Some clas­sic in­vest­ment scams to avoid – be sure not to put your money in these

The National - News - - MONEY & MARKETS / BUSINESS - NIMA ABU WARDEH Nima Abu Wardeh is a broad­cast jour­nal­ist, colum­nist and blog­ger. Share her jour­ney on find­

Some peo­ple get very rich from in­vest­ments, but not nec­es­sar­ily those who put up the money.

Here’s what the big­gest known fi­nan­cial fraud­ster in his­tory had ac­cu­mu­lated be­fore be­ing ar­rested – as per tax fil­ings. This is what Ber­nine Mad­off “made off” with: •US$138

mil­lion: his and his wife’s worth •$700m:

the value of Bernard Mad­off In­vest­ment Se­cu­ri­ties $45m: in se­cu­ri­ties $17m: in cash

$7m: his yacht

$2.6m: in jew­ellery $7m: his Man­hat­tan apart­ment in New York •$3m:

his Montauk home on Long Is­land

$1m: his prop­erty in France $11m: his home in Palm Beach


for house­hold items, art and fur­ni­ture •To­tal:


That’s how much the in­fa­mous Bernie Mad­off si­phoned off the $17.5 bil­lion in prin­ci­pal funds ini­tially in­vested with him. Other re­ports put his com­bined as­sets at $826m and his wife’s at $92.6m. Ei­ther way, it’s quite a tally and all from tak­ing money from one per­son, and pay­ing it out to an­other.

Sim­i­lar schemes hap­pen in the UAE with alarm­ing fre­quency. A cur­rent one be­ing dealt with is the Ex­en­tial case – a fake for­eign ex­change cur­rency scam where hun­dreds of mil­lions of dol­lars van­ished. While it’s noth­ing on the Mad­off scale, it is big enough to af­fect thou­sands of peo­ple’s daily lives.

But fi­nan­cial fraud comes in many more guises, not just Ponzi ones. Like the Emi­rati man who last week lost $1.5m worth of bit­coin in on­line fraud. Ap­par­ently he trans­ferred his bit­coin elec­tron­i­cally to the al­leged buyer, ex­pect­ing pay­ment of Dh400,000, which never hap­pened. To add salt to his wound, he dis­cov­ered that his bit­coin was in fact worth $1.5m. I’m sure he’d be happy with the Dh400,000 agreed if he can get it.

An­other ex­am­ple is the car sale fraud in which Dh2.3bn was col­lected; 54 peo­ple were re­ferred to Abu Dhabi’s courts over the is­sue this sum­mer.

The rea­sons peo­ple in­vest in the schemes are many. Here are a few point­ers that you need to look out for to avoid be­com­ing en­snared.

Guar­an­teed in­come: any­thing that states this, just walk away. It’s more likely to trans­late into guar­an­teed losses sooner or later.

Cold calls: put the phone down. If you’ve en­tered one of the umpteen draws on of­fer, the per­son call­ing will know the ex­act de­tails. Bet­ter still, put the phone down and call cus­tomer ser­vices. You might think this such an un­likely fraud, but tens of thou­sands of dirhams go the way of scam­mers as the re­sult of a call or SMS stat­ing “you’ve won”.

The good cause: these are usu­ally ap­peals for a tragedy abroad. Don’t wire the money di­rectly to in­di­vid­u­als. If it’s real, there will be an above-board or­gan­i­sa­tion in­volved. I’m thinking of the Gulf na­tional who parted with Dh200,000 thinking she was help­ing refugee fam­i­lies, and the UAE na­tional who wired Dh1m be­liev­ing the same thing. They must be im­mensely frus­trated.

The lock-in pe­riod: if you can­not ac­cess your in­vest­ment and can­not sell penalty free when you want to, walk away.

No se­condary mar­ket: ditto above. I know of a forestry in­vest­ment that claimed it matches sell­ers with buy­ers if in­vestors want to liq­ui­date – which is sim­ply not true. Be­cause once you’ve bought into it, you’re stuck with it.

Go­ing global: don’t. Es­pe­cially if you don’t know your rights. If you’re not truly fa­mil­iar with the de­tails of the in­dus­try/ mar­ket/ type of prop­erty you’re be­ing sold and why it makes for a good in­vest­ment, don’t do it.

It’s easy to say do your due dili­gence. The truth is, if some­one is out to get other peo­ple’s money, they can do a darned good job at creat­ing all man­ner of pa­per­work and cre­den­tials. I mean, who safer to in­vest with than the for­mer chairman of Nas­daq, as Mad­off was. Which is why I think the best thing to do, if you are still in­ter­ested, is to hire a fi­nan­cial de­tec­tive type of in­de­pen­dent due dili­gence firm. I plan on writ­ing about this ilk of anti-fraud en­tity in the fu­ture. Yes, it means you will pay up­front, but wouldn’t you pre­fer to lose that money rather than your en­tire in­vest­ment pot?

Un­for­tu­nately, the mantra “trust no one” is key, and ex­tends to of­fi­cial, reg­u­lated en­ti­ties.

Mad­off’s Ponzi scheme is touted as the largest fi­nan­cial fraud known to us. I beg to dif­fer, banks are. I’m not be­ing high­brow, I’m fo­cus­ing on the ba­sic num­bers here. The cost of fines, le­gal bills and cus­tomer com­pen­sa­tion paid out by the world’s big­gest 20 banks over five years un­til the end of 2015 to­tals... £252bn (Dh1.22 tril­lion). If the banks are OK about be­ing fined these eye-wa­ter­ing amounts, I won­der what per­cent­age it is of their ill-got­ten gains. Like I said at the start, some peo­ple get rich from in­vest­ments ... or should that be from in­vestors?

Just put the phone down ... You might think this such an un­likely fraud, but tens of thou­sands of dirhams go the way of scam­mers as the re­sult of a call or SMS stat­ing 'you've won'

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