinetradingplatformsandforextrading. Look before you leap – pitfalls of dealing with unregulated entities Wesometimescomeacrossinvestmentseminarsorschemesthatclaimtoofferhighreturns,atlowrisks.Theselookveryattractive.Butwhataretherisks?Clickheretofindoutmoreaboutthepitfallsofdealingwithunregulatedentities!Gold “buy-back” offers Gold buy-back schemes: Before you rush in Source:TheSundayTimes©SingaporePressHoldingsLimited.ReproducedwithpermissionLand banking Land banking – Look before you leap Receivedanoffertoinvestinundevelopedlandinaforeigncountry,withthepotentialtodouble,trebleormultiplyyourmoneyinafewyears?Attractiveasthismaysound,considercarefullybeforeyoupartwithyourmoney.Evenifyouarepresentedwithfinancial reports showingthepossibilityofconsistentandhighreturns forthe


investment,ortestimonialsofhowotherinvestorshavebenefitedfromlandbanking,takeastepbackandconsiderwhattherisksare.Thisiscritical.Clickheretofindoutmore.Avoid falling victim to land banking schemes Source: http://www.mas.gov.sg/moneysense/understanding-financial-products/investments/consumer-alerts.aspx


AFewMoreLinkstoScamsinSingaporeandMalaysiaNote:Theselinkswerecheckedandfoundtobestillworkingatthetime of writing this compilation. Changes in the publishing, webrights, or site address as deemed by each of their ownadministratorsmightaffecttheirfutureavailability.http://says.com/my/news/must-read-beware-of-these-6-recent-scams-in-malaysiahttp://says.com/my/tech/online-scams-everyone-should-be-carefulhttp://www.malaysian-explorer.com/malaysiaScams.htmlhttp://www.scamalert.sg/in-the-media.htmlhttp://www.investopenly.com/2015/07/5-scams-to-look-out-for-in-singapore.htmlhttps://sg.news.yahoo.com/here-s-how-to-spot-and-avoid-singapore-s-worst-online-scams-035200536.html

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