Due diligence as the forefront of preventing binary options scams

Due to the vast number of victims and massive financial and non-material losses, the binary options trading fraud case involving suspected affiliates Indra Kenz and Doni Salmanan has garnered the public attention in the past few weeks.

As we know, Indra Kenz and Doni Salmanan are two Indonesian influencers who used the strategy of “flexing” or showing off their wealth to attract public attention, so they would invest in the trading system. Finally, both of them were arrested and named as fraud suspects under the guise of Binomo.

According to med.com, the financial loss has reached 3.8 billion rupiah, and it is expected to continue rising.

Fake investment

Unlike the trading mechanism in general, in binary options, the traders can choose which assets to trade. This practice is deemed enough to guess the ups and downs of the price of an asset within a certain period of time. If they are lucky, the traders can get a profit of less than one hundred percent of the capital. However, if they are unlucky, the traders may lose their whole capital. With a mechanism like this, binary option is similar to gambling in general, except it is online.

It turns out that the European Securities and Markets Authority (ESMA) has prohibited binary options trading. The Australian Securities and Investments Commission (ASIC) also started doing the same in 2021. They consider this instrument as a “high risk” and “unpredictable” investment option.

As reported by Tempo, Indonesia itself, through the Commodity Futures Trading Supervisory Agency (CoFTRA), has never issued a permit for binary options, as it is an activity prohibited by PBK Law.

This fraudulent investment case under the guise of trading is not the first to happen in the country. Reporting from Kontan, the Secretary of the OJK Investment Alert Task Force stated that the fraudulent investment practices have caused Indonesian citizens a loss of up to 117.4 trillion rupiah in the last 10 years.

One of the reasons fraudulent investments keep repeating itself is because many people are tempted by the idea of getting a lot of money in a short time without conducting due diligence.

Due diligence as the front line

In the business world, due diligence can be interpreted as a thorough business investigation carried out before a person or a business entity arrives at a decision (investment, sale, and purchase). The goal is to find out the risk of a business that we will invest in.

The process itself can be done in various ways depending on the situation. For example, due diligence is carried out to find out whom we sell or buy the products or services to. This is to avoid all forms of fraud that may occur and harm both parties. Inspections are carried out on the documents from both parties related to the sales and purchase agreement, including inventory lists, customer lists, lease contracts, financial claims, and other necessary documents.

In the case of binary options, due diligence can actually be done as simply as doing a search on the internet using publicly available information (Open Source Intelligence/OSINT). From the search results, it is easy to find basic information, such as knowing how binary options works, what are the legal aspects, and so on.

Due diligence also enables a verification of information. For example, Indra Kenz claimed to have given a statement via his YouTube video that a binary options platform is legal in Indonesia. The truth of this statement can be verified through a due diligence process.

Due diligence can become more complex. For example, in a transaction involving a merger and acquisition of a high-risk business where a comprehensive and in-depth investigation is required, one of which is to examine the company’s reputation. At this level, due diligence becomes a challenging homework, because it requires time as well as trained and skilled human resources.

Integrity Asia has over two decades of expertise and is trusted by clients from a variety of industries to offer compliance services, including reputation due diligence. Our investigators are trained and experienced in the verification of information and the discovery of facts.

In conclusion, it is critical for a person or a business entity to conduct due diligence, since it is the first line of defense in lowering the risk of fraud in an investment decision.

Putri
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