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The thought process of EcoHouse scam victims.

Saturday, August 16, 2014

Remember Profitable Plots? It was a huge Ponzi scheme and money paid by Singaporean investors were used to pay investors in the U.K.

Timothy Nicholas Goldring, 60, was sentenced to seven years.

"Investors lost some $3.1 million in the Boron bonds scheme between November 2008 and August 2010. The two directors of land banking firm Profitable Plots promised 12.5 per cent in returns within six months. Most of the money ended up being used for unrelated purposes, including paying off debts to investors from the firm's UK business."

Source: AsiaOne, June 2014.

EcoHouse Group was international too and there were investors who gave money to EcoHouse in the USA as well:

Click to enlarge

Source: Alternative investments.

The blogger and investor has woken up to the fact that it is a scam, I believe.

I share this because I think it is useful to see what an average and reasonably intelligent investor's thought process might look like before he plonked down not an insignificant amount of money in an investment proposed by EcoHouse.

In summary? The investor

1. Liked the promise of very much higher returns.
2. Liked the relatively short investment horizon.
3. Noted a booming economy.
4. Noted the purported track record.
5. Noted the purported backing by the government.
6. Noted the purported 100% security of the investment.

EcoHouse Group was an elaborate scam and they knew how to push all the right buttons to get people to part with their money.

Most investors sucked in by the scam are probably swayed by points 1 and 2 above and were just nudged into the cooking pot by points 3 to 6. They probably didn't even bother verifying the truthfulness of points 4 to 6.

To me, all the justifications made to invest in projects by EcoHouse should have taken a back seat because the most important question to ask should have been:

"How in the world is your company able to pay me XX% per annum when the properties are still being built and not generating any income?"

Now, if we should be approached by salespeople or "advisors" promoting similar investments and I dare say that there are still quite a few around, what should we do?

"Seek as much transparency as possible. If they do not understand exactly how a manager is making money, do not invest. If there is a secret process that cannot be explained, run."

Samuel Israel, hedge fund manager of a Ponzi scheme.

Related post:
EcoHouse: Questions we must ask and people I detest.


AK71 said...

I like this comment on my FB wall by Kelvin Tan:

"From the Roy Ngerng's saga, I realized there are many Singaporeans who do not understand the term "risk premium".

"When I hear Roy say that "Temasek earns 16% interest but CPF only gives us 2.5% interest", I get amused at the way the term "interest" is abused.

"In that blog, the writer also stated that Eco-House is paying 20% interest rate in a year and I also wonder whether he knows the difference between expected return and risk free rate.

"In this aspect, maybe a short time playing poker online would benefit them. They will realized that, "Hey my expected win-rate is supposed to be 2 Big Blinds per 100 hands, but man, I cannot take the huge downswings in the first million hands that I play"."

dorshii korshii said...

Hi Ak71

These fraudsters are small players compared to the too-big-to-fail banks who rigged LIBOR, forex, and cheated billions of $$$ without much impunity. These banks are walking away from their criminal activities by paying fines in place of prosecution. Shame on them, YES and it seems these much bigger fraudsters have not educated greedy investors a teeny weeny bit. To them, their share of angst.

AK71 said...

Hi dorshii,

A reader recently shared this with me:

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." Henry Ford.


pf said...

I shall share another quote....not sure from who but heard from my senior during first years at work.

People die either from ignorance or stupidity.


Actually, this is why i don't really believe that investing for income without working. U can nv be sure what happens to the investments. And the markets out there, stocks, money, commodities, etc are rigged or "managed" by the financial institutions in one way or another. Traders work together to keep each other in the job. Politicians steer public policies one way or the other with economic considerations (including bribery). US, Europe or China economy affect SG market. Too many factors that could affect retail investors.

Anyway, 天生我才必有用, 千金散尽还复来 - 李白。Money comes, money goes....don't get too attached to it. Hee hee... :)

AK71 said...

Hi pf,

You are making me extremely worried about retiring earlier from work. I hope I won't get sleepless nights after reading your comment. -.-"

pf said...

Seriously AK...i think we all can take it easier when we r growing older. Perhaps, we can take on adjunct lecturer roles in polytechnics, drive taxi, work as security guard, sell ice cream in Swensens (my special skill from sec sch holiday job - scoop a round round ice cream)...keep ourselves active....

If you apply investment principle of not putting all eggs in 1 basket, how can your cash flow be just from investments whose value is dependent on so many factors beyond your control? :)

Anyway...i think ultimately its our attitude abt money that drives us to the way we position ourselves in money matters.

So, again I say, we shld erase the concept of retirement. Then we won't beat ourselves up over losing money, how to get the bestest return, etc....having said that, i think we shld learn to manage money, but take it easy lah....


AK71 said...

Hi pf,

After reading this comment from you, I become even more worried. LOL. ;p

I am transitioning to part time work and I might even do a bit of teaching in future. It is more to do things I enjoy in retirement than not working altogether.

My motivation to do some work during retirement is not for money. It is just to keep me moving physically. Otherwise, I might just sit in front of my PC the whole day. Not good. -.-"

pf said...

Hehehhe...just make sure the things u do and enjoy comes with some cash flow that is sustainable lor. :))

AK71 said...

From a comment I made on my FB wall:

"... ask why would such good deals descend themselves to the realms of the masses? Wouldn't some of the big boys back these deals to the hilt? Ah! Again, ask the questions that must be asked and see if the answers are forthcoming.

"With crowd funding gaining popularity, perhaps, we have to be more alert than ever."

AK71 said...

Hi pf,

Nah, in my retirement, I wouldn't want that to be a consideration anymore. I could be doing some pro bono work like giving free tuition to the poor which was something I did before. :)

To be able to do stuff because I enjoy them and not because of the income they might generate for me is one major driving force behind my efforts to build a strong passive income stream. :)

"Like Warren, I had a considerable passion to get rich, not because I wanted Ferraris – I wanted the independence. I desperately wanted it."
Charlie Munger.

pf said...

Aiyah...every quotable quote has a counter quote.

If money is your hope for independence you will never have it. The only real security that a man will have in this world is a reserve of knowledge, experience, and ability.
Henry Ford

Anyways, thats why I'm now beginning to explore 中庸之道。

AK71 said...

Hi pf,

Oh, everything in moderation is always sensible, I believe. Not easy but 中庸之道 as a philosophy in life is a good idea. Till today, I feel that it remains an ideal. Not many can truly adhere to the middle. :)

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