Singapore's reputation as a 'police state' must certainly be under question as a result of the Sunshine Empire fiasco.
The trial of a trio charged with running a 'Ponzi' scheme in Singapore lays bare some weaknesses in the Singapore financial regulatory regime. Under the guise of a corporate business named 'Sunshine Empire' the trio was able to amass approximately SGD 180 million by promising high returns.
Not surprisingly, like any classic Ponzi scheme, the Sunshine Empire ultimately collapsed when new funds flow dried up. What is surprising is how openly and long Sunshine Empire was allowed to solicit funds in Singapore without being shut down or prosecuted by the authorities.
Ponzi schemes are supposed to happen in other countries – not Singapore.
Singapore is a reasonably compact financial environment. Information flows are effective within a homogenous financial community. It is difficult to believe that Sunshine Empire can solicit money for fifteen months in such an environment without coming to the attention of the authorities.
The internet is flush with videos of presentations being delivered by Sunshine Empire representatives offering high returns. The explanations for the source of the returns can be called flimsy, at best.
It is all too easy to prey upon the greed of retail investors. Ponzi schemes feed on greed. Hence the many laws to protect the general public from fraudulent activities and save greedy investors from themselves.
Many months ago, at the height of the 'epidemic' I was asked for my opinion about the scheme. I am a conservative investor by nature and believe in common sense investing.
Prudence suggests that if something is too good to be true then it is generally false. If nothing else, warning lights should come in and one should investigate the investment proposal thoroughly or consult experts.
The whole episode reeked of a scam from the moment I heard of it. Anyone familiar with financial transactions will have noticed the red flags immediately. The sea of red would have encouraged bulls from Pamplona to find their way to Singapore!
Where were the authorities during the fifteen months when Sunshine Empire was raising money openly? They surely must have received information about the company's seminars and marketing efforts during this time.
The Commercial Affairs Department (CAD) ... safeguards Singapore's integrity as a world-class financial and commercial centre through vigilant and professional enforcement of the laws. It ... is an outfit with its own investigative and intelligence resources in the Singapore Police Force.
The Sunshine Empire saga is a serious lapse of enforcement and intelligence gathering by the CAD. The affair has affected many Singaporean lives. SGD 180 million is not a small sum. It is not clear how many individuals lost some or all of their savings but the number must be large.
The case is sub judice and the legal outcome is not yet known. However, what is known raises legitimate questions about the robustness of Singapore's financial enforcement mechanisms.
The law enforcement machinery has to answer not just for illegal littering and bicycling on pavements but also for the disappearance of millions by the Sunshine Empire business partners.
Trust is the bedrock of a successful financial system
A light sentence will send the wrong signal to financial market participants.
The legal framework provides the trust on which a financial centre rests. The Sunshine Empire episode has damaged the trust. A harsh punishment against the perpetrators of the fraud will go some way to restore trust.