Page 12 - Unlicensed Digital Investment Schemes (UDIS)

4 A SURVEY OF EXISTING RESEARCH/ an evaluation as to the efficacy of these consumer mes-
INITIATIVES ON UNLICENSED INVESTMENT saging initiatives.
9
SCHEMES Malaysia, for example had an outreach campaign to
warn consumers and which informed where specifically
To date, the global financial inclusion stakeholders have to check the registration status of an investment; also
not dedicated much attention in terms of research, nor telling consumers that the words Sharia compliant does
concerted action to unlicensed investment schemes let not necessarily mean licensed, and engaging religious
alone to UDIS. This lack of research and related failure to actors too to help inform the public. This is a very good
10
act is problematic given the significant negative impact idea, because fraudsters often use religious figures and
of these frauds on consumers, markets and financial in- gatherings to promote and sell their phony investment
clusion. schemes. The aforementioned Ugandan COWE scheme,
Failure to act may also be related to the perception for example hired a preacher’s wife to recruit investors.
that first, the buyer/consumer should beware of the She signed up the entire 700+ member congregation
dangers of Ponzi schemes, or should know better than and after the Ponzi collapsed had to move out of the
invest in such schemes. It may also relate to regulators community. Indian Ponzi schemes have often used
and policymakers feeling powerless to address the is- cricket stars and Bollywood actors (who were perhaps
sue. The author believes that both of these sentiments unaware of the illegitimacy of the offer) to promote in-
are misguided. In fact, little effort has been made to vestments which later turned out to be fraudulent. A
find new, technology based solutions, nor to under- Bangladeshi Ponzi called Destiny which stole an esti-
stand the behavioral motivations of consumers for mated USD 75 million was chaired and promoted by an
finding these schemes credible or worth the risk of in- ex-Army general.
vesting. Are consumers emotions driving the invest- Outreach and consumer education efforts must be
ment decision-making process or do we have low fi- continuous, but often warnings appear only upon the
nancial literacy levels to blame, or both? And if collapse of a particular ponzi, at which time, the regula-
emotions are driving the process, can they be coun- tor will respond by posting a warning message to con-
tered by similar emotional appeals to avoid making a sumers on its website. This is too little; and too late to be
bad investment decision? If so, how could these warn- useful to the masses who have already lost money. And,
ings be effectively crafted, and who should deliver the even its deterrent impact on other consumers likely to
message? For example, would it be effective to use invest in other similar schemes is also likely to be low,
the same public figures; like actors, sports stars and simply because they have been told that the collapsed
religious leaders to warn consumers; as those used to Ponzi was a fraud, but may not be able to identify other
pitch investments schemes? We can only speculate future Ponzi schemes as such. Further, relying solely on
regarding the answers to the above, because this type one channel of communication where there is a diverse
of research has not been done. group of consumers with varying literacy levels and who
Aside from the aforementioned IMF research on may or may not have internet access is insufficient to
Ponzis (2009); the Cornell University study on the im- protect consumers.
pact of Ponzis on investor trust which are specific to the The Working Group did identify one effective meth-
Madoff scheme, and an Emory University study on char- od of educating the public of the dangers of Ponzi
acteristics of the typical Ponzi investor, there is very lit- schemes which was a bait site online published by the
tle existing research on the matter. There are even fewer US Federal Trade Commission. The web page offered a
studies on UDIS, or on effective regulatory prevention too good to be true investment offer leading consumers
efforts. who took the bait to enter their credit card details on
The authors propose that much more research is the site to invest in the scheme; at which point the web-
needed. Firstly, research is required on the best practic- page then flashed a warning message stating “you al-
es in Ponzi prevention, including the use of new artificial most lost all of your money” and then directed the con-
intelligence technologies to better monitor markets to sumer to an educational page explaining the dangers of
identify these schemes. Secondly, research should en- unlicensed investment schemes and how to recognize
quire how the use of well framed messaging from influ- the signs of a potential financial fraud.
ential sources can warn consumers and impact behav- Another unique method of reaching consumers was
ioral change. There is also need for research to study the reported by the Nigerian security exchange commission
impact of UDIS on consumers and markets, in addition to the International Organization of Securities Commis-
to the erosion of consumer trust. Lastly, we should ex- sion that it is in the process of developing a weekly soap
plore what is the impact on financial exclusion in the me- opera in Nigeria based on Ponzi schemes to educate the
dium and long terms on consumers and markets. public about the dangers of Ponzi schemes.
With regard to consumer capability trainings or These are all good examples, but consistency may be
awareness raising, there are a few examples of how the just as important as the content, and the efficacy of
financial sector and securities regulators are trying to messaging should be measured as well so as to not
educate the public. However, again there has not been waste funds on ineffective messaging.

10 • Unlicensed Digital Investment Schemes (UDIS)