Ponzi, fraudulent schemes: SECP, LEAs map out strategy to take action

SOHAIL SARFRAZ

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) and Law Enforcement Agencies have jointly devised a strategy to take action against companies involved in fraudulent activities such as deposits/loan schemes, investment/employment schemes, forex companies, lottery, relief/charity schemes, illegal brokers, Multi Level Marketing (MLM), Ponzi, pyramid schemes and money laundering, etc.

It is learnt here on Tuesday that the decision has been taken in a high-level meeting held at the SECP office. The representatives of the Securities and Exchange Commission of Pakistan, State Bank of Pakistan, National Accountability Bureau, Federal Investigation Agency, Financial Monitoring Unit (FMU) and the federal and provincial police agreed to devise a comprehensive strategy to combat illegal business activities, including Ponzi and pyramid schemes, carried out by companies and unregistered entities.

The illegal businesses and schemes were launched by unscrupulous elements to fleece the hard-earned money of innocent general public who fall prey to the incentives and hefty profits offered by these schemes. The participants mutually agreed to devise a new strategy to combat all kinds of business scams. The meeting identified different areas of common interest, including intelligence sharing, and training of investigators. In presence of old laws, meeting also discussed possibility of introducing new law to check fraudulent businesses.

Sources said that the meeting agreed to launch awareness campaign so as to advise the public to be prudent while making any investment and to verify that the entity they are dealing with is duly authorized/licensed by the relevant authority to carry out its business. Besides; appropriate advice from independent legal or financial professionals regarding the risk involved should be obtained before arriving at a decision to make investment and to check the list of entities licensed by SBP and SECP as available at the respective websites.

The meeting was informed that with the passage of time, these unscrupulous elements have again been noticed to induce the general public in different ways to become a part of their fraudulent activities such as deposits schemes, loans schemes, investment schemes, employment schemes, schemes in the form of lottery, relief/charity schemes, illegal brokers/brokerage, MLM, Ponzi and pyramid schemes, money laundering, cheating through post, phone calls, SMS, cars schemes, etc. These unauthorized activities are looming large at this point of time. In order to curb these fraudulent activities there is need that earlier committee formed for the purpose may be reactivated and further expanded comprising representatives from SECP, State Bank of Pakistan (SBP), NAB, FIA, FMU and Crime branch of Police Departments at least in ICT

and in capital cities of the four provinces so as to review and to curb these fraudulent activities through concerted efforts, on periodic basis.

During the meeting, the participants discussed different schemes in practice in different parts of the country. There are different kinds of modus operandi of the schemes which are prevailing in the society. The meeting discussed all such kinds of fraudulent schemes and measures to check in future.

Booking of vehicles/ tractors/capital goods has been done in which the public is asked to give certain cash by hand or deposit the same into a bank account, in the name of advance money/booking price for purchase/lease of such capital goods. The fraudsters either do not deliver the vehicle or disappear with the money.

Sources said that cheating through post, e-mails, phone calls, SMS is done by offering unexpectedly exciting prices, lucky draws and sweepstake, and false promotions/offers. Such approaches are designed to lure the innocent people to part with their money.

Another fraudulent technique is the deposit schemes in which the public is promised unusually high profit mark-up. Assurance of deposit safety and guarantee of regular high profits is given. Regular profit is given for some time. Once the fraudster obtains enough deposits, they disappear.

There are employment scams in which job advertisements are published seeking processing fee etc., from the candidates along with the job applications after which they disappear or refrain to respond.

There are also brokers of foreign brokerage houses in Pakistan, a type of business not covered under local laws. These concerns offer their services to clients in return to hefty fees. Most of the clients lose all of their hard earned money without any legal cover. They use self made trading software to cheat their investors.

Sources said that there are loan schemes in which loan of huge amount is promised for any purpose on easy terms. Borrowers are asked to fill forms, pay certain fees and then the fraudsters keep telling the borrowers that case has been submitted to a bank and will get it soon. Ultimately, they tell the borrowers that the bank has declined their loan application or they simply disappear. In this way, they get a lot of prospective borrowers to pay fees and make a lot of money.

Multi Level Marketing (MLM), direct selling, Ponzi and Pyramid schemes require new customers to bring more members in a geometric progression. The process of membership reaches saturation when the whole structure collapses and only a few people at the top of the scheme make money. Some companies also use this technique in the guise of sales strategy to sell otherwise unmarketable products at exorbitant prices.

Prize winning frauds - Car, plot of land or attractive employment lottery schemes, etc. in which people are informed over telephone or through letter about car prize or winning a plot of land by taking their names and other particulars from sources like utility bills, telephone directories etc. The so-called winner is asked to deposit transport and service charges in a bank account. The amounts deposited by the people are immediately withdrawn, sources said.

There are real estate schemes/projects soliciting investors to purchase properties in Pakistan by promising high gains and abroad by promising residency permits as well. The projects/ properties exist only on paper. After obtaining sufficient funds from investors, the cheaters disappear.

Relief/charity Scams in which potential donors are contacted by strangers/unreliable persons through unsolicited e-mails, phone calls, SMS or other means to deposit money into a bank account or supply personal hank account details for cheating and personal gains.

There are fraudulent non-corporate entities active, portraying itself as a corporate body doing business without any legal structure enticing general public to invest/purchase their unauthorized goods on subsidised rates, sources added.

Following is the text of the press release issued by the SECP here on Tuesday:

A   high level meeting was held at the SECP office today.  The representatives of the Securities and Exchange Commission of Pakistan,  State Bank of Pakistan, National Accountability Bureau, Federal Investigation Agency, Financial Monitoring Unit and the  federal and provincial police  agreed  to devise a  comprehensive strategy to combat illegal business activities, including Ponzi and pyramid schemes, carried out by companies and unregistered entities.

“The effects of fraudulent businesses can be devastating, robbing people of their hard-earned money. Through our collective and sincere efforts, we need to create a society that has zero tolerance for fraudulent businesses. In order to achieve this objective, we urgently need to have a new strategy. While emphasized the need for developing a national anti-fraud strategy, he said that the coordination mechanism should be institutionalized by setting up an all-encompassing anti-fraud body like the National Fraud Authority of the UK. Tahir Mahmood, the SECP Commissioner, said on the occasion.

The SECP Executive Director, made a comprehensive presentation on ‘Combating Fraudulent Businesses Together’. He elaborated on various frauds encountered in near past such as forex companies, multi-level marketing, illegal deposit taking, prize schemes etc. He emphasized the need for developing a whistle-blowers’ hotline and rapid proactive approach.  Spot it - stop it, should be the slogan of this strategy, he said.

The participants of the meeting deliberated on ways of preventing illegal business activities, including Ponzi and pyramid schemes. They unanimously agreed on the need for a new strategy to combat all kinds of business scams. Some participants said that in addition to amending old laws, there was a need for a new law to deal with fraudulent businesses. 

The meeting was organised to achieve synergy to prevent fraudulent business activities aimed at cheating the public. It agreed on sharing of information to identify and prevent business scams. It identified various areas of common interest, including intelligence sharing, and training of investigators. 

The participants suggested media anchors should also be made part of committee. A participant expressed the view that Nadra should also be involved in this effort. It was decided that the SECP would request various law enforcing and investigating agencies to nominate focal persons for coordination.

In 2003, the SECP had received many complaints regarding fraudulent businesses. Consequently, it formed a committee comprising representatives of the SECP, State Bank and NAB. Now more stakeholders such as the FIA, FMU and police have been made part of this initiative, SECP added.