JEDDAH, 17 March 2003 — When confronted with an offer to invest in a “business” with the promise of high and fast returns, beware. Chances are that you may lose your fortune instead.
This warning comes from some Filipinos in the Kingdom after the collapse of Multitel, a supposed Philippine investment company whose collapse has left tens of thousands of Filipinos poorer. News of Multitel’s debacle followed that of Maria Theresa Santos Trading (MTST), another fraudulent scheme uncovered by investigators in Manila.
Word has it that many OFWs in the Kingdom, through their dependents in the Philippines, are among the victims of these two scams. Of those interviewed by Arab News, few would admit to having lost by investing in Multitel but most claimed to know of friends who did. Only one man was candid enough to admit that he may never be able to recover a large part of his savings from 17 years in the Kingdom.
According to a community leader working with a bank in Jeddah, there is no need to conduct an extensive investigation to conclude that thousands of OFWs are falling into these scams.
“There are countless victims but very few would admit it. The reason is that most of these victims are professionals who are supposed to know what they are into. Who would admit to being stupid?” said the bank executive who identified himself as Jaime de la Cruz.
A bigger tragedy, he warned, would be if OFWs failed to learn from their mistakes and keep jumping into similar scams, including the pyramid schemes that are popular among Filipinos in Saudi Arabia.
“Don’t be fooled by all their proof of legitimacy. If you don’t know anything about investing or business, play safe by putting your money in a bank with a good track record,” he added.
Another OFW who worked with an investment house warned that scheming individuals would even have their company or foundation registered in the Securities and Exchange Commission (SEC), complete with “perfectly crafted mission statements to entice subscribers,” knowing that prospective investors check the SEC for their records.
However, it takes more than an SEC registration for an investment to be viable. Investors must understand the product or investment offering, its viability, and the risk involved, the source warned.
“Examining an investment is not that hard if the company is listed or traded in the stock exchange,” he added. “All an investor has to do is look at the performance of that company in the past. Nevertheless, it gets murkier with a private equity, a start up or a business still in incubation. Because they are privately owned, they have no track record.”
“For a new company, without a performance track record, the investor should be extra careful. The investor must understand clearly how the initial capital will be accumulated, the period of capital formation, who and where the accumulated capital will be kept, when the proponent will start operation of the proposed project, and when the investor expects to see a return on his investments,” advised Godofredo Luna, a finance manager.
Others warned that prospective investors must perform thorough due diligence before parting with their hard-earned money. Points to look at include the qualifications of incorporators, a business plan, financials, and exit strategy.
Knowing the qualification of people behind the investment is very important. For example if the company's objective is to put a sports company online, the incorporators must have experience in this type of business or enterprise.
“Find out if these people are also connected with other businesses or organizations, which may have a conflict of interest with the company the investor plans to put his money in. The investor must suspect something is wrong if he finds out that the officers and some shareholders started borrowing funds from the company. More so if these people started putting up their own businesses,” added Bonifacio Luna, a risk management expert.
Most of the investments opportunities offered to OFWs in the Kingdom are known to require capital buildup. Again, before investing OFWs must be warned that capital-intensive investments more often than not are fraudulent.
There have been cases where the proponents collected very small investment contributions from each OFW investor, yet were able to accumulate millions.
Some companies in the Philippines are even actively promoting their products and soliciting investments from OFWs in the Kingdom.
Pedro de Guia, an accountant, said investors must also look carefully into the balance sheet of a company.
“They should review the amounts shown in accounts like pre-operating or deferred expenses,” he said.
For those who really want to invest instead of just putting their earnings in a bank, the rule of thumb, say experts in the field, is “not to put all your eggs in one basket.”