TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
Malicious investment: Red flags to watch out for
In their attempts to lure investors, perpetrators of investment schemes sell dreams, from promises of high profits to lavish spending.
Change Size
Ill-gotten assets: Police officers inspect luxury cars seized from an online investment scam suspect, Doni Salmanan, at the premises of the National Police headquarters in South Jakarta on March 14, 2022.
(Antara/Reno Esnir)
S
tories of binary options trading fraud have drawn much public attention. The scheme is one of many malicious investment practices that have hurt consumers. The Investment Alert Task Force of the Financial Services Authority (OJK) has reported that the amount of losses the public suffered from investment products amounted to Rp 117.5 trillion (US$8.3 billion) in the last 10 years.
If not adequately counteracted, such practices may damage the financial industry’s reputation. Furthermore, they can erode consumer confidence in the financial system, which is not favorable to our economy. Despite relentless efforts by the government to tackle such practices by taking down their websites, charging the perpetrators with crimes and improving financial literacy, more consumers continue to fall victim.
One piece of advice given to consumers is to apply the "legal and logical" test in investing. But unfortunately, even though product’s legality is important, it does not mean that the product is risk-free or harmless. Meanwhile, standard of logic is not only subjective but also a function of the product’s yield and the risks associated with it.
It is not easy for consumers to assess whether to consider an offer sufficiently safe. It is equally difficult to determine if a product is suitable for them. However, the published cases reveal various modus operandi that are detrimental and demonstrate how the integrity of financial service providers is as important as the product’s legality.
The first disreputable method is offering illegal products that are managed by the providers in bad faith solely for their own benefit. One example is online gambling, which may appear in many forms as disguises. In trying to lure investors, the perpetrators sell dreams, from promises of high profits to lavish spending. Luxurious lifestyles are flaunted to portray a false impression that the too-good-to-be-true offer is true. Rotten from the core, these schemes are bound to bring misery to the victims.
The second are legitimate products that are misappropriated by managers. An example is a mutual fund case whereby the managers manage the fund not for the investors’ benefit but to commit capital market crimes, such as pump and dump schemes, insider trading or market manipulation. Even if the products themselves are legitimate, fund manipulation and capital market law violations can jeopardize the investors.
The third are legitimate products that are managed in accordance with the law, but with a twist. Gross misunderstandings occur between investors and providers. An example is a unit linked insurance case. The report shows disgruntled customers who were surprised to learn that their expectations were different from the reality. The dispute might have arisen either from a lack of information given to investors or because the investors’ risk profiles did not actually fit the product’s risk level.
