O, SCAM ALL YE FAITHFUL

SEC logs an uptick in fraud cases in the pandemic, aggravated by human greed, ignorance, and blind faith.

OF all the mistakes a man or a woman can commit, falling victim to a scam is probably the most regrettable, especially when huge life savings are involved.

One big reason for the deep sense of regret—sometimes bordering on self-hate—is the “voluntary” nature of the act, because one was a direct participant in a transaction where the predator used trust to manipulate the victim into taking the tragic step to perfidy. That trust that one gave is lost and promises shattered right in one’s face by the scammers.

It is this nature of giving trust to someone that could hurt the most, such as the R and L Investments Inc., which lost P700 million worth of client shares after a clerk who had access to codes on the stocks carted away the money.

There is also the Estrada-era Best World Resources Corp. scam, where regulators may have been involved in illegal trade transactions involving stocks of the then listed firm.

Another is Kapa investment scam, a religious company accused by regulators of duping 5 million people who all gave in to the promise of a 30-percent monthly return on investment for life.

Too good to be true

IF something is too good to be true, then it’s not true, as the saying goes, but many, perhaps driven by the desire to earn more the easy way possible, are still being victimized.

There are many more like these types of schemes, hundreds even. But the main element of falling victim to a scam is that it preys on the instinctive folly that every human has. Greed!

“The promise of huge returns is intrinsic,” according to Zeb, who fell victim to a financing scam.

He was gypped of some P30,000 in cash that he himself withdrew from an ATM to give to the scammers, who promised a return of P7,000 over a short period of time.

“It is incumbent for the regulator to provide a platform. Savings and time deposit does not attract anymore. And the monetary policy is too late. It is too behind the curb,” he said.

Regular deposits nowadays can only earn just 1 percent in interest a year, but the banks can earn double, and keeping it in bonds will just earn the money a low single-digit rate of return.

No government data is available on how many were duped one way or another by con artists that use so many types of tactics. It could be most of the population. But the scammers’ scheme did not change or have not evolved too much over the years.

How it all started

EVEN Eve, of the Adam and Eve story in the Holy Bible’s Old Testament, had tricked Adam into eating the forbidden fruit that led them to be banished from the Garden of Eden.

Eve, when confronted by God, said she was tricked by the serpent.

Was the story of the first scam of humankind, using the pyramid scheme, created by the devil himself?

Even to this day, the most popular type of scam being used is the Ponzi scheme, named after Charles Ponzi, an Italian-born swindler, who operated in the 1920s in the US and Canada.

Ponzi promised investors a 50-percent return within a few months for what he claimed was an investment in international mail coupons. He paid them at first, and then in the succeeding payouts, he used funds from new investors to pay fake returns to earlier investors.

Ponzi scheme organizers often promise high returns with little or no risk. Instead, they use money from new investors to pay earlier investors and pocket the rest of the money.

The pyramid that they build will have to eventually collapse as it grows bigger since it has no sound foundation to begin with, and they were stashing away the money and spending it immediately.

His firm was named Securities and Exchange Co. or SEC. Ironically, the same acronym used by many corporate regulators these days tasked to guard and protect the public against fraudsters.

Today, the Philippine SEC, or the Securities and Exchange Commission, has been educating the public on how not to fall prey to these con artists.

Evolution to sophistication

“FRAUDSTERS have become more creative to confuse the public as to the nature of their activities. While investment scams have taken the form of primarily Ponzi schemes or those promising high returns with different variations, they have masked such schemes with either new or complex business models and concepts such as cryptocurrency trading, foreign exchange trading, and even franchising,” SEC said in response to the Businessmirror’s queries

“Other scams offer compensation plans with incentives for recruitment or referrals, commodity futures trading, contracts for difference, binary options trading, foreign exchange swaps, cryptocurrency trading, advance fee fraud and affinity fraud,” it said.

The SEC said they have seen an increase in the proliferation of investment scams during the pandemic.

Scam cases for prosecution

AS of the end of 2021, at least 375 individuals are being prosecuted before regional trial courts, charged in 56 cases with violation of the Securities Regulation Code and in three cases for violation of the Cybercrime Prevention Act of 2012.

The SEC admits that anonymity on the Internet has made it easier than ever for an individual or company to operate a scheme, stop that scheme as soon as authorities flag it, and start another one under a different name.

Many scammers are getting away with their schemes and worse, they can return to the same fraudulent acts after some months of lying low from the authorities to even victimize more.

Cryptocurrency and bitcoin trading, which is still unregulated— and the prices of which can skyrocket but can immediately fall much faster—complicated matters.

Virtual currencies were recently legalized and cryptocurrency exchanges are now regulated by the Bangko Sentral ng Pilipinas. Bitcoin and other virtual currencies, however, are still not recognized by the BSP as a legal currency since it is neither issued nor guaranteed by a central bank.

IT is in these gray areas that scammers thrive, manipulating people to invest in some shady instrument they are unfamiliar with.

There is no way to prevent fraudsters from doing what they do best—duping people. But the SEC laid out some of the red flags that people should watch out for when dealing with investment companies:

One, the company is not registered with the SEC and has no license or permit to offer and sell securities, has unknown managers and has no physical office;

Two, it promises high or ridiculously high rates of return or there is guaranteed payment of returns at no risk;

Three, they abuse one’s lack of knowledge on new concepts like blockchain technology, smart contracts and cryptocurrency;

Four, initial payouts are not an assurance of the legitimacy of the scheme or payout is always late. They let you reinvest or roll over your investment for a bigger payout later on;

Five, the company makes you recruit agents or grants incentives for recruiting other members or offers cryptocurrency like a product in direct selling or multi-level marketing;

Six, some companies claim they allegedly use autoboots, or the boot or load is being performed automatically by a computer, to trade in the cryptocurrency market. But in many cases this is not the case;

And seven, there are entities that promise huge payouts by creating or mining cryptocurrency using their allegedly advanced or sophisticated computer system or mining rigs. This is a false claim.

In conclusion, the SEC said: “The commission likewise advises the public to be vigilant and conduct their due diligence prior to transacting or dealing with any entity, and to avoid transacting with corporations or entities without any registration or license to do business in the Philippines in order to avoid losing their earnings.”