Cover Story: The return of money games

ON April 19, 2017, investors of the then famous money game JJ Poor To Rich (JJPTR) were informed that their so-called investments in the forex trading scheme had literally evaporated. The scheme, which guaranteed monthly returns of 20%, went bust as a result of its trading accounts being hacked, resulting in a loss of US$400 million, its founder claimed.

The collapse created a domino effect that led to other get-rich-quick schemes folding — it is believed that they had relied on JJPTR to distribute returns to their investors.

“Money games” is another term for get-rich-quick schemes, whereby the operators use the money collected from “investors” to trade in foreign currencies.

As we recover from the pandemic, interest in similar kinds of schemes has taken off in recent months. Many people are drawn to the lucrative returns, which can go up to 10% a month, compared with the lacklustre earnings from equities and fixed deposits amid soaring inflation that has raised the cost of living to higher levels.

This situation, if uncontained, may result in dire consequences, not just for the “players” of the game but also for the financial market.

Why are people investing in such schemes even when they are aware that they can lose their hard-earned money?

One player, Josephine Teoh, tells The Edge that she has deposited a total of RM60,000 since 2020 into various funds operated by one money game operator.

“It was recommended by my friend,” says the property agent who faced difficulties in closing property deals after Covid-19 struck in early 2020.

“The situation was extremely tough for both the rental and sub-sale segments. So far, the scheme that I have invested in has performed well. Right now, I am getting RM5,000 to RM6,000 in returns per month,” Teoh says.

Another investor who declines to be named says being a lone forex (foreign exchange) trader is not easy. He believes it is better to let the forex experts manage the transactions.

“I had lost money before by trading forex on my own. The strategy didn’t work well due to the fluctuation in exchange rates. Without sufficient capital, you won’t be able to withstand the volatility in the forex market.

“It’s kind of a side income for me. Being a passive investor, I can leave it to the forex trading team to manage the account for me,” he adds.

When asked whether the operators are really trading in forex, he says he is not very sure. “But what the company does is hold online meetings every week to provide updates to investors. I guess this is a way to keep us informed of the latest performance.”

Earning returns in US dollars is another plus point, he adds.

“The strong US dollar bodes well for my forex trading returns [and enables me] to hedge against high inflation.”

Meanwhile, Jay Wong, who started investing in forex trading schemes about 10 years ago, is unfazed by the claim that they are scams. Interestingly, even after taking into consideration the losses incurred when JJPTR folded, he still managed to make some money as he had joined the scheme earlier.

“Anything has its underlying risk. So long as you are among the early birds, I would say the risk is still low. We’re not telling people to put all their savings into these forex trading platforms; it should be just another option for you,” he notes.

Similar to a pyramid scheme, a money game offers a monthly referral fee to investors who manage to secure a downline. The higher the number of downlines you get, the higher the referral fee you will receive.

In addition, some get-rich-quick schemes have started to dive into the cryptocurrency space, with returns distributed in the form of cryptocurrencies.

The Securities Commission Malaysia updates its alert list regularly, cautioning the public on regulated activities that are carried out without a licence, such as dealing in securities, derivatives, fund management and private retirement schemes; advising on corporate finance; as well as investment advice.

Yet, people are tempted by get-rich-quick schemes.

In response to The Edge’s queries, Bank Negara Malaysia says complaints and enquiries on illegal deposit-taking (IDT) and illegal foreign exchange trading (IFT) schemes to the central bank are on a decreasing trend.

“Upon further assessment, most complaints and information received by BNM have elements of cheating in which foreign exchange-trading activities did not actually happen,” the central bank tells The Edge in an email reply.

It says, however, that such cases will be referred to the police for further investigation.

“These schemes are mostly offered over the internet with no proper documentation,” it adds.

Bank Negara urges the public to deal only with licensed onshore banks and check with the relevant authorities if they are unsure.

“Several channels to increase awareness have been established to prevent the public from being victimised,” it stresses.

Illegal money games or investment schemes generally refer to various activities that are against the law and offer investments with returns over a period. Bank Negara says IDT occurs when a fraudster offers an investment opportunity to the victim and collects deposits with the promise of returns within a certain period, whereby the principal amount of the investment will be refunded. The offer contravenes Section 137 of the Financial Services Act 2013.

Meanwhile, the buying or selling of foreign currency by an individual or a company in Malaysia with any person who is not a licensed onshore bank, or any person who has not obtained Bank Negara’s approval under the Financial Services Act 2013 or Islamic Financial Services Act 2013, is an IFT.

However, different kinds of schemes come under the purview of different enforcement agencies (see box), and this raises the question of how authorities can efficiently put a stop to these illegal schemes. Having said that, the various regulators do work together to stem these illegal activities.

The collapse of a scam

Forex trading schemes gained popularity in 2015, first in Penang, before spreading throughout Malaysia. That was when the money game wave turned into a frenzy with the recruitment of downlines.

Claiming they wanted to help people, the operators held seminars in multiple locations to explain their “sure-win” strategy in forex trading to the public.

Concerns about these schemes were widely raised in the mainstream media until early 2017, leading to increased monitoring by the regulators as the money game bubbles grew exponentially.

The JJPTR scheme finally collapsed in April that year. A month later, police detained founder Johnson Lee Chong Sen for fraud investigation and raided his office in Penang.

In April 2018, Lee, who was only 29 years old at that time, was fined just RM18,000 by the Butterworth Sessions Court for providing false company information when applying to strike off his company’s name.

It was reported that the controversial investment had affected 400,000 victims globally, including 300,000 Malaysians and 50,000 Chinese nationals.

Although Lee had promised to return the losses to the investors within five years, The Edge understands that JJPTR investors did not receive any refunds from him.

“There has been no update on our funds in JJPTR since its collapse in 2017, but we already expected that. For me, the losses were not that much as I was an early investor,” a JJPTR investor says.

The collapse of the multiple money games five years ago should be a lesson for those who are eager to join get-rich-quick schemes.

However, as long as greed and an appetite for high-risk investments remain, there will be opportunities for these forex trading operators to expand their network. At the end of the day, it’s the individual’s choice whether to take the risk.