Financial Freedom SG

Mr Tan Kin Lian shared on his blog about victims who have approached him for help with regards to being cheated by con artist.

The victims are afraid of telling their loved ones as money is involved and suffer in silence as their spouse may not be forgiving that they have lost hard earned money.

He asked that the authorities take action on these scammers who will change their guise and companies/products but use the same method to prey on the those who are gullible.

While we think that we live in the information age and that these types of scams and con artists should not be able to survive, the fact is that some of these scammers are highly intelligent and they find different ways to appeal to your greed.

Naming the companies or them may stop the scams for a while, but the better solution is heavier punitive action on those whose product is out to cheat and those schemes that are outright scams. Education of people in financial literacy and basic common sense for financial products can help too.

Bernie Madoff operated his scam lasting decades and lost more money that most people can earn in their life time x 100. the estimated size of fraud is $64.8 billion. He was put to jail for 150 years when his scheme was exposed as the financial markets tottered on the brink of an abyss.

What are the signs that it is a fraud?

1. Promise of a high return with low risk. Anyone promising sky high returns and low risk to you and asking for your investment is likely to be a fraud. The best investor in the world may get 15-18% per annum over more than 30 years, but anyone who promise more than 10% returns is likely to be a scam artist.

2. The method is a trade secret. You can make 10% guaranteed, but if I tell you how it is made, it is either too complex for you to understand or it’s a trade secret, if I tell you, I’d have to shoot you.

3. It’s too good to be true. If it sounds wonderful, it is probably too good to be true. True investment is a roller coaster ride, there are ups and downs. So if it is guaranteed, secret and everyone is investing in it, steer clear.

4. There is no external audit or custodian of your assets. If the product is not audited, and the assets/product that you get does not have an external, independent and preferably large financial institution as a custodian, run far far away.

The best way to invest is directly in the stock market.

Buy the whole market if you can which you could actually by buying the index like the ETFs for Straits Times or S&P500 and the only thing to look for is low cost.

The logic behind the market is out there everyday when the companies are making products, doing a service and earning profits or if they don’t do well, losses.

They are audited (which sometimes, doesn’t prove anything if you look at Enron and Lehman Brothers), your assets are in custody (shares parked at CDP even though you buy with a securities firm) and you know how the company is doing through its annual reports.

Saw an interesting article from Channelnewsasia about 1 in 4 Singaporeans experiencing credit card fraud. 

According to the article, 23% experienced some form of credit card fraud in the past 5 years.

That is a rather large number.

From my experience, when you have an overseas transaction or large transaction, the credit card company will normally send you an SMS to alert you on the transaction.

So if it is no authorised, then you can just call the bank to notify them of the illegal transaction.

Also, I remember in the days when SMS were not so popular yet, they will also bother to call you if you have overseas transaction. So there are some safeguards for these credit card transactions.

At the same time, the banks have introduced measures like having your photos on the credit card so that this will make it harder for unauthorised persons to use your card illegally.

However, this requires that the person taking your credit card, be it a waiter or cashier, and using it to process the payment check against the signature or against the photo. I had once received a credit card and forgot to sign it. The first few retail transaction went through but there was an alert cashier who pointed out and told me that the card is not signed, so she cannot accept the card.

The onus is also on the credit card user to be careful of when and how you use the credit card. When you use it for online transactions, do you check that the page is secure? Is it encrypted so that it protects your credit card details better? Is it a reputable merchant?

Read a Yahoo news post about DBS and POSB accounts being illegally withdrawn by a total amount of $200,000.

Some of the victims had $2000 withdrawn from their accounts from ATMs located in Malaysia. Somehow, the details of the accounts and their pins were skimmed by these fraudsters.

A few of the victims interviewed said that they did not have internet bank accounts nor Paypal accounts from which these fraudsters could have gained their bank account information from.

So please check your bank accounts to see if there are any unauthorised withdrawals and approach the bank officers or call 1800-220-1111 as stated in the Yahoo article for help.

Have a Happy New Year and may you have an interesting and fruitful year in 2012, the year of the Dragon.

Saw this post on Reuters news feed on 5 ways to avoid financial fraud.

Remembered that not long ago there was news about a son of Bernie Madoff committing suicide because of the pressure that his father’s lawsuit has brought to bear on him.

And the news about a widow of one of the benefactors of Bernie Madoff who invested early with and got out early from his pyramid scheme. She donated back everything that her husband had got from Madoff. How much did she donated back?

$7 billion.

Was she legally bound to give back the money? Nope. Her husband when he was alive did not give it back. But she did. Remember her name- Barbara Picower.

If investors have lost $20 billion, $7 billion returned is nearly half of the amount. So in the same news article, it said that half of the Madoff investors can even get back half of their money.

Unlike people who invested in the minibonds, high notes etc who may end up with little for the risk that they have taken with their hard earned monies. Incidentally, 215 victims of the DBS High Notes in Singapore had their case dismissed recently too.

Christmas came early for victims of the Madoff Ponzi scheme.

While those involved in the structured products cases that failed may have to wait a long time to get any justice or compensation. 

Source:

1. Madoff investor’s estate to give up $7.2 billion. MSNBC

2. Suit against DBS over High Notes 5 dismissed. ST

The big news recently is the $6.5 million scam by an insurance agent from AIA. The agent took the money from the customer, and used it to pay for insurance policies for the client's family members, without their knowledge.

At first, I would was inclined to believe that it was a scam. After reading the story, I think the story isn't so clear cut. If the agent used all the money paid by the customers and bought insurance policies for the family, and they received the notifications for these policies via mail, then it is very dubious for the client to claim fraud. Why wait so long to report it?

The agent is not without fault for trying to defraud her own employer, even if her story is true.

I think that the lesson here is to trust only what you receive in official correspondence and to call the company to check the records.

I haven't been updating the blog as often as I would have liked. I just changed jobs and the past two months have been quite challenging to meet the deadlines of a tender and also do a presentation which just ended last week.

The weekend was spent trying to catch my breath. And to catch up on old news. If there is such a word.

On the investment front, the shares are doing well without any intervention on my part. OCBC has another dividend which I opted to receive in cash. SGX is doing well with their plans for expansion reflecting in their share prices going up to reflect the possibility of higher earnings from new income streams.

The laggard in my portfolio of stocks, Valuetronics (which is the only stock I have a paper loss on), has recovered quite a bit and looks to be a good place for me to look at more investments once again.

I think it is good to start accumulating money and spot for more investment opportunities that comes along.

Have a good week ahead.

The past few weeks have been full of news about the fallout from the actions of Tiger Woods. There is some sort of symmetry with the fall of Bernie Madoff who fell hard from being a very well-respected figure to the most hated figure of the 2007-2008 financial meltdown.

The hardest thing to win is trust. And it is also the easiest to lose.

Tiger Woods lost it in spades through his escapades and his initial attempt to squirm out of admitting what really happened and then later his non apology before all the dirt was dug. Together with Madoff, they have lost all credibility with the public.

So how do you spot such frauds or con-artists? I think it is pretty hard. Before they became disgraced, both were admired figures in their fields and had a squeaky clean image.

I remember the movie, The Sting, by Robert Redford and Paul Newman which was one classic movie and thinking that it will be difficult not to be duped if there people are really out to con you.

Ken Fisher recently wrote a book, “How to Smell a Rat” which list the 5 signs of financial fraud. I’d probably take a look at it in the bookstores to see if it is worth getting. From some of the reviews on Amazon, the book seems straightforward and simple.

I have tried to come up with 5 simple things to look out for a possible investment fraud:

1. Too good to be true- anything that promises high returns without high risks is an immediate red flag for me.

2. Too complex to understand/ Too little clarity- if something comes to you that you have to read for more than 5 minutes and still not understand, this is another clear sign of an investment fraud. If you go and read the prospectus of the structured investments sold to the public before 2007, that is a complex document to make you not understand.

3. Too much hard sell- if it has to be advertised in the papers every single day or require an aggressive sales forces who push the products in your face, it is probably something you can do without.

4. Too little time to think- if they want the answer from you now, in a second or in a minute and forces you commit right now before the “special offer” goes away, it is probably something that is designed to take your money before you have completely figured it out or checked it with someone else.

5. Too obscure a product- it is easier to sell the fraud to the victim if it is something no one has heard of it or if there are so many (like the many unit trusts/mutual funds) that it becomes confusing to you and “easier” that you ask for help from an “expert”.

If you cannot figure out how they can earn the returns promised, it is probably one big fraud that you should walk away.

My house modem went kaput the past few days and so there was no posts till it was replaced yesterday by the service repair man who works on a Saturday.

Also, I will be going on a trip next week for 2 weeks so may have limited internet access. So the blog posts for the next 2 weeks should be less than the norm. Normal services resumes on the 4th of January.

Have a fraud free 2010.

Source:

1. Image from Amazon site on the movie “The Sting”.

If you buy Singapore Pools Totto lottery, what are your odds of winning? If you are guilty like me of trying for some good luck when there are huge winnings, then it is better you don’t read this article.

The odds of winning is, get this: 1 in 234,577,728,000. I think that is a much greater chance that Richard Branson, Donald Trump and Warren Buffett all discover that you are their long lost relative and will you into their fortunes together all at the same time.

How to calculate it? Use their maximum number, 45 and multiply it less 1 number each time which is 45 x 44 x 43 x 42 x 41 x 40 to get the chance you end up with 6 winning numbers out of a maximum 45 numbers.

Also once you win it, it is not all a happy ever after, if this article from Bad Money Advice is anything to go by: Why Lotteries are Bad- The Third Reason. The article basically sums up some blog posts that bloggers have posted regarding the urban myth or fact that after winning the huge sum, the winner has a rather ‘exciting’ time. Go check it out. I read his blog and subscribe to him using Google Reader as an RSS feed so his blog is part of my reading material everyday.

So lotteries are hard to win plus once you win it, chances are you can’t get to keep it easily. It rather fits the maxim of “easy come, easy go”.

If you are one of those who don’t believe everything you read, like the author of Bad Money Advice, you’d just have to wait till some professor or PhD aspirant does research and coughs up some empirical proof either sustaining or debunking the hypothesis that lotteries winners lose their fortune within say, 15 years.

So I’d categorize this article as “fraud” rather ingeniously :)

Source:

1. Why Lotteries are Bad- The Third Reason.