There has been a rising number of dubious yet popular investment schemes such as “money games” and other financial scams in Malaysia of late. Some, like the recently busted Macau scam, involved fake bankers tricking victims into transferring their money to fraudulent accounts. Others, like the JJPTR money game, are less straight-forward.

JJPTR is essentially a Ponzi-like financial scheme which promises investors returns of up to 20% per month. Since it began operating in 2015, JJPTR has collected up to RM1.7 billion in investments. More than 400,000 people are reported to be involved in the scheme, with investments ranging from RM4,500 to RM100,000 per individual.

Investors were generally paid interest as promised in the first two years of JJPTR’s inception. But panic arose in April, when the scheme failed to make its scheduled payments. Its founder, Johnson Lee, said this was because hackers had made off with some US$400 million of its funds.

Lee was arrested on May 16 after one investor made a police report, but released two days later due to insufficient evidence of fraud. Investigations revealed, though, that there are so far no signs of any hacking. Since then, Lee is reported to have gone missing, while JJPTR’s website and representative offices in Penang have now shut down, leaving investors in the lurch.

The importance of conducting due diligence

JJPTR’s collapse draws light on the importance of conducting proper due diligence before investing in any financial scheme in the market. This is the audit process that will enable discerning investors to tell the difference between a legitimate, high-performing fund like CP Global and a potential scam like JJPTR.

So how is due diligence done? Here are 4 tips on what to look out for:

Regulation and licensing: The most basic way of ascertaining the legitimacy of a scheme or fund is by checking to see if it is regulated by the authorities. A quick check on Bank Negara Malaysia’s Financial Consumer Alert List, for example, reveals that JJPTR and its associate companies, JJ Poor-To-Rice and JJ Global Network are neither authorised nor approved under the relevant laws and regulations administered by the central bank.

To date, 302 companies have been included in that list. The two latest additions are financial schemes run by MBI International and Mface International, both of which are popular in Penang.

Compliant strategies: Not every fund or scheme is regulated, though. In Singapore, for example, many legitimate hedge funds are unregulated by the Monetary Authority of Singapore. There are plenty of dubious schemes that go unnoticed, too. For instance, JJPTR and its associates were only included in BNM’s list in February 2017, two years after they began operations in Malaysia.

As such, investors must stay vigilant and always ask questions. How does a fund go about guaranteeing unrealistically high returns? Is its investment strategy legal and sustainable? Is it merely a Ponzi scheme which pays interest with capital from new investors rather than from profits generated by legitimate investments or business activities?

Proven track record: Avoiding funds or schemes without a proven, long term track record is usually a good idea. Instead, once you’ve ascertained that it is legal, look for a well-managed fund with a solid record of generating consistent returns.

One way to get a better understanding of how your fund does this is by requesting its “pitchbook.” This is either a factsheet or prospectus that describes the fund, its strategy, principals and performance. CP Global, for example, produces consistent double-digit returns by trading foreign currencies based on fund manager Raymond Tan’s in-depth and proven knowledge of macroeconomics and geopolitics.

Know the management: Finally, get to know the people and talent behind the fund or scheme you want to invest in. After all, you’ll be placing your money under their care, and no one wants strangers managing their funds. In fact, engaging with your fund manager is probably one of the best ways to keep up-to-date with potential strategic changes and expected returns, so make sure he or she is readily available.

Investors of CP Global are fortunate in this regard, as the fund manager, Mr Raymond Tan, regularly conducts private client seminars and meet ups across the region.

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