Unless you read the Straits Times (and my deepest sympathies if you do), Sunshine Empire might be the biggest ponzi scheme you’ve never heard of.
Between 2003 and late 2007, the company took in more than $180 million from investors in return for “lifestyle packages” and cash rebates. Of the $180 million, $115 million was paid back to investors, $40 million was handed out to directors as “interest-free loans”, and the rest – $25 million – just… disappeared.
Sunshine Empire’s main product offering – inasmuch as a Ponzi scheme can have a product offering – was what they called “lifestyle packages”. This article from 2009 explains:
In 2007, Singaporean bus driver Vincent Leo Teng Fong mortgaged his property in Malaysia for about RM250,000 ($102,475) and invested the money in more than 10 Sunshine Empire Gold Prime packages, according to a report in The New Paper.
[…] he only received one rebate of RM26,000 from the company after his initial investment.
Vincent Leo testified in court on Oct 7 that he got to know about Sunshine Empire through a friend named Sze Li. […] Sze Li and her husband, Mr Jacky Neo, said that if he bought the most expensive Gold Prime package, he could get rebates of US$700 ($981.19) to US$800 every month, and he will recoup his investment in 10 months.
Once you do all the currency conversions, that works out to about a 10% interest rate per month – nice work if you can get it, sure, but also completely impossible short of running to the casino and putting it all on zero. That didn’t stop them selling the packages to tens of thousands of gullible investors in Singapore and Malaysia.
The CEO and his wife certainly acted the part of successful businesspeople. In a remarkably uncritical interview with the Straits Times in 2007, he called himself “a legend – better than Warren Buffett” and that he “acquires companies like you go to market buying beancurd”.
The ST piece mentioned – again, uncritically, which really makes you wonder about the quality of their editing – that “Mr Phang’s vast business empire” was involved in “network marketing, entertainment, energy, real estate, telecommunications, health and beauty, insurance, and finance”.
None of it existed, though – not the Taiwanese telco business, not the 30-storey medical centre in Kuala Lumpur, and not the underwater hotel in Malacca. The only real business was the ponzi, which mostly funded an opulent office in suburban Toa Payoh and Phang’s fleet of Mercs and BMWs.
The sun set on the Sunshine Empire in mid-November 2007. On the 14th, the Commercial Affairs Department of Singapore’s police force announced that it was investigating Sunshine Empire’s business practices. That afternoon, a reporter for The New Paper went to the company’s head office and found people boxing up files and cleaning the place out, despite the queue of investors already forming outside the office demanding their money back.
Charges were laid fifteen months later, in February 2009, and an appeal to the High Court meant Phang and his wife remained free until November 2011.
The eventual recovery from Sunshine Empire was about $21 million – roughly 25 cents on the dollar for people who hadn’t pulled their money out already – and the CAD hasn’t yet determined how the funds should be distributed to creditors.
Sunshine Empire was the largest Ponzi in Singapore, but it wasn’t the first, and it was by no means the last. Singapore’s retail financial regulatory system is explicitly run on the principle of caveat emptor, and consumers are expected to be able to make their own judgments about investments. (This, incidentally, is why Singapore is one of only two countries where retail customers were allowed to invest in credit-linked structured products – and also why Singapore, unlike Hong Kong, never forced banks to collectively negotiate with investors when those credit-linked structured products blew up spectacularly in 2008.)
Since then, we’ve seen multiple fairly sizeable Ponzis come and go. The most recent large implosion was Profitable Group, which shot to fame with a farcical GBP 100mio takeover bid for Newcastle United football club in 2009 and then evaporated a year later, leaving behind $23 million worth of missing investments and a $4 million bill for advertising on ESPN/Star Sports.
The Profitable Group investigation is still in progress – and two directors have fled the country despite having had their passports confiscated.
The CAD does a fine job prosecuting this sort of fraud in Singapore, but the wheels of justice turn slowly. When the Astarra/Trio Capital fraud was discovered in Australia, securities regulator ASIC slammed down the shutters within three weeks.
Singapore’s caveat emptor regulatory regime implies that the CAD doesn’t need to be as proactive as ASIC. Even so, when firms like Sunshine Empire and Profitable Group can steal tens of millions of dollars from tens of thousands of investors over a period of years, perhaps CAD needs to be more proactive investigating potential frauds. Perhaps the MAS – which, on top of its central-banking duties, regulates markets in Singapore – needs to be empowered to do more than just publish an alert list.
Or perhaps it’s time for a root-and-branch overhaul of the entire idea of caveat emptor financial regulation. Caveat emptor does a fine job of protecting people smart enough to spot frauds, but it does a lousy job of protecting small investors, young investors, less educated investors; it doesn’t protect the people who most need protection.