Financial fraud comes in many guises so you need to know when it's time to walk away
Getting caught by an investment scam in the UAE is avoidable
Some people get very rich from investments, but not necessarily those who put up the money.
Here’s what the biggest known financial fraudster in history had accumulated before being arrested – as per tax filings. This is what Bernine Madoff “made off” with:
• US$138 million: his and his wife’s worth
• $700m: the value of Bernard Madoff Investment Securities
• $45m: in securities
• $17m: in cash
• $7m: his yacht
• $2.6m: in jewellery
• $7m: his Manhattan apartment in New York
• $3m: his Montauk home on Long Island
• $1m: his property in France
• $11m: his home in Palm Beach
• $9.9m: for household items, art and furniture
That’s how much the infamous Bernie Madoff siphoned off the $17.5 billion in principal funds initially invested with him. Other reports put his combined assets at $826m and his wife’s at $92.6m. Either way, it’s quite a tally and all from taking money from one person, and paying it out to another.
Similar schemes happen in the UAE with alarming frequency. A current one being dealt with is the Exential case – a fake foreign exchange currency scam where hundreds of millions of dollars vanished. While it’s nothing on the Madoff scale, it is big enough to affect thousands of people’s daily lives.
But financial fraud comes in many more guises, not just Ponzi ones. Like the Emirati man who last week lost $1.5m worth of bitcoin in online fraud. Apparently he transferred his bitcoin electronically to the alleged buyer, expecting payment of Dh400,000, which never happened. To add salt to his wound, he discovered that his bitcoin was in fact worth $1.5m. I’m sure he’d be happy with the Dh400,000 agreed if he can get it.
Another example is the car sale fraud in which Dh2.3bn was collected; 54 people were referred to Abu Dhabi’s courts over the issue this summer.
The reasons people invest in the schemes are many. Here area few pointers that you need to look out for to avoid becoming ensnared.
Guaranteed income: anything that states this, just walk away. It’s more likely to translate into guaranteed losses sooner or later.
Cold calls: put the phone down. If you’ve entered one of the umpteen draws on offer in the country, the person calling will know the exact details. Better still, put the phone down and call customer services. You might think this such an unlikely fraud, but tens of thousands of dirhams go the way of scammers as the result of a call or SMS stating “you’ve won”.
The good cause: these are usually appeals for a tragedy abroad. Don’t wire the money directly to individuals. If it’s real, there will be an above-board organisation involved. I’m thinking of the Gulf national who parted with Dh200,000 thinking she was helping refugee families, and the UAE national who wired Dh1m believing the same thing. They must be immensely frustrated.
The lock-in period: if you cannot access your investment and cannot sell penalty free when you want to, walk away.
No secondary market: ditto above. I know of a forestry investment that claimed it matches sellers with buyers if investors want to liquidate – which is simply not true. Because once you’ve bought into it, you’re stuck with it.
Going global: don’t. Especially if you don’t know your rights. If you’re not truly familiar with the details of the industry/ market/ type of property you’re being sold and why it makes for a good investment, don't do it.
It’s easy to say do your due diligence. The truth is, if someone is out to get other people’s money, they can do a darned good job at creating all manner of paperwork and credentials. I mean, who safer to invest with than the former chairman of Nasdaq, as Madoff was. Which is why I think the best thing to do, if you are still interested, is to hire a financial detective type of independent due diligence firm. I plan on writing about this ilk of anti-fraud entity in the future. Yes, it means you will pay upfront, but wouldn’t you prefer to lose that money rather than your entire investment pot?
Unfortunately, the mantra “trust no one” is key, and extends to official, regulated entities.
Madoff’s Ponzi scheme is touted as the largest financial fraud known to us. I beg to differ, banks are. I’m not being highbrow, I’m focusing on the basic numbers here. The cost of fines, legal bills and customer compensation paid out by the world’s biggest 20 banks over five years until the end of 2015 totals... £252bn (Dh1.22 trillion). If the banks are OK about being fined these eye-watering amounts, I wonder what percentage it is of their ill-gotten gains. Like I said at the start, some people get rich from investments ... or should that be from investors?
Nima Abu Wardeh is a broadcast journalist, columnist and blogger. Share her journey on finding-nima.com