How two savvy investors of a foreign private company lost $700k

They were promised rosy profits, but the deal lacked transparency and no agreements were inked

- Tan Ooi Boon

Two seemingly savvy investors who lost over $700,000 found out the hard way that failing to check the rosy numbers served up by promoters is often a recipe for disaster.

The main investor, a chartered financial and alternative investment analyst, thought he was onto a sure-fire winner when he was offered a chance to invest in an overseas private healthcare group. He also roped in his cousin, who was a partner in his investment firm.

The fund management company marketing the deal told them that the group had a track record of paying out a 9 per cent dividend based on its stock price, and there was a chance its value would triple when it was eventually listed on the stock exchange.

It was all so tempting that they even visited the group's head office overseas, met some key officers, and toured its hospitals and dental clinics.

So taken were they that the main investor put in over $560,000, comprising $280,000 of his own savings and loans of $280,000, while the cousin chipped in with $140,000.

DEAL NOT TRANSPARENT

There were red flags aplenty from the word go: Buying shares from a private company was risky as there was no transparency in how the stock price was determined.

The Singapore investors were sold about 196,000 shares at US$2.80 apiece but early investors had paid only US$1.

As it turned out, what they bought were not newly created shares but came from the personal stash of the company's chief executive. This begged the question: Why would the CEO sell his shares—albeit at a very decent profit—if a public listing that could substantially increase their value was supposedly just around the corner?