Why do people fall for bogus schemes?
If you have the nerve to invest your hard-earned money in get-rich-quick schemes, then you ought to have the nerve to face the shattering consequences
If you invest your hard-earned money in get-rich-quick schemes, then you should face the consequences
If a money-making opportunity looks too good to be true, it probably is. Tens of thousands of UAE residents have learned this the hard way after losing their life savings in investment plans only to discover that these were outright Ponzi schemes. Yet such is the lure of easy money, that every few days many still get sucked into their swirling vortex of deceit.
Nearly 6,000 residents lost their money in Sunfeast Infotech, 4,000 in SpeakAsia, 1,500 in MMA Forex, 2,000 in Gold AE, 40 in Ferryland Tourism and more recently 5,000 in UT Markets and 7,000 in Exential Group.
That’s around 25,000 people duped out of roughly Dh2.5 billion in just a little over three years – Dh100,000 per person on an average.
Tip of the iceberg
Mindboggling as it sounds, this could just be the tip of the iceberg, according to Gaurang Desai, Chief Executive Officer of the Dubai Gold and Commodities Exchange (DGCX) owned by the Dubai government and regulated by the Emirates Securities and Commodities Authority (ESCA).
The derivatives marketing specialist reckons there could be 150 such fly-by-night companies in the UAE peddling getrich quick schemes by offering annual returns of up to 120 per cent.
Sam Instone, CEO of Dubaibased financial advisers AES International says the number could be as high as 1,000.
“A financial regulator recently told me they suspect there are more than 1,000 boiler rooms [unlicensed financial people/firms]. Some of these are large, legitimate looking businesses,” he said.
“The tough economic climate and the slump in savings and stocks make the perfect scenario for these thugs,” said another financial adviser.
However, like any other outwardly viable but untenable model, the Ponzi schemes look good till they last, which in most cases has rarely been beyond six years.
Sure enough, when they inevitably fall apart, they cause the equivalent of a financial apocalypse. A staggering 7,000 alone have been hit by the $300 million Exential scam.
Numbers tell half the story
But statistics are just numbers. They don’t quite show the fallout of a reckless investment and what victims go through in the aftermath of a Ponzi scam.
Understandably so as they are unable to capture the plight of the affected. Dubai-based nurse Joanne lost her brother John Paul Juantas, 31, last Sunday as his money (Dh460,000) was stuck in Exential and he couldn’t pay for his cancer treatment. A Dubai father who works for a reputed airline, but often goes without food. And a Jordanian mother in Sharjah has been dumped by her husband and now fears losing the custody of her children as she can’t afford to pay their school fees.
The airline staffer invested $80,000 in Exential after taking a bank loan while the Jordanian mum sold her ancestral land to fork out $175,000.
“That’s all I had. My husband got so annoyed that he left me. My kids are on the verge of dropping out of school and my husband wants their custody saying I cannot look after them. My life has become a mess,” she said in a voice choked with emotion.
The airline staffer said his entire salary goes towards paying off his loan. “At times, I’ve no money for even food. I don’t want to cheat any bank or run away. I would rather go to jail but I dread to think about the fate of my school-going daughter should that happen,” he said.
Dubai-based Syrian hairstylist Rafi Zazza who borrowed from relatives to open seven forex accounts of $25,000 each with the firm said he doesn’t know how to face them.
Then there are people like Elrina van Graan, who’s unable to pursue the case as she’s based out of the country. “I live in South Africa and don’t know how to lodge a complaint,” she said, sharing documents that show that Exential owes her over $35,000.
Last week, the dodgy firm’s Indian owner, S.L, 36, who was out on bail, was reportedly rearrested by Al Barsha police in connection with the fraud.
A majority of his victims are from the aviation industry, but it’s people from the oil and gas sector who have taken the biggest hits, like a senior executive at an oil and gas company who reportedly has around 650 accounts of $25,000 each.
Infallible trap
So what is that causes welleducated people to fall into the infallible trap of Ponzi schemes?
“Pramod Bothra, director, Evermore Global DMCC. puts it in one word – Greed. “Ponzi schemes feed on greed. People are so blinded by the seemingly incredible returns that they seldom pause to think how they could possibly earn 10-12 per cent monthly on their investments. No business offers that kind of money,” he said.
Stupidity also plays an important if not equal part. At Sunfeast Infotech, for instance, investors looking to make extra bucks from ‘outsourced projects’ were handed a flash drive with several pages of manuscript in PDF format which they were required to type into text format and submit within 25 days.
At the end of a 30-day cycle, they were paid Dh250 for the job. They had to pay a security deposit of Dh500 for each project. In theory, they got their initial investment in two months; any extra job after that was profit.
Enticed by big returns, thousands used to queue up at Sunfeast’s Oud Metha office during 2013 with many taking huge loans to procure hundreds of ‘projects’ at the same time.
When that was not enough, scores sold their jewellery and homes. One enterprising man even set up a temporary typing centre at his home in India where young students were hired to do the job.
No background checks
Nobody bothered to find out how anyone could make a fortune out of typing a few sheets of paper. By the time the company was shut down by the Dubai Economic Department (DED) and its owners jailed for fraud, millions off.
Another company, MMA Forex, conned investors into believing they were dealing with a multinational firm with a diversified portfolio that included an airline in Ras Al Khaimah. As it turned out, the whole thing was a sham. MMA Forex owner CEO Malik Noureed Awan was later arrested and sentenced to jail.
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