Dubai: If a money-making opportunity looks too good to be true, it probably is. Tens of thousands of UAE residents have learned this the hard way after losing their life savings in investment plans only to discover that these were outright Ponzi schemes. Yet such is the lure of easy money, that every few days many still get sucked into their swirling vortex of deceit.
Nearly 6,000 residents lost their money in Sunfeast Infotech, 4,000 in SpeakAsia, 1,500 in MMA Forex, 2,000 in Gold AE, 40 in Ferryland Tourism and more recently 5,000 in UT Markets and 7,000 in Exential Group.
That’s around 25,000 people duped out of roughly Dh2.5 billion in just a little over three years – Dh100,000 per person on an average.
Tip of the iceberg
Mindboggling as it sounds, this could just be the tip of the iceberg, according to Gaurang Desai, Chief Executive Officer of the Dubai Gold and Commodities Exchange (DGCX) owned by the Dubai government and regulated by the Emirates Securities and Commodities Authority (ESCA).
The derivatives marketing specialist reckons there could be 150 such fly-by-night companies in the UAE peddling get-rich quick schemes by offering annual returns of up to 120 per cent.
Sam Instone, CEO of Dubai-based financial advisers AES International says the number could be as high as 1,000.
“A financial regulator recently told me they suspect there are more than 1,000 boiler rooms [unlicensed financial people/firms]. Some of these are large, legitimate looking businesses,” he said.
“The tough economic climate and the slump in savings and stocks make the perfect scenario for these thugs,” said another financial adviser.
However, like any other outwardly viable but untenable model, the Ponzi schemes look good till they last, which in most cases has rarely been beyond six years.
Sure enough, when they inevitably fall apart, they cause the equivalent of a financial apocalypse. A staggering 7,000 alone have been hit by the $300 million Exential scam.
Numbers tell half the story
But statistics are just numbers. They don’t quite show the fallout of a reckless investment and what victims go through in the aftermath of a Ponzi scam.
Understandably so as they are unable to capture the plight of the affected. Dubai-based nurse Joanne Juantas (left) lost her brother John Paul Juantas, 31, last Sunday as his money (Dh460,000) was stuck in Exential and he couldn’t pay for his cancer treatment. A Dubai father who works for a reputed airline, but often goes without food. And a Jordanian mother in Sharjah has been dumped by her husband and now fears losing the custody of her children as she can’t afford to pay their school fees.
The airline staffer invested $80,000 in Exential after taking a bank loan while the Jordanian mum sold her ancestral land to fork out $175,000.
“That’s all I had. My husband got so annoyed that he left me. My kids are on the verge of dropping out of school and my husband wants their custody saying I cannot look after them. My life has become a mess,” she said in a voice choked with emotion.
The airline staffer said his entire salary goes towards paying off his loan. “At times, I’ve no money for even food. I don’t want to cheat any bank or run away. I would rather go to jail but I dread to think about the fate of my school-going daughter should that happen,” he said.
Dubai-based Syrian hairstylist Rafi Zazza (left) who borrowed from relatives to open seven forex accounts of $25,000 each with the firm said he doesn’t know how to face them.
Then there are people like Elrina van Graan, who’s unable to pursue the case as she’s based out of the country. “I live in South Africa and don’t know how to lodge a complaint,” she said, sharing documents that show that Exential owes her over $35,000.
Last week, the dodgy firm’s Indian owner, S.L, 36, who was out on bail, was reportedly re-arrested by Al Barsha police in connection with the fraud.
A majority of his victims are from the aviation industry, but it’s people from the oil and gas sector who have taken the biggest hits, like a senior executive at an oil and gas company who reportedly has around 650 accounts of $25,000 each..
So what is that causes well-educated people to fall into the infallible trap of Ponzi schemes?
“Pramod Bothra, director, Evermore Global DMCC. puts it in one word – Greed. “Ponzi schemes feed on greed. People are so blinded by the seemingly incredible returns that they seldom pause to think how they could possibly earn 10-12 per cent monthly on their investments. No business offers that kind of money,” he said.
Stupidity also plays an important if not equal part. At Sunfeast Infotech, for instance, investors looking to make extra bucks from ‘outsourced projects’ were handed a flash drive with several pages of manuscript in PDF format which they were required to type into text format and submit within 25 days.
At the end of a 30-day cycle, they were paid Dh250 for the job. They had to pay a security deposit of Dh500 for each project. In theory, they got their initial investment in two months; any extra job after that was profit.
Enticed by big returns, thousands used to queue up at Sunfeast’s Oud Metha office during 2013 with many taking huge loans to procure hundreds of ‘projects’ at the same time.
When that was not enough, scores sold their jewellery and homes. One enterprising man even set up a temporary typing centre at his home in India where young students were hired to do the job.
No background checks
NNobody bothered to find out how anyone could make a fortune out of typing a few sheets of paper. By the time the company was shut down by the Dubai Economic Department (DED) and its owners jailed for fraud, millions had been siphoned off.
Another company, MMA Forex, conned investors into believing they were dealing with a multinational firm with a diversified portfolio that included an airline in Ras Al Khaimah. As it turned out, the whole thing was a sham. MMA Forex owner CEO Malik Noureed Awan was later arrested and sentenced to jail.
Company ran on WhatsApp
The UT Markets scam which happened around the same time as Exential is even more shocking. The company was based out of Bulgaria and managed its operations in the UAE entirely on WhatsApp.
Yet nearly 4,000 UAE residents, largely cabin crew, gave away their hard-earned money to them without a second thought.
“They claimed they were investing our funds in foreign exchange through a trading software. At 13 per cent per month, the returns were too good to be true, and too good to be missed, recalls Indian expat A.K.
“I invested $10,000 in January 2016. Encouraged by initial profits, I took a bank loan and pitched in with another $60,000 in July last year. Now it’s all stuck and I am saddled with a big loan,” said the 41-year-old, who also got his fingers burnt at Exential.
Like most victims, AK has resigned himself to fate after calls made to UT Markets’ Bulgaria office and their relationship managers remain unanswered and a letter from the country’s Financial Supervision Commission (FSC) showed the company was not licensed.
Can victims get their money?
Instances of Ponzi victims recovering their money are few and far between. The only time a restitution effort has been successful in recent years was in the case of American fraudster Bernard Madoff, who was sentenced to 150 years in prison by US courts in 2009 for running the biggest Ponzi scheme in history.
While this may spring hope among many in the UAE, finding the money and dividing it fairly among victims remains a tricky proposition.
“Restitution is a complicated process,” said Hany Al Saeed (left) of Abdul Rahman Naseeb Associates and Legal Consultants, who represents 80 Exential victims. “We’re taking legal action not just against Exential but also its sister concerns as they were also part of the agreement signed by investors. Once we get a favourable verdict, we will pursue the matter internationally as a large amount of the money could be stashed away in foreign banks,” he added.
An executive who lost Dh200,000 said that no matter how much is recovered, his life can never be back on track.
What you can do to avoid investment scams
Before you are able to spot the telltale signs of a Ponzi scheme, it’s important that you understand what the fraud is all about. Named after notorious US-scamster Charles Ponzi, the scheme functions by paying off new investors with money from old ones. This is precisely what happened at Exential, UTMarkets, MMA, Sunfeast and several other dodgy companies.
“If anyone is considering investing in a scheme that they’ve been advised or even promised will give them very high returns -- it’s probably best to avoid it because it may well be a scam,” warns Sam Instone (left), CEO, AES International.
Agrees Dubai-based professional trader and coach Sara Waqar (right). “People should be wary of schemes which guarantee exorbitant returns over a monthly time period and come with the assurance that their principal amount will remain safe. ”While robust forex strategies may produce well over 10 per cent in some months, there is always an element of risk,” she says.
“The best way to avoid such scams is to invest in quality forex education. You should also due diligence and listen to your gut feeling before you commit your hard-earned money to a financial scheme. A rule of thumb of the financial market is: What seems too good to be true, is never true. There is no other interpretation of this evergreen cliche.”
According to Instone, people should take financial advice from a qualified professional rather than someone who cold calls them. “Prevention is better than cure,” says Gaurang Desai (left), CEO of the Dubai Gold and Commodities Exchange (DGCX). “Investors should go through