Illegal investment scheme

Last week, the Securities and Exchange Commission issued a cease and desist order to Aman Futures Group Phils. Inc., to stop offering, soliciting or selling unregistered securities to the public.

Aman’s primary corporate purpose is to buy, sell, distribute and market “palm oil, gold, coconut oil, manganese, nickel, ore and any agricultural products.”

While ostensibly engaged in that business, the company solicited investments from residents of Pagadian City and other areas in the Visayas and Mindanao, an activity which it has no authority to engage in.

Under existing regulations, no securities are permitted to be offered for sale or sold to the public unless the issuer has been granted a secondary license by the SEC for that purpose.

There are strict rules on financial viability, management integrity and legitimacy of purpose that should be complied with by a company before that license is given. The SEC has to make sure the investing public is protected from unscrupulous issuers of securities.

Aman offered to pay its investors interest ranging from 15 percent to 40 percent after 20 or 30 days, depending on the amount invested. The carrot was made more enticing through the issuance of postdated checks covering the principal and interest payable.

Profits

The company made the pitch that it was affiliated with a big Malaysia-based financial company and that the investments were converted into dollars that were later used to engage in profitable commodity futures trading in Malaysia.

Not surprisingly, with the prevailing low savings interest rates, the investment offer attracted hundreds of businessmen, politicians, retirees and ordinary folks who wanted to get more value for their money. By word of mouth, Aman’s “generosity” spread like wild fire in Pagadian City and its environs.

From the time Aman was registered with the SEC in June this year to the present, the company, by its own admission (which seems conservative), was able to amass P244 million in investments. But if field reports are to be believed, the amount could go as high as P2 billion.

Understandably, the prospect of earning big profits without breaking a sweat encouraged scores of government retirees into investing their retirement pay in the company’s securities.

Some enterprising people were reported to have even borrowed money from lending or financing companies at 5 percent yearly interest and invested the borrowed money in the scheme.

The investment bug even bit some local government officials who wanted to raise money for next year’s election. They looked at the promised interest rates as an opportunity to fatten their campaign coffers.

Authorization

The one-page, three-paragraph “Investment Agreement/Profit Sharing” document that the company asked its investors to sign after getting their money should have raised alarm bells about the viability of the so-called investment.

In substance, this plain looking document states that the company received a specific sum of money and that it has been authorized by the client-investor to invest the money on his behalf in commodities trading, subject to the payment of the agreed interest.

To put an aura of legitimacy on the transactions, the company accepted investments through banks and made arrangements for the promised interests to be credited directly to the bank accounts of the investors.

And it worked! People lined up (and practically jostled with each other) to invest in Aman’s securities.

From all indications, considering the low level of profitability of commodities trading in Malaysia and the global contraction of interest rates due to the financial problems that some European countries are presently going through, Aman’s investment scheme is a Ponzi (or pyramiding) scheme.

The promised interest rates can be sustained only by a continuous inflow of investments. The latest investments are used to pay for whatever interests have been promised the earlier investors.

Once the source of additional funds dries up, or the investors start demanding their principal ahead of their maturity, the whole scheme collapses.

Precautions

The problem with uncovering or putting a stop to investment scams is no one will come out in the open to complain as long as the promised interests are being paid, even if they are sometimes delayed.

Ratting on the scheme would be like killing the goose that lays the golden egg. By not rocking the boat, the investor is “assured” that he has better chances of recovering his principal by way of the interest payments and, if he’s lucky, earn something extra from any additional payments.

When an investment scam starts to unravel or delays arise in the payment of the interest or principal, the payment scales usually tilt in favor of investors who are either politically influential, can legally arrest people or are authorized to carry firearms.

Through their powers or intimidating instruments of violence, they have the capability to compel or coerce the people behind the investment scam to cough up with the money that will pay their principal and whatever interests have been promised and remained unpaid.

The lesser mortals in the investment pyramid or those who were not smarter than the others would just have to be content with leftovers if the investment pool suddenly dries up, or be left holding the proverbial empty bag when the scam artists fly the coop.

To avoid being victimized, it is prudent to remember that if an investment scheme is too good to be true, as in the case of fantastic interest rates, it is not true.

(For feedback, please write to <rpalabrica@inquirer. com. ph>.)