Someone posted a comment in my blog that a certain land banking scheme was a Ponzi scheme. This is not correct.
In a land banking scheme, the investors bought a plot of land at a certain price. They were usually told that if the land was rezoned, the value would go up two or three times. If the rezoning does not materialise, the investors have to hold the plot for many years or find another investor to take over the plot.
This becomes a Ponzi scheme only if the promoters use the funds from the later sales to pay off the earlier investors with a profit, creating the false impression that the land banking scheme was a profitable investment.
If there is no evidence that this was the practice, it would be wrong to call the land banking a Ponzi scheme.
Monday, October 5, 2009
Ponzi scheme
A good example of a Ponzi scheme is the Madoff case. Madoff collected money from investors and invested the money on their behalf. He "earned" an attractive rate of return for the investors, better than the market return.
Actually, he took money from the subsequent investors to pay the purported returns earned by the earlier investors. This leaves a big deficit in his accounts, but he manipulated the accounts to show a false financial situation.
As word went round about the attractive return, the current investors put in more money and other investors also joined in. The Ponzi scheme become bigger and bigger, along with the deficit. When the Ponzi scheme was finally exposed, the deficit was so large, that there was very little to pay back the remaining investors.
Usually, in a Ponzi scheme, the promoters were able to siphoned out the money illegally into their personal bank accounts. This increased the deficit.
Singapore has our own share of Ponzi scheme 40 years ago. It was called the Gemini Chit Fund. The situation was similar. The fund paid an attractive return to the members, using the funds of other members. The total investment grew rapidly over a period of one or two years, before it finally collapsed.
Tan Kin Lian
Actually, he took money from the subsequent investors to pay the purported returns earned by the earlier investors. This leaves a big deficit in his accounts, but he manipulated the accounts to show a false financial situation.
As word went round about the attractive return, the current investors put in more money and other investors also joined in. The Ponzi scheme become bigger and bigger, along with the deficit. When the Ponzi scheme was finally exposed, the deficit was so large, that there was very little to pay back the remaining investors.
Usually, in a Ponzi scheme, the promoters were able to siphoned out the money illegally into their personal bank accounts. This increased the deficit.
Singapore has our own share of Ponzi scheme 40 years ago. It was called the Gemini Chit Fund. The situation was similar. The fund paid an attractive return to the members, using the funds of other members. The total investment grew rapidly over a period of one or two years, before it finally collapsed.
Tan Kin Lian
Declare medical condition for insurance
Dear Mr Tan,
Could you tell me whether it is necessary to declare flat-foot and astigmatism for medical insurance like Medishield?
REPLY
You should declare them and let the underwriter worry about it.
Could you tell me whether it is necessary to declare flat-foot and astigmatism for medical insurance like Medishield?
REPLY
You should declare them and let the underwriter worry about it.
RED Portal (16) - Alert
You can sign up under Alert to be informed by e-mail about new information that is available in the RED portal.
Visit the RED portal to search for information about any condo or housing project. Look for benchmark price (BMP), amenity index (AMX) or comparables. View the actual past transactions and a price chart.
Visit the RED portal to search for information about any condo or housing project. Look for benchmark price (BMP), amenity index (AMX) or comparables. View the actual past transactions and a price chart.
Need to investigate alleged cheating
Dear Mr. Tan,
If someone make a foolish investment without proper checking and later complained to the Police (or Commercial Affairs Department) that he has been cheated, do you expect the CAD to take action? Surely the CAD has other priorities to take care of?
REPLY
You are right. The CAD cannot investigate every complaint. It has to prioritize.
If there are several complaints made against a specific company alleging cheating, the CAD should start a preliminary enquiry. If the company is acting honestly, it will provide clarification and information to convince CAD that their activities are legitimate, and the matter can then be closed.
If the company refuse to cooperate or be transparent about its activities, there are grounds for CAD to suspect possible wrong doing. CAD can take the next step to investigate, gather evidence to frame a charge against the company for violating the law. Even if the evidence is not sufficient to be used in court, the company may be prepared to change its practices and even compensate the victims.
Recently, there were a few cases in New York State where the Attorney General was able to get financial institutions to compensate the losses suffered by their clients due to doubtful business practices. This is settled without admission of guilt, avoids a lengthy hearing in court and is a good outcome.
If CAD cannot take gather sufficient evidence to take action, they can at least warn the general public to avoid these doubtful practices, so that other people will not fall into the same trap. If CAD and the Attorney General is more active, many of the investment scams and alleged cheating can be minimized. We will have a better business climate in Singapore.
Tan Kin Lian
If someone make a foolish investment without proper checking and later complained to the Police (or Commercial Affairs Department) that he has been cheated, do you expect the CAD to take action? Surely the CAD has other priorities to take care of?
REPLY
You are right. The CAD cannot investigate every complaint. It has to prioritize.
If there are several complaints made against a specific company alleging cheating, the CAD should start a preliminary enquiry. If the company is acting honestly, it will provide clarification and information to convince CAD that their activities are legitimate, and the matter can then be closed.
If the company refuse to cooperate or be transparent about its activities, there are grounds for CAD to suspect possible wrong doing. CAD can take the next step to investigate, gather evidence to frame a charge against the company for violating the law. Even if the evidence is not sufficient to be used in court, the company may be prepared to change its practices and even compensate the victims.
Recently, there were a few cases in New York State where the Attorney General was able to get financial institutions to compensate the losses suffered by their clients due to doubtful business practices. This is settled without admission of guilt, avoids a lengthy hearing in court and is a good outcome.
If CAD cannot take gather sufficient evidence to take action, they can at least warn the general public to avoid these doubtful practices, so that other people will not fall into the same trap. If CAD and the Attorney General is more active, many of the investment scams and alleged cheating can be minimized. We will have a better business climate in Singapore.
Tan Kin Lian
Law applied fairly to all
Even the new Prime Minister of Japan is not above the law. The prosecutors are willing to investigate into any alleged violation of the law.
Japan PM's office probed
TOKYO - JAPANESE prosecutors have launched a probe into the fund-raising activities of new Prime Minister Yukio Hatoyama's office, which is fully cooperating, his lawyer said on Monday.
'An investigation into the case of a (possible) violation of the political funds control law has begun,' Mr Hatoyama's lawyer, Mr Yoichi Ioroi, said in a statement.
Japan PM's office probed
TOKYO - JAPANESE prosecutors have launched a probe into the fund-raising activities of new Prime Minister Yukio Hatoyama's office, which is fully cooperating, his lawyer said on Monday.
'An investigation into the case of a (possible) violation of the political funds control law has begun,' Mr Hatoyama's lawyer, Mr Yoichi Ioroi, said in a statement.
Travel to Laos
I will be in Laos for the next four days. I believe that internet connection may be slow. I have posted a few articles that are scheduled to appear over the next few days that I am away. I may be slow in replying to e-mails.
Victim of an investment scam
Dear Mr. Tan,
If an ordinary person is the victim of an investment scam, and the police refuses to investigate the scam, what can the victim do? If the victim complained about the scam and is being sued for defamation by a big legal firm, who is to protect the victim?
REPLY
This is certainly a sad state of affairs. When a victim is cheated and is bullied in this manner, we are in an unjust society.
It is the duty of the state to protect is citizens from unfair treatment by powerful business interest. Perhaps you can see your member of parliament on this matter?
If an ordinary person is the victim of an investment scam, and the police refuses to investigate the scam, what can the victim do? If the victim complained about the scam and is being sued for defamation by a big legal firm, who is to protect the victim?
REPLY
This is certainly a sad state of affairs. When a victim is cheated and is bullied in this manner, we are in an unjust society.
It is the duty of the state to protect is citizens from unfair treatment by powerful business interest. Perhaps you can see your member of parliament on this matter?
Building up a reserve on Medishield
Published in the Straits Times Forum on 3 October.
I refer to the letter from the Ministry of Health entitled “MOH exploring Medishield coverage for congenital illnesses” (ST 28 Sep 2009).
The Ministry said, “Medishield must build up sufficient reserves to fund future claims, as it is a long-term health insurance policy.”
I am not clear why this has to be the case. The premiums charged for Medishield in each year are based on each age band and are adjusted according to the claim experience.
If there is an intent to build up a reserve to reduce the premium rates that will be charged at the higher ages, the principles and method to be adopted must be stated clearly and the stakeholders must be allowed to express their views on this matter.
Without transparency, there is a risk that some groups may be unfairly treated or a huge reserve may be built up that will never be used in the lifetime of the contributing members. This will unnecessarily add to the cost of health care.
If there is sufficient reserve in the current premium rates, it may be possible to cover the congenital illnesses without any increase in premium rates, or to reduce the Deductible and make Medisheld more attractive to the members.
Tan Kin Lian
I refer to the letter from the Ministry of Health entitled “MOH exploring Medishield coverage for congenital illnesses” (ST 28 Sep 2009).
The Ministry said, “Medishield must build up sufficient reserves to fund future claims, as it is a long-term health insurance policy.”
I am not clear why this has to be the case. The premiums charged for Medishield in each year are based on each age band and are adjusted according to the claim experience.
If there is an intent to build up a reserve to reduce the premium rates that will be charged at the higher ages, the principles and method to be adopted must be stated clearly and the stakeholders must be allowed to express their views on this matter.
Without transparency, there is a risk that some groups may be unfairly treated or a huge reserve may be built up that will never be used in the lifetime of the contributing members. This will unnecessarily add to the cost of health care.
If there is sufficient reserve in the current premium rates, it may be possible to cover the congenital illnesses without any increase in premium rates, or to reduce the Deductible and make Medisheld more attractive to the members.
Tan Kin Lian
MAS proposed a direct channel
Someone said that MAS had proposed a direct channel for consumers to buy insurance directly from the insurance company and enjoy lower cost, due to removal of commission.
I did not read this news. Can that person find out the source of this proposal and send it to kinlian@gmail.com
I did not read this news. Can that person find out the source of this proposal and send it to kinlian@gmail.com
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