Cambodian financial investment company GoldFX Investment announced a temporary suspension of operations on March 29 after claiming staff members had embezzled more than US$20 million from the firm.
Investors were unable to access their money, in many cases their entire life’s savings, resulting in lengthy criticism of the firm on social media as well as pleas for Prime Minister Hun Sen’s intervention to sort out the situation.
It remains unknown exactly how much money investors have lost or cannot now access, but local media reports suggest it could be at least $27 million, if not more.
The Securities and Exchange Regulator of Cambodia (SERC), the country’s securities regulator, said in a statement on March 30 that investors should file a complaint to the regulator.
However, GoldFX is pressing investors to join them in a threatened lawsuit against the former members of the board who allegedly embezzled the money.
Some investors who oppose the joint motion have said on social media that they are struggling to find lawyers to represent them in a case against the company, fearful of the political questions the case could bring up.
It may be optimistic to expect an investigation into exactly what happened as GoldFX is owned by family members of very senior officials from the long-ruling Cambodian People’s Party (CPP).
Well connected
The chairwoman of GoldFX is Ke Suon Sophy, the daughter of former military commander-in-chief Ke Kim Yan. She is also the wife of Sar Sokha, secretary of state for the Ministry of Education, Youth and Sports and the son of powerful Interior Minister Sar Kheng.
The firm’s managing director, Sar Channet, is Sar Kheng’s niece and the wife of Ly Sopheark, vice-president of LY Hour Group, a large conglomerate.
GoldFX was incorporated in February 2015 but, like some other firms in Cambodia’s foreign exchange market, questions have been raised for years over its practices.
One anonymous investor told Khmer Times, a local newspaper, that after their initial investment of $20,000, in the first four months they received dividends of between $1,000 and $1,500 per month, but then only $100 per month afterward.
According to anecdotal reports on social media by alleged investors, they often earned as much as 10% of their investment as dividends in the early months, but then their monthly payments fell considerably. The company has blamed the Covid-19 pandemic for falling dividends.
“We obviously don’t have a picture yet of exactly what has gone on, but it does seem apparent that the only way investors were getting those returns of 5%+ per month was from the proceeds from new investors, which is the definition of a Ponzi scheme,” said Stephen Higgins, the founder of Mekong Strategic Partners, an advisory firm headquartered in Phnom Penh.
“Some of the players here were supposedly trading on behalf of their clients, and that’s what was delivering the monthly returns. But that was just nonsense, and was one the biggest warning signs that these guys weren’t legitimate,” he added.
Foreign staff?
A typical “ponzi scheme” pays new investors large dividends in the months after investment, but then consistently lowers the dividends to marginal amounts. Such schemes can only continue as long as they attract new investors and typically crash once the influx of capital ceases.
Voice of Democracy’s Khmer-language edition reported that two of GoldFX’s directors, Bun Kiririth and Chheang Christophe, filed a police complaint against three foreign members of staff, two Singaporeans and one Malaysian.
Business registration files, kept by the Ministry of Commerce and updated last August, assert that it has no foreign members of staff, although this could be a mistake in record keeping.
A more recent report suggested GoldFX was filing complaints against ex-board members for allegedly embezzling about $20 million.
“Trading operations have been at a loss, and some posts on social media have been accusing, blaming or lying that the company is making excuses and avoiding compensation to clients,” a notice by the company stated.
It asked clients to either contact the firm or “join with the company with the aim of taking legal action to demand and get back what was lost.”
A report by Voice of Democracy, a local newspaper, quoted investors who were skeptical of why they were being asked by the company to sue its former staff, rather than the firm taking responsibility itself for their lost funds.
Duong Dara, an assistant to Hun Sen who manages the Prime Minister’s Facebook page, said in a post on April 1 that he has received 1,552 petitions from apparent investors, as well as documents from GoldFX’s directors.
Political-business elite
This may insinuate that the government does not want this case to go through the courts and, similar to other potentially embarrassing cases for the political-business elite, Hun Sen will attempt to mediate a solution between the parties.
Sources who spoke anonymously raised doubts about how involved Ke Suon Sophy and Sar Channet were in the firm’s operations. Their profiles on GoldFX’s website do not mention their other business experience and only references their familial relations, which is probably intended to boost the firm’s reputation, sources said.
Chheang Christophe – who was listed as GoldFX’s CEO in 2018, although one source believed he was no longer in that role – was appointed as an adviser with the rank of Secretary of State to Heng Samrin, president of the National Assembly and one of the ruling party’s grandees, in 2018.
According to company records, his only other directorship is of Minerex International, a brokerage for cryptocurrency, according to its website, of which most pages are inactive.
The GoldFX website claims they have almost 31,000 clients and have completed more than 23 million transactions. Since a minimum of $1,000 is needed to open an account with the firm, if its figures are correct then at the bare minimum $31 million has been invested in the company.
GoldFX’s financial problems are a major embarrassment for an entrenched political-business family.
Sar Sokha, the interior minister’s son, was listed as a director of the Grand Phnom Penh Golf Company. Other directors include his wife, Ke Suon Sophy, of GoldFX, as well as Ke Suon Sophea and Ke Suon Sopheab, Suon Sophy’s siblings.
Family affair
Ke Suon Sophy (also spelled as Ke Suonsophy) is formally listed as the chairperson of the board of three firms and a director of five companies.
One of these is YLP Group, a conglomerate run by the Ke clan. Also listed as directors are her siblings and her mother Mao Malay, the wife of former military chief Ke Kim Yan.
Mao Malay is a controversial figure, having been accused of being involved in the illegal logging industry and for her role in the imprisonment of the alleged British fraudster Gregg Fryett by a Cambodian court in 2016 – a case rife with alleged corruption of the judiciary system.
A $600 million investment between YLP Group and Indonesia’s Ciputra Group saw construction begin in 2006 on the Grand Phnom Penh International City project, a satellite city development in Phnom Penh.
By 2015, however, construction was only 30% completed and development stalled for years afterward, reportedly for lack of investment.
In October 2019, YLP Group sold the project to Chip Mong Land, a subsidiary of Chip Mong Group, one of Cambodia’s largest conglomerates. Immediately afterward, the new owners began filling in a lake situated at the center of the project, which led even the wealthy, upper-class residents to stage a protest.
Ke Suon Sophy has found a chorus of support on social media, with several users posting idolatry photos of her at pagodas and boardrooms, as well as praising her apparent philanthropic efforts. They have also bemoaned her critics for rushing to lambast GoldFX for the scandal.
Shutting people up
Many have posted under the hashtag that can be translated as “trust is an important weapon in obtaining justice.”
Others have posted under the more sinister hashtag “Is it freedom of speech or a criminal offense?”, an apparent reference to investors in GoldFX who have alleged online that the firm acted improperly.
“It’s an unsubtle subtle threat to shut people up: your free speech may be turned into a defamation case, which will become a criminal offense against you,” said a Cambodian blogger, who didn’t want to be named.
It is not unusual in Cambodia for the economic elite to garner support on social media following scandals, as their wealth, high-status family and charitable acts apparently make them meritorious.
The GoldFX case also raises questions about the stability of the derivatives industry as a whole.
Reports from the SERC, the regulator that recently changed its name from the Securities and Exchange Commission of Cambodia, suggest the trading volume of derivatives in Cambodia rose from about $84 million in 2018 to more than $200 million in 2019.
It is believed to have risen again in 2020 as investors looked to move their money into financial markets as brick-and-mortar investments dried up during the pandemic.
As with almost all of Cambodia’s regulatory authorities, the line between regulation and promotion of the sector isn’t clear.
The SERC, as well as being a regulator, is also tasked with drumming up investment in the sector. On its website, it states one of its five responsibilities is to “encourage foreign investment and participation in the securities markets in the Kingdom of Cambodia.”
Sou Socheat, the director-general of the SERC, has praised new regulations his regulator has enforced over recent years, many of which have been devised with the help of international partners.
“We had investors conducting derivative trading before the market was not managed by a competent authority, but we have now prepared a proper system in managing trading activity in the market,” he said in early 2020.
But in May 2020, the SERC also greatly relaxed trading rules through an amendment to licensing requirements, in a move to “reduce the requirements on licensing and the minimum capital needed for derivative brokers,” Sou Socheat said at the time.
He added that it was aimed at “boosting investor interest in derivative trading after it gained traction last year.”
According to the SERC’s website, there are now 22 derivatives brokers organized under five separate central counterparties, institutions that facilitate clearing and settlement for their traders.
“A number of these so-called FX firms, like GoldFX, are pretty dubious. They offer consistent returns that are just not possible with FX trading,” said Higgins, of Mekong Strategic Partners.
“Should small investors [in Cambodia] be playing with derivatives? Absolutely not in my mind. The risk-return trade-off just isn’t a sensible one for them,” he added.