Be on the look-out for that financial scammer scheming for your money

Richard Nixon famously said “In the heart, everyone knows that the only people who get rich from getting rich quick books are those who write them”. The same can be said about get-rich-quick schemes or investments, which are promising significantly better returns than the market and are possibly too good to be true.

We all have an acquaintance who is convinced that the latest direct sales project is going to help them make it big, they are probably going to win the lottery or become overnight moguls via investing in cryptocurrency or sectors, which advertise providing a handsome return.

Get rich quick schemes play on emotions of the target audience and mislead individuals into putting their hard-earned money into something that is overhyped, unrealistic, and yet sounds so good as it is over-marketed.

Do you trust everything that is being marketed as gospel truth? Astute investors understand that wealth is built through wisdom and experience. The ability to sniff out a con is built over time.

Many fraudulent get-rich-quick schemes have made global headlines after drowning the funds of the investors. Bernie Madoff’s Ponzi scheme came to light because of the 2008 recession. The Madoff investment scandal was a major case of stock and securities fraud that was discovered and exposed towards the end of the year 2008.

Life savings

His Scheme caused many to lose their life savings and several organisations went bust. Enron was named "America's Most Innovative Company" by Fortune Magazine every year from 1996 to 2001 (the year in, which Enron went bankrupt), and became the seventh-largest company in the United States, at least on paper.

In reality, the company used mark-to-market accounting to make itself appear more profitable than it was by deceitfully and intentionally misrepresenting the value of certain revenues and assets and hiding losses in shell companies. Such scenarios are plenty.

A recent addition to a list of global corporate fraud is Wire card, a German electronic payments company that seemed to grow progressively over the last 20 years. However, all was not as it seemed at Wire card, as auditors exposed a few weeks ago a $2 billion hole in Wire card’s accounts. It turns out the money in question never existed, and Wire card had seemingly most likely been falsifying the financials it reported to shareholders for years.

We have witnessed many financial frauds in Kenya being reported on national news. Whether they are the nationally publicised unexplained financial mysteries such as the NYS scandal and ghost dam’s scandal or certain private companies amassing funds from the public via Ponzi schemes and, thereafter, going bust. There have been large retail chains that could not pay suppliers and went bust despite large quantities of daily cash sales in their outlets all the while, banks were more than willing to keep issuing large lump sum loans to them.

We have experienced large profitable manufacturers issuing privately placed bonds and thereafter defaulting, leading to banks placing them under administration. Kenya is facing many fraud situations via identity theft as well. Mobile money fraud is increasing whereby some tech-savvy tricksters reach out to vulnerable and greedy individuals with a cold call enticing them with fake wins thereafter instructing the bait to enter mobile money passcodes and the rest is a sad tale.

Within companies, do the management carry out regular internal audits and hire forensic auditors? In Kenya, the Capital Markets Authority has been following up on cases such as those of fallen banks and real estate investment scammers. When promoting a company seeking to raise debt capital, do the investment agents take responsibility to thoroughly carry out due diligence before inviting and exposing their clients to invest in very risky schemes?

4,000 investors

Although there are governing regulatory bodies involved in carrying out thorough due diligence, who eventually is responsible for the due diligence and ensuring that the intentions of the company’s management are genuine when borrowing from the market?

In a well-known scenario, more than 4,000 investors who pumped Sh10 billion into an unregulated high yield product by a heavily marketed real estate and investments company have been waiting for a verdict to receive their investment sum back, let alone interest.

In today’s time, the coronavirus pandemic is the perfect storm for fraud as a majority of professionals believe their levels increase in times of economic distress. What can someone do to prevent financial fraud since it’s so prevalent and continuing to grow?

Recognise that there is no single set of steps of software one can purchase nor a system that is 100 per cent able to protect investors from all fraud. As long as there are humans there is potential for fraud. Investors must learn how to be what auditors call professional skeptics and exercise good governance, knowledge, experience, competency, caution, realism and action steps to prevent fraud.

It is said that personal finance is 80 per cent behaviour and 20 per cent math. This is because money is an amplifier and it amplifies the character of the individual who holds it. If one is irresponsible, they are bound to be reckless with lots of money. Without wealth habits already in place, more money will lead to more problems.

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