By Dave Avran
June 27, 2017
FIRST, JJPTR, now MBI International, which operated M Mall in Penang. There are many more illegal money game operators in Malaysia who masquerade as multi-level marketing (MLM) companies, yet do not fall under the ambit of the Direct Sales and Anti-Pyramid Scheme Act which governs MLM.
This allows them to bypass restrictions by which legitimate MLM firms must abide. What role do social networks play in white-collar crime? How do social networks affect the decision to invest in a Ponzi scheme?
Social networks do more than inform. They influence decisions we make about our lives every day. We tend to trust our friends and family. We trust them more and we end up feeling betrayed by them.
People like Bernie Madoff knew people would conduct due diligence so he created documents that looked like the real thing.
For most people, information about financial schemes arrives via friends and family.
Remember the good friend who bought an iPhone when they first came out? When that friend or family member, an early adopter, tells you that they really like this new innovation, because you trust this person, you may get one as well and then tell your friends about it who then tell their friends about it.
It’s called diffusion of innovations. Many Malaysians are sadly unaware of the risk from white-collar crime. That includes physical harm, financial harm, emotional harm, harm to a marriage and harm to friends and family.
They may invest all their savings that otherwise would have gone to their kids. Fraud victims often believe falling for the scheme was their fault because they didn’t conduct due diligence, instead, they invested based on their trust for family and friends.
A Ponzi scheme is a form of fraud in which belief in the success of a non-existent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.
High rates of return ought to be a red flag for possible fraud. Perpetrators of Ponzi schemes receive money from new investors, with which they ‘repay’ old investors so that it appears they are receiving their investment returns.
For a Ponzi scheme to be successful there has to be a continuous influx of new investors but eventually that pool will run out.
Social network research focused on “degree centrality” or the number of ties a person has within a network. Some people in that network will know more people than others. Others will know only one or two.
The more people you know, the more harm there is to friends and family relationships. It comes down to trust. You feel especially betrayed because we trust our family and friends implicitly.
White-collar crime is a global issue. It is everywhere there is money to be had and people to take advantage of.
We can rest assured that all perpetrators of Ponzi schemes know that their schemes will eventually collapse. Research reveals that no one comes out ahead of the Ponzi game and many of the fraudsters ended up getting prison sentences and large fines.
There are many ways for investors to protect themselves from the Bernie Madoffs of this world. There is so much information available online. One visit to Bank Negara’s Fraud Alert microsite will answer many questions.
From there, you check further. Type in a company’s name and see what you get. Check social media channels to see if there have been any complaints. It is not that difficult to discover little red warning flags.
Long story short? Don’t trust blindly.
Conduct your own due diligence. Research shows it helps. It reduces the loss that comes from involvement in fraud.
If you’re an investor, check out the property yourself. Get on the internet and find documentation. See how long a company has been around.
Be more cautious with your hard earned money.