Here are some FAQs on fraudulent investment schemes posed by The Sunday Times to Mr Nandakumar Renganathan, deputy head of litigation and dispute resolution practice, RHTLaw Taylor Wessing.
Q How can retail investors protect themselves when investing in gold and land-banking schemes?
A The strongest power that investors have is in deciding whether to invest in a product. People generally associate investments in gold and property as safe investments and, no doubt, companies which sell dubious products take advantage of this.
Often, investors are led to the investment by friends. They come into contact with agents of the company selling these products and are enticed to refer other friends to the investment through some benefits.
Investors gain confidence when their friends say: "I have put money into this investment and it gives me a 20 per cent return."
The focus must be on the investment product, not the anticipated return. In my experience, things just go awry when investors focus on the return rather than what they are investing in.
Q What should investors consider when assessing such investments? What are the typical red flags?
A Investors should ask certain critical questions - what am I getting when I buy into this product?
For example, if I am informed this is a property in Brazil, the questions to be asked before one invests are:
•When was this company that sells this product incorporated?
•Who owns this company?
•Who are you entering into a contract with? Often, investors are misled into thinking they have invested with a Singapore company when, in actual fact, they have entered into a contract with a company overseas with the same name.
•What am I getting for my investment? This is a critical question. If you are getting some share in a property, is that property going to be registered in your name? If it is merely that the company is collecting the money and the property is not vested in your name, you have a right only to receive payment from the company. There is no interest in the property.
•Who owns the property? There have been occasions when companies that sell the products do not own the property.
•How much debt does the company have? If you are investing into a company, you should know the risks associated with the business.
•When you have a "guaranteed return", who is promising it? If the return is promised by the company, then the financial strength of the firm is critical.
•Is the intermediary offering the investment product regulated in its home country by a competent regulator? If the investment product is regulated in Singapore, it would need a prospectus registered with the Monetary Authority of Singapore (MAS). If there is no prospectus and someone offers an investment product, that is a criminal offence in itself.
•Is there a Singapore-based distributor of the investment product, and is the distributor regulated by the MAS?
•Look out for the MAS Investor Alert List for instances of offers of investment products that are unlicensed.
After investors have made their inquiries, they should have an idea of risks involved in making the investment.
Q What is the impact of the new regulation on firms offering land-banking schemes?
A The MAS has closed a gap in the law by introducing new regulations relating to land-banking here. These products will be dealt with as collective investment schemes. This means that the managers of such schemes will need to be licensed by the MAS.
These products need to be accompanied by prospectuses approved by the MAS. These measures seek to ensure that there is robust regulatory oversight on the managers (who have to be fit and proper persons). They also ensure that investors have access to all material facts to help them make informed decisions. In short, these ensure transparency and accountability in relation to the products being offered, as well as on the intermediaries offering the products.
Q Will aggrieved investors have any recourse against the company?
A Investors can claim against the company and its officers if there has been fraud involved. They should approach their legal advisers and the authorities as soon as possible.
If the investors are quick enough, they may even be able to secure an injunction from the court to freeze the assets of the company. If the company has the money with it, chances of recovery are better.
One reality that investors should be aware of is that people who set up companies with a fraudulent purpose in mind plan ahead to move the money out as soon as they receive them. It becomes challenging to trace the money much later.
Q Any other tips?
A The final question to be asked is "Is this too good to be true?" Investors should be wary of anyone saying you can double your money in three to four years. If they feel it is too good to be true, they should decline to invest.