Most people are familiar with the black comedy The Wolf of Wall Street. If not, let me give you a brief synopsis. Based on the true story of Jordan Belfort, the cinematic adaptation directed by the legendary Martin Scorsese documents how the former trader swindled thousands of investors out of more than $100 million in the 1990s as the boss of a penny stockbroker firm.
While Belfort’s rise to become a wealthy stockbroker– and subsequent fall after he was sentenced to four years in prison for securities fraud and money laundering– provides for entertaining watching, it also illustrates the pitfalls of being lured into dodgy investments through powerful marketing and persuasion.
While The Wolf of Wall Street story is a somewhat extreme case of how one can be conned out of large sums of money, it never hurts to be streetwise when it comes to your personal finances and investing, no matter how small or large the sum of money you have earmarked for investment is.
The world of investing is far from straightforward, but savvy investors are always mindful of one of the golden rules of any stock, bond or fund transaction– there is no get-rich-quick scheme. This is where newbies to the investment world can become unstuck.
Budding investors in Cambodia are faced with an additional layer of considerations if they are seeking to grow wealth through investing, due to the fact the country’s securities and investment-related sector is still evolving.
According to Joseph Lovell, managing partner at BNG Legal, securities and futures trading in Cambodia has historically been very minimal.
“Going back 10 years ago there weren’t those [trading] developments,” he said. Cambodia’s stock market only launched in 2012, whereas Vietnam opened up its country to trading activity with the establishment of the Ho Chi Minh Stock Exchange in 2000.
Now, as Cambodia’s economic development begins to strengthen, Lovell said a more advanced trading economy, albeit still very small, was starting to emerge, “with rules about futures trading, both in terms of foreign exchange and gold.”
“These avenues are just kind of becoming available as alternative investment avenues, which compare to the more traditional direct investment methods such as land transactions,” Lovell said.
While an emerging market creates opportunities for fledgling investors, Lovell cautioned that an immature market can similarly offer opportunities for unscrupulous operators.
“As you get these new, and arguably more sophisticated, types of investment opportunities it also creates a window for scammers to come into a more immature market whereby they present an investment opportunity that people in the market may not apply enough due diligence to, or have enough experience to be in a well placed position to avoid it,” he said.
Accompanying an immature market is generally a lack of consumer financial education and knowledge, as well as a lower degree of enforcement mechanisms compared to what you would see in more sophisticated markets.
With this in mind, Lovell said would-be investors contemplating parking their hard-earned money into any related investment entity in Cambodia should do prior research and due diligence.
“You have to do your homework on what you are investing in,” he said.
“Whether that’s stocks or bonds or futures contracts, you need to understand what you are investing in.
“Then you need to look into who you are investing with. So if it’s a broker or a company, you need to know who is taking your money and where that money is going.”
While Lovell admitted there was an impression that sometimes transactions in Cambodia tended to be opaque, he said questionable practices could arise in any sector.
“Whether you are buying a car or investing in gold futures, the same amount of care is required with regards to where you are placing your money,” Lovell said.
“One of the things that professional investors do is they examine very closely the risk in relation to the return. Generally speaking, the higher the potential return the higher the risk.”
While there will always be an inherent risk in all types of investments, illegitimate or not, the dangers of investing your money in dodgy schemes came into the spotlight in Cambodia in recent years thanks to a modern adaptation of an elaborate Ponzi scheme, known as ProfitPlus. Earlier this year, investors in the Phnom Penh-based pyramid scheme were left in the lurch after the firm’s entire management team fled the country, with hundreds of thousands of their investors’ dollars in tow. The scheme was set up in mid-2015 and lured investors through an advertising pitch based on the potential of earning 25 per cent in monthly dividends.
Cracking down on surrounding securities-related investment frauds and schemes in Cambodia has recently been a big focus for the country’s Securities and Exchange Commission of Cambodia (SECC), the watchdog tasked with overseeing the country’s nascent securities industry.
In February, the SECC formed a task force to crack down on unlicensed operators in the securities sector which involves a 21-member task force monitoring illegal activity in the trading of securities and investigating cases of unlicensed operators, including the source and amount of capital invested in the firms. In addition, Mok Rady, head of research for the Securities Market Development Division at the SECC, told Post Supplement the SECC had conducted a seminar educating the public on fraudulent operations and unlicensed businesses in all of Cambodia’s 25 provinces in addition to broadcasting through TV, newspaper and social media. Rady also emphasised the need to conduct thorough research before diving head first into a transaction.
“Before someone invests in any company, the investor should pay attention to the legal status of the entities, and also double check with the SECC, or via SECC’s website, which lists down all the regulated entities in the securities sector in Cambodia,” he said.
Meanwhile, Lovell recommends a first-time investor seek independent financial advice, especially for those who are not planning on winding up in a similar position to Jordan Belfort’s Wolf of Wall Street victims.
“If you are designing a personal overall investment strategy you may be well placed to speak with a certified financial analyst or someone with those types of credentials,” he said.
“You can’t treat it [investing] like a black box where money goes in here and hopefully more money comes out the other end. You really have to understand what is happening with your money.”