Hong Kong and mainland compatriots: Beware of scammers!

On Aug 22, 2012, local newspapers reported that mainland and Hong Kong investors were swindled of HK$40 million in an alleged pyramid (or Ponzi) scheme. It bewilders me why people, after reading about so many scams in the past, still fall victim to such frauds.

In the latest case, more than 500 people were lured into joining the scheme over the past 12 months. Investors were told that the more money they invested, the bigger the return would be. The investors then were classified, depending on their amounts of their investments, as diamond, gold, silver or bronze members. They were also led to believe that if they recruited new investors, they would get hefty commissions. Their money was supposed to have been invested in mainland and Macao properties.

A few days ago, the Kowloon-based investment company closed its doors and the alleged scammers disappeared with HK$40 million. The Hong Kong police were called in to investigate.

This is just another sad saga. The trend seems to be one in which more and more trusting mainlanders take part in such investment plans and get fleeced.

Another major scam was exposed in May this year, when several investors from Hong Kong and the mainland complained to the police that a Kwun Tong-based company that took their investments had ceased to exist. These investors bought en primeur wines, or wine futures, through the company. (Wine futures give investors the chance to buy into a particular vintage before the wine is bottled. When the wine is delivered, usually in two years, the investors can sell it on the open market to make a profit).

Many local scammers seem to have taken a page out of Bernie Madoff's book. Madoff was sentenced in 2009 to 150 years in a US jail after admitting that he used a Ponzi scheme to swindle $18 billion out of his investors' pockets. In June this year, Allen Stanford, a Texas banker, was sentenced to 110 years in prison for bilking his investors out of $7 billion. The US government estimated that US citizens lose $40 billion a year in investment scandals.

In Hong Kong, many young women have been tricked by swindlers that they (or their bodies) look great and have the potential to become models. Once the gullible young women are persuaded to audition for modeling agencies, they invariably would be told that a photographer would take a few pictures of them but they needed to have a make-up done and perhaps a hair-do. The upshot would be that these women would part with their money, anywhere from HK$800 to HK$3,000 each. The more trusting ones would be lured (and often coerced) into signing "modeling contracts" requiring them to spend thousands of dollars to attend some facial or other "beauty" courses.

Sadly, despite repeated warnings from the police, scores of young people still fall victim to such scams every year as they dream of becoming supermodels and stepping into a career under the limelight. Some cases remain unreported because the victims are afraid of being labeled as "stupid and ignorant" once their stories hit the headlines.

As the middle classes of Hong Kong and the mainland are growing rapidly, more people are expected to pour their savings into all sorts of investment schemes since the interest rates offered by banks are at their historic lows (one-year fixed deposits in Hong Kong would yield a 0.15 percent return). Many eager investors have become willing victims of ruthless swindlers on both sides of the Shenzhen River.

These are the tips I offered in May to my graduating students:

Avoid one-man firms or those which do massive marketing through the Internet. Check them out first; stick with trusted and big investment firms that have been around for at least 5 years; be skeptical if the investment returns, eg 10 percent or higher per annum, are too good to be true; shun companies which ask you to refer new customers, in exchange for higher returns on investment; and when in doubt, leave it out (or check with regulatory authorities first before taking the plunge).

Folks in Hong Kong and the mainland: protect your hard-earned savings and keep vigilant of investment scams!

Greed is always bad.

The author is coordinator of the B.S.Sc in financial journalism program at Hong Kong Baptist University.

(HK Edition 08/29/2012 page3)