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September 29, 2007

170,000 Chinese Investors Lose $170 Million in Swiss Mutual Fund Scam

posted by MR WAVETHEORY at 9/29/2007 12:28:00 AM
The hot stock market in China has encouraged devious promoters to scam investors out of their retirement savings. The Swiss Mutual Fund scam is the latest and according to official sources in China scammers swindled over 170,000 Chinese investors out of $170 million. Chinese investors on average put in $1,000 each into the fund with a promise of 1% return every day or a 300% return per year. What's toogood to be true really was too good to be true! The Swiss Mutual Fund scam operated a website at http://www.swissmutualfund.biz/ and investors started to suspect foul play after the site became unreachable for a variety of excuses - due to hurricane in August and due to "websites upgrades" in September. The site never came back up in September after regulators shut it down.

What is interesting is that prospective investors suspected foul play at the Swiss Mutual Fund on Google Answers as early as November 6, 2006. One Google Answers user asked about the fund and another user with the screenname pafalafa pointed out that the fund management company was probably an "entirely fictitious company" and that the domain for the site had only been registered in 2005 even though the company claimed to be over 50 years old. Furthermore, pafalafa pointed out that the company was registered in Dominica but the company's head promoter Michael Mansfield didn't have a telephone listing in that country. The final nail in the coffin was the fact that Swiss Mutual Fund claimed to be a $9 billion company, yet it did not have a listing in Dun & Bradstreet, "And believe me, D&B isn't likely to miss a $9 billion company. "

Palafa was spot on. The Swiss Mutual Fund was a scam. In fact, over 170,000 Chinese investors got suckered into believing the Swiss Mutual Fund was real, and diligently checked the website for daily price quotes and trades. It was so pie in the sky that they all believed it. Before the website was closed on August 18, it received more than 200,000 page views per day. It also appeared to be real. Investors could cash out – not from actual stock market gains – but from new investors' money coming in. It was a classic pyramid scheme. Most investors were so mesmerized by the returns that rather than cash out, they reinvested their "profits".

Pyramid schemes like these often signal market tops. They happen because scammers know that investors have lots of cash sloshing around and are seeking high returns. Many of these scams occur because operators take the cash and try to invest it for a greater return in the stock market, only to fail when the market collapses. Whether this happened with SMF is debatable. However, if you look at the performance of the China A-share market, I suspect that the pyramid scheme collapsed because the China A-share market suffered a major correction during the summer which may have hampered the SMF from continuing to produce excess returns in the stock market. Unable to meet redemptions, the scammers probably decided to close up shop while there was still cash in the bank. This is all my speculation but it wouldn't be the first time this has happened. I can only wonder how it must feel to be scammed out of your entire retirement savings. How would you feel if you invested 80%-100% of your money into a pyramid scheme only to find out that it was a scam?

Update: The Malaysian press is reporting that one of the main figures behind the scam has been identified and 35 million malaysian ringgit have been seized. $1 = 3.4 malaysian ringgits. So the sum is around $10 million.

"The Securities Commission (SC) has achieved a breakthrough in its civil enforcement case against the Swisscash Internet investment scheme when it secured a court order to direct one of the defendants, Amir Hassan, to transfer back to Malaysia all Swisscash monies held in bank accounts overseas within seven days.

About RM35 million is currently held in six bank accounts in Hong Kong and eight bank accounts in Singapore, the SC in a statement here today."

They also identified the bosses behind the scam.

Once transferred back to Malaysia, the monies will be subject to the worldwide Mareva freezing orders pending the outcome of civil proceedings filed by the SC earlier this year against Amir Hassan, Albert Lee Kee Sien, Kelvin Choo Mun Hoe, Dynamic Revolution Sdn Bhd, Swiss Mutual Fund (1948) SA, SMF International Ltd and SMF (1948) International Ltd.

Also, be careful of these 4 websites linked to the scam: www.swisscash.net, www.swisscash.biz, www.swissmutualfund.biz, and www.swisscashguide.com.

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