The Association of Trust Companies Malaysia, together with Life Insurance Association of Malaysia, Malaysian Financial Planning Council and the Financial Planning Association of Malaysia, among others, are unhappy with development of cash trust (this was as reported by TheEdge).
Their key complaints are centred on extremely high returns promised by these trusts and other outfits with similar modus operandi. Many suspect this could be a Ponzi scheme. Some of these companies are said to offer returns of as high as 36% per annum.
Source:https://coingeek.com
In contrast, the fixed deposit rate of Malaysia’s largest bank by market capitalisation, Malayan Banking Bhd (Maybank), is 2.1% for a 12-month tenure, and 2.35% for five years. And in FY2021, Maybank paid out 58 sen per share in dividends, which, while considered very high, translates to a yield of 7%.
A Ponzi scheme — named after Charles Ponzi who operated a fraudulent system in the 1920’s — is an investment where depositors are promised a very high rate of return, with seemingly low or zero risk. The money ploughed in by new depositors is then used to pay returns to the earlier investors. The entire exercise snowballs until it is no longer sustainable. Trust company is then wound up, and the depositors lose their money. Some of the more famous Ponzi schemes of recent times include that of the late Bernard (Bernie) Madoff, who was sentenced to 150 years in prison for financial fraud in 2009. He was supposed to have US$65 billion in assets under management, but there was actually very little left.
A cash trust is created when a sum of cash is placed in a trust, and the beneficiary or beneficiaries can tap on to the cash trust for emergencies, including for legal expenditure while waiting for an insurance payout, or pending an inheritance claim. A unique feature of a cash trust, it states, is that it will not be frozen upon the cash trust creator’s death, and that cash in the trust is still accessible subject to terms and conditions. The company in question also claims to have more than RM2.5 billion in assets under trusts, and that it has been operating for more than 30 years.
Another company with a similar business model promises payouts of 12% per annum but requires a minimum placement of RM250,000. However, it is not clear if the company’s subsidiaries were profit making even to sustain such a payout. It is understood that this company changed auditors three times in four years. According to TheEdge, source familiar with the cash trusts operations said that in some cases, companies operating such schemes are well connected. That makes them more brazen.
Malaysians are ‘creative’ people. The former PM and J. Low showed the way to global recognition. Now we have others who operate with impunity. The core problem is returns for fixed/savings deposits. It is low or negligible (esp. savings deposits). So greed will set in to try to secure returns from other ‘credible’ schemes. In addition, regulatory authorities are conveniently by-passed or have no jurisdiction over their operations. Also, some political masters provide ‘cover’ for such schemes. When will we learn? Until integrity, honesty and accountability are a by-word in our lives!
Reference:
Several cash trusts said to be Ponzi scheme, TheEdge CEO Morning Brief, 24 May 2022
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