Due diligence, exposing the duplicity of fraudulent investment schemes

Due diligence, exposing the duplicity of fraudulent investment schemes

“Measure twice, cut once” is a well-known expression in the construction industry. However, this message applies just as much to the world of investment. Before making an investment decision, potential investors must ensure that they are putting their eggs in the right basket. Therefore, when it comes to investing, the importance of due diligence cannot be overstated, as can be seen in the following fraud case.

A case of default and money laundering allegations against  the cooperative KSP Indosurya have garnered public attention for the past few years. It is said to be the largest fraud case in Indonesian history. As many as 23,000 consumers were affected as a result of the fraud, with total losses of about IDR 106 trillion.

According to an  investigation by the Indonesian Financial Transaction Reports and Analysis Center (PPATK), the cooperative allegedly ran a money laundering and Ponzi scheme that lasted for almost a decade.

Suspicious return rates

Ponzi schemes are the embodiment of the phrase “taking from one to give another”. Ergo, the key to maintaining a Ponzi scheme is obtaining sustainable investment funds. Since 2012, the cooperative acquired substantial amounts of funding from investors by luring them in with high and fixed returns on term deposits.

KSP Indosurya promised  profit sharing with an interest of 9-12% per year, which is higher than the usual bank deposit interest of 5-7%.

Instead of operating a real investment company, the cooperative channeled the money into the owner’s shell company and personal account. To return the investors’ capital, the company relied on funds from new investors until default occurred.

Minimizing investment risk with due diligence

The basic principle of investing is normally high profits with high risks. Any promise of high profits with low risks is a red flag that needs to be followed by due diligence to mitigate the investment risk.

The fraud case of KSP Indosurya is just the tip of the iceberg. Other similar cases have occurred in the nation, such as the fraud cases of  Pandawa Lima, Koperasi BMT CSI Syariah Sejahtera, and Koperasi CSI Madani Nusantara.

These cases highlight the critical role of due diligence in making informed decisions and extenuating risks, whether in the context of investing, mergers and acquisitions, or other business transactions.

Due diligence aids the investors in understanding the organization’s business model, assessing its financial health and the overall market, as well as evaluating its management and the risks involved in the investment. In order to carry out proper due diligence, investors require an  unbiased third party with the required competence and expertise in the field.

Several investigative tasks, including verification of essential documents, interviews with sources, as well as reputation searches via online and offline media, databases, and field visits may be included in the due diligence process—the combination of which may be tailored to the client’s requirements.

Following the completion of due diligence, potential investors will get a complete report based on the results and conclusions. These facts and reports may serve as final considerations for investors deciding whether or not to invest. The risk of losing your investment may be minimized by doing thorough due diligence.



Photo by Towfiqu barbhuiyaon Unsplash

Share this post:



Jl. RS. Fatmawati Raya No. 57-B, Cilandak Barat, Jakarta 12430, Indonesia







Get the latest updates and industry insights

    Copyright – INTEGRITY – All Rights Reserved © 2024 – Privacy Notice | Terms of Services | Content Protection by DMCA.com