How a S’pore businessman lost over $2m in haste to invest in a ‘crypto bank’

Investing in a bank seems like a sure thing because that’s where the money is, but a businessman in Singapore lost over $2 million when he took too much at face value.

He was so excited at being offered a chance to buy a quarter stake in a new offshore bank that deals in cryptocurrency that he “leapt” into it without checking if the deal was even genuine.

He believed that he was getting into a good deal as he was told that the “Royal Eastern Bank” was worth over $20 million, without realising that such numbers can be plucked out of thin air, with no genuine valuation done to support it.

In fact, one of three partners involved in selling the stake to him found it “weird” that the man transferred the initial investment sum of over $4 million to buy into it without checking the true value of the bank, or when it would start operating.

Indeed, the man had this partner, a Singaporean based in Australia, to thank for saving him from losing a further $1 million, because the partner warned him to stop more transfers after receiving a tip-off that the other two partners were embezzling money.

Describing the whole deal as a scam, the partner, who was tasked with managing the bank’s backroom operations, claimed he was also duped and had “the rug pulled out” from under him by his co-partners.

As their whereabouts were not known, the sole partner was left to carry the can and agreed to give up about $1.8 million that he received from the 2019 deal.

He managed to return about $1.2 million but when the remaining sum was not paid, he was sued by the investor.

When High Court Judge Hri Kumar Nair heard the case in early 2024, he found that the entire investment was plagued with difficulties and deception, and that there was never going to be a licensed operational bank.

The judge found that the investor had signed up and paid $4 million for the deal but was not given the promised 20 per cent stake in the bank.

On this basis alone, the investor was entitled to ask for his money back. Since the sole partner who was sued had already returned the bulk of what he took, he had to pay back only the remaining sum of around $600,000. So the investor still lost over $2 million that he had paid to the other two partners.

The case highlights three red flags that everyone should learn to spot before they put money into any investment.

‘DIY’ operations

If you are investing millions in a new outfit, you should expect to deal with third-party professionals such as lawyers and accountants who would prepare a host of documents for you to read or sign.

If your potential partners are truly serious about their business, they would surely ensure that potential investors get some form of assurance that their money would not only be safe, but would also grow as the company prospers.

In this case, the investor met only the three original partners, who appeared to do everything by themselves.

Apart from the face-to-face meetings, other discussions were done mostly through WhatsApp messages. Even when it came to payment, the investor was told to transfer the money directly to the owners’ bank account, and not to a corporate account.

As if such informality was not enough to raise a red flag, the investment agreement was even “hastily and carelessly put together” by one of the partners. Not surprisingly, there were three major errors in the document that went unnoticed when the parties signed it.

For instance, the year of the agreement was wrongly written as “2018” when it should have been “2019”.

The investor also did not spot a crucial error which stated that he had “received” his 20 per cent stake in the bank at the time of signing, yet nothing had been done to transfer the shares to him.

To top it all, he was described as the “transferor” of the shares when he should be the “transferee” for being the recipient of the stock.

Rosy financial numbers

To get potential investors to bite, most product vendors would roll out presentations that show rosy projected earnings or profits that would likely make the investors feel that they are buying into a goldmine. In most cases, the vendors would leave out any mention of potential risks and losses that can happen as well.

You should know that all projected earnings stated in advertisements or brochures are just that and, unless such returns are also stated in the contract that you sign, you should take such numbers with a huge pinch of salt.

More importantly, in the current environment which is fraught with the risk of being scammed, you should always choose to deal with reputable and licensed businesses only if you want to avoid the nightmare of losing your money.

In this case, the investor did not smell a rat even though various exaggerated and big numbers were thrown at him.

For instance, he was told that the bank had a valuation of over $27 million and that the existing partners had already committed over $20 million of their funds to it. But all these claims were just mere words, and there was no independent valuation or bank record to show that the bank already had a substantial working capital.

To lure him into the deal, the investor was also shown other financial numbers and supposed commitment to buy various assets, including million-dollar software for online banking. There was even a mention of a bank deposit guarantee worth over $2 million.

Of course, these numbers were not verified because the proposed bank did not even have a licence to operate.

Self-generated documents

You should know that some documents are not even worth the paper they are printed on because the content is unverified and cannot be used as proof to support any claim in a dispute.

This is especially so for documents created by the parties themselves without further supporting facts.

In his bid to reduce the amount that he had to return to the investor, the partner in this case produced his working spreadsheet on how he had spent about $400,000 on various expenses in setting up the bank, including office renovation, staff salaries and office equipment and computers.

But the spreadsheet was not accepted by the court because it was self-generated and was not supported by other documents such as receipts and invoices. “In other words, there is no evidence that the expenses were even incurred, much less paid,” Justice Nair noted.

Even if the information was reliable, the description of the expenses was general and vague, and could not be used to prove that these were costs that were incurred for the operations of the bank.

As a result, the court ruled that the partner had to return the remaining $600,000 that he pocketed, because the spreadsheet could not prove that the money had been spent.

If there is a lesson from this case, it is that you should always be sceptical of “good deals” that are offered to you. If the deal is so good, common sense will tell you that the sellers would keep it all to themselves instead of allowing a stranger to share their profits.

Source: Straits Times © SPH Media Limited. Permission required for reproduction.

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