CONSUMERS in Singapore were warned last week to be extremely wary of unregulated get-rich-quick schemes.

The authorities issued the warning as a multi-level marketing (MLM) company, Sunshine Empire, hit the headlines over its controversial business practices.

People signing up to be a 'merchant' of Sunshine's online health supplements, electronics goods and other products can potentially make gains of up to 60 per cent on a typical $12,000 outlay.

The authorities are concerned about the fact that 'merchants' can pocket these hefty returns without ever trading in Sunshine's online products.

But Sunshine is just one of a growing number of unlicensed entities offering what appear to be financial services here - even though such services are regulated by the Monetary Authority of Singapore (MAS).

On Wednesday, The Straits Times broke the story that Sunshine had been placed on alert watchlists issued by the authorities, both in Singapore and in Malaysia.

MAS investor alert list

THE MAS list acts as an early warning alert to investors about unauthorised companies and individuals who might be providing financial services regulated by the MAS. The central bank periodically updates the list, which can be found at www.moneysense.gov.sg by clicking on 'Check our lists'.

The list has ballooned since it was first made public in mid-2004. Back then, it contained 25 names of unauthorised firms and individuals. By January 2005, the number had nearly doubled to 46. By last week, it had reached 95.

Under the Financial Advisers Act (FAA), no one is allowed to provide advice in relation to any investment product unless he is licensed to do so - or specifically exempted - under the Act.

Anyone flouting this regulation faces heavy fines and/or jail time if convicted.

The MAS administers the FAA and may take enforcement action if it is warranted. Where there is a breach of the law, it will refer the case to the Commercial Affairs Department for investigation.

The police told The Sunday Times that, from January last year up to last month, it had received reports of about 45 cases involving cold-call investment scams and another six cases involving breaches under the FAA.

Techniques used in scams

TELLTALE signs can often be spotted that could be a warning that you are dealing with an unregulated entity. Watching out for these signs could save you from problems later on.

- Cold calls

A cold call is an unsolicited call from a person selling investment products, usually over the telephone. Cold calling by a person not authorised by the MAS to market financial products and services in Singapore is illegal.

According to police spokesman Cheryl Foo, the police have received reports on cold-call scams involving local as well as overseas victims.

'Local victims would receive unsolicited phone calls from perpetrators of cold-call scams offering the sale of securities,' she said.

'Thereafter, the victims would receive instructions to forward the payments to an overseas bank account. The perpetrators are believed to be operating from overseas.'

Mr Goh Yang Chye, the managing director of GYC Financial Advisory, once had a client who was sold some offshore insurance plans by a 'financial services consultant'.

After the plans were analysed, it turned out that they had higher fees and offered inadequate cover with no death benefits.

The consultant did not hold a financial adviser's licence here.

'It is important for the public to engage a licensed financial adviser. It is like seeing a doctor,' Mr Goh said.

- E-mail or bogus Internet websites

Beware of investment opportunities you learn about from e-mail or the Internet.

Take school teacher Stephen Tang. He bought shares in a foreign company on the recommendation of an online broker, but when he wanted to sell the shares a few months later, he could not contact the broker.

All too often, these online brokers are unable to sell the shares or become uncontactable when you need them most.

In fact, some scam operators use the Internet to spread rumours in chatrooms and forums to attract investors to buy the shares they recommend.

If you come across an offer for a financial product or service on the Internet or via e-mail, check whether the product is properly registered and whether those marketing the product are authorised to do so.

- High-pressure sales tactics

Such tactics are used to persuade you to invest before you have the chance to think carefully about the product or to conduct checks on the person or company offering it.

To lure investors, the sellers often make urgent claims of a 'once-in-a-lifetime opportunity' or a 'limited time offer'.

Civil engineer Peter Lee recalled how he invested US$15,000 (S$21,884) in a financial product that looked like a unit trust. He got back just US$3,000 after two years.

It turned out that there were hefty annual fees - buried in fine print - that added up to more than 10 per cent.

- Promises of high returns

Sometimes, sales representatives will claim to have inside or confidential information that will generate a windfall from investing.

There will usually be promises of high returns, 'guaranteed' profits and quick gains. More often than not, these sales representatives are smooth talkers who give the impression that they are very knowledgeable about investments.

- 'Virtual' offices

Most operators of financial scams work out of call centres or 'boiler rooms' based overseas. They use virtual offices to give a false impression that the company is located within a particular jurisdiction.

However, the reality is that the company has no operations at that location, so enforcement agencies find it hard to pursue the matter.

What Case says

MR SEAH Seng Choon, the executive director of the Consumers Association of Singapore (Case), said consumers should not be shy about raising questions, especially when the company is not a registered investment set-up.

This is because such companies are not subject to the vigorous requirements imposed on licensed institutions.

'Consumers need to assess for themselves whether such a scheme is sustainable and whether it will reach a point where the payout becomes untenable,' Mr Seah said.

'There are many get-rich-quick schemes in the market nowadays, and consumers should not hand over their hard-earned money to questionable schemes without a thorough investigation into their viability. Consumers should not base their assessment on a few unverified testimonies that claim success.'

Sunshine has come under scrutiny because its business model gives it the appearance of a financial investment scheme - even though the firm claims to be involved in networking marketing, which is legal.

Barely 16 months into its operations here, Sunshine has attracted 20,000 members here who subscribe to its online shopping platform by forking out initial sums of up to $12,000. In return, they are rewarded with potentially hefty cash rebates that are non-guaranteed.

Based on an initial sum of $12,000, a member could make a gain of 60 per cent, or $7,200, over time. The business model is attractive because, unlike other MLM firms, Sunshine does not impose any requirement on its members to maintain a sales volume quota, so members can effectively enjoy their rebates as cash only.

Sunshine has said that it will work with the authorities in Singapore and Malaysia to remove its name from the alert list.

Recently, the Direct Selling Association of Singapore (DSAS) wrote in to The Straits Times Forum stating that Sunshine is not a member of DSAS, which applies stringent criteria when vetting its members.

Reported cases

From January last year until last month, the police have received reports of about 45 cases involving cold-call investment scams and another six cases involving breaches under the Financial Advisers Act.

How not to become victims

Are you dealing with people offering services that are regulated?

The Monetary Authority of Singapore (MAS) urges all investors to deal only with companies and persons under its umbrella when making financial investments.

"MAS aims to safeguard the interests of investors by ensuring that only competent and professional persons are allowed to provide financial services. If investors choose to deal with persons that are not regulated by the MAS, they forgo the protection afforded under laws administered by the MAS," said an MAS spokesman.

MAS regulates only those with a presence in Singapore. A list of authorised financial institutions can be found on the MAS website at www.mas.gov.sg in the Financial Institutions Directory.

How much do you know about  the company?

Research its track record and the background of the management.

Do you understand the product?

Ask for brochures and documents and take your time to review the firm and its products. Do not sign on blank forms without knowing what you are signing.

Is the investment a good fit with your financial goals?  

It pays not to make a hasty investment decision.

Make sure that the product being offered meets your financial needs and objectives. Investments all come with some risk.

Get a second opinion

Do not hesitate to check with other advisers or professional bodies if you have doubts about the manner in which you were approached and the soundness of the products on offer.

Report to MAS

If a person approaches you to offer financial products and you believe he is unlicensed, report the matter to the MAS' consumer issues division, in the market and business conduct department.

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