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Logo of Phnom Penh Post newspaper Phnom Penh Post - SECC targets investor scams

Traffic passes the Securities and Exchange Commission of Cambodia in Phnom Penh’s Sen Sok district
Traffic passes the Securities and Exchange Commission of Cambodia in Phnom Penh’s Sen Sok district yesterday. The commission said it is investigating unlicensed investment schemes. Hong Menea

SECC targets investor scams

The Securities and Exchange Commission of Cambodia (SECC) is investigating a rise in fraudulent get-rich-quick schemes that prey on Cambodian investors, the market watchdog said yesterday.

Unlicensed investment schemes operating inside Cambodia will go under the SECC’s microscope, while multilevel marketing firms that appeal to vulnerable investors with promises of huge profits for little investment will also be scrutinised.

“If we have not allowed any company to operate (in Cambodia) and there are some doing this secretly, the consequences of this can destroy the confidence of the public on the (capital) market,” Seang Thirith, director of the SECC’s legal affairs department, said yesterday.

In a statement on their website, the regulator calls on consumers to be wary of investing in such companies.

“The SECC would like to appeal to the public to be cautious in putting money in any form of investment like a CIS (collective investment scheme) and network marketing,” the statement reads.

The SECC statement makes reference to US-owned TelexFree, which was charged last week by the US Securities and Stock Exchange Commission with operating an elaborate pyramid scheme.

TelexFree, which has unlicensed operators in Cambodia, advertises voice over internet protocol (VoIP) calls as an alternative to landline telephone services.

People invested in the company were promised returns of up to 200 per cent annually for simply posting TelexFree advertisements online and recruiting new members, according to an April 17 statement by the US commission.

The US regulator alleges that TelexFree, in a “classic pyramid scheme”, made just $1.3 million from August 2012 through to March 2014 through VoIP services, which accounted for barely 1 per cent of the $1.1 billion it promised to investors.

“This is one of several pyramid-scheme cases that the SEC has filed recently where parties claim that investors can earn profits by recruiting other members or investors instead of doing
any real work,” Paul Levenson, director of the SEC’s Boston regional office, was quoted as saying in the US regulators’ statement.

Just days before the April 15 fraud charges were laid, the TelexFree pyramid collapsed and the firm filed for bankruptcy in a Nevada federal court.

Contacted yesterday, Thea Sochet, a team builder with TelexFree in Cambodia, expressed regret over the company’s demise, but was resolute that the business model could still work.

“On my behalf, I am the one who introduced the business to Cambodia, I am not happy,” he said.

“I am really sorry as many people trust the TelexFree and could have earned profit from this.”

Sochet said he has introduced about 20 investors to TelexFree since bringing the business to Cambodia late last year. He conceded, however, that those who joined more recently would lose out on their investment.

Considered an unsustainable business model, pyramid schemes are illegal in the United States.

Participants who sign up for the money-making scheme are promised huge returns for simply recruiting new members.

In November the Post reported that US-listed Herbalife officially started operations in Cambodia at a time that its marketing practices were being challenged by former members, rights groups and hedge fund managers in the US, who alleged that the company operates as a pyramid scheme – something the company has long denied.

Herbalife announced in March that the US Federal Trade Commission had launched a probe into its business practices.

“Herbalife welcomes the inquiry given the tremendous amount of misinformation in the marketplace,” the Cayman Islands-based firm said in a March 12 statement.

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