This article first appeared in The Edge Malaysia Weekly on October 17, 2022 - October 23, 2022

FINANCIAL scams rob victims of their hard-earned savings. In recent years, the prevalence of social media has enabled the perpetrators to widen their reach while the Covid-19 pandemic, which affected people’s risk attitudes, has also contributed to a rise in such activities.

The number of complaints and enquiries on unlicensed activities and scams that the Securities Commission Malaysia (SC) received in 2021 rose 93% to 3,475 from 1,798 in 2020. For the year to September 2022, the figure is 1,851.

In 2019, the number of complaints and enquiries received was a mere 774.

The SC is responsible for rule-making, enforcing regulations pertaining to the capital market, ensuring sustainable market growth and development, supervising capital market activities and market institutions, and regulating all entities and persons licensed under the Capital Markets and Services Act 2007. Thus, it is responsible for investment-related scams that may involve breaches of securities laws administered by the SC.

According to the SC, unlicensed activities and scams formed about 62% of total complaints and 51% of total enquiries received for the year to September 2022.

Unlicensed activities entail persons carrying on the business of regulated activities without a licence or being registered with the SC. Meanwhile, scams include the promotion of fake investment products.

The high number of complaints in 2021 could be due to bored, stuck-at-home individuals being approached by perpetrators of such scams. Furthermore, with nowhere to go, many had extra money with which they were willing to take chances with, while those facing economic hardship due to the various movement restrictions were desperate enough to grab opportunities to make some extra money.

“This was a phenomenon observed globally,” an SC spokesperson said when commenting on the rise in investment scams at a media briefing last week.

Social media platforms are a popular avenue for scammers. This year, many of the complaints and enquiries the SC received were related to illegal investment schemes promoted through the messaging platform Telegram.

“Perpetrators of these scams will create a public group on Telegram to promote these investment packages that are usually accompanied by fake testimonies. Interested investors will be asked to directly message the representatives to begin investing in the various investment packages offered,” the SC spokesperson explained.

The scammers could also use fake websites with incredible claims of returns. Users would be connected to “agents” via WhatsApp or Telegram once they click on the sites.

“There is an element of gambling involved with potential victims asking, ‘What have I got to lose?’ given the low outlay and high returns touted,” the SC spokesperson said.

The agent would then share details of the “investment” while promising fantastic returns to entice unknowing individuals who would then be asked to deposit an amount that is not too prohibitive — making the scheme accessible to more people — into a bank account or what is known as a mule account (see diagram on Page 73).

Bank Negara Malaysia defines a mule account as a bank account used — with the consent of the account holder — by criminals to hold or transfer money that is illegally acquired.

It was reported that a total of 29,769 bank accounts were used as mule accounts in 2021. In the first four months of this year, 1,669 mule accounts were recorded by the police.

Many of these mule accounts are individual accounts rented from other account holders. The fact that the accounts are in the name of individuals should raise suspicions. Note that between January and June this year, the police arrested 1,364 mule account owners for their involvement in fraud syndicates.

“No legitimate entity would require monies to be deposited into an account in the name of an individual. It has to be deposited into an account owned by the entity,” the SC spokesperson explained, adding that awareness of this simple fact would have nipped many potential scams in the bud.

In his official remarks at the opening of InvestSmart Fest 2022 last Friday, SC chairman Datuk Seri Dr Awang Adek Hussin highlighted the rising use of “celebrities or influencers” to promote retail investment offerings on social media.

“This includes using celebrities to endorse or provide investment advice to investors; or using celebrities to talk about or promote successful investments,” he said, warning the public to be wary of self-proclaimed investment gurus who offer questionable advice or use social media to spread false or misleading information.

SC’s intervention to halt unlicensed activities takes many forms and, not surprisingly, given the popularity of social media platforms, geo-block requests have risen to a staggering 120 this year (up to September) compared with 35 for the whole of 2021. Of the 120, 85 were made to Telegram and 35 to Facebook.

Geo-blocking restricts internet users’ access to content based on their geographical locations.

Apart from geo-blocking, other behind-the-scene interventions by the SC include blocking dubious websites (with the assistance of the Malaysian Communications and Multimedia Commission), publication of its “Alert List”, issuance of cease and desist directives, and referral to other agencies. Enforcement action is the most visible form of intervention undertaken by the regulator.

The alert list is the most immediate action undertaken by the SC as it is updated on a daily basis or whenever there is a complaint and there is enough evidence of suspicious activity to warrant warning the public about it. It is worth noting that the SC has recently set up a unit to monitor unlicensed activities, besides relying on complaints and enquiries from the public.

A survey undertaken by the SC this year among Malaysian youth shows a higher level of awareness on non-capital market products (such as insurance, fixed deposit, real estate and gold) than capital market products (unit trust, stocks and bonds), which may be the reason behind the high number of individuals falling for scams.

“The survey shows that youth’s knowledge of capital market products is wanting. If only they were aware of what’s legitimate, they would know what to stay away from,” the SC spokesperson said.

Indeed, financial awareness and education may be key to addressing the rising cases of unlicensed activities and scams. But greed is a factor too, with some being tempted to take the risk despite having doubts of the returns being advertised by the scammers.

Malaysian victims of scams perpetrated by foreign entities could be in a tight spot as these would be beyond the reach of local regulators. This would mean they would have to pursue the matter in those jurisdictions privately.

“We always tell the market that even if the investment is approved by a foreign regulator, it is still ‘buyers beware’ as they would fall outside the SC’s reach should there be elements of fraud,” said the SC spokesperson.

The pandemic appears to have influenced investor behaviour too. An investor survey undertaken by the SC in 2020 and 2021 found that respondents have been more risk-averse since the pandemic. The SC spokesperson explained that this could be because the pandemic was unprecedented and caused many to conserve and take fewer risks given the uncertain future in the midst of the lockdowns imposed to prevent the spread of the virus.

In the same survey, the lack of financial knowledge (product awareness, fear of scams and complexity of investment products) was identified as a barrier to making investment decisions.

As Awang Adek pointed out in his speech, over the last two years, almost 72,000 scams were recorded, with losses amounting to RM5.2 billion. Investment scams accounted for close to 12,000 of the overall number of scams.

Certainly, scams are a lucrative venture for the perpetrators, and the public would do well to be vigilant at all times against their increasingly sophisticated methods and tactics.

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