PHNOM PENH -- The abrupt closure of a politically connected investment company in Cambodia has left investors worried they may never recover their money -- and turned a spotlight on the country's nascent derivatives market.
GoldFX Investment, which says it earns returns for investors through foreign currency trades, announced a "temporary" suspension of operations in March but has yet to resume service.
GFX, as it is also known, is blaming the trouble on three foreign former board members whom it claims embezzled $20 million from the company, local news outlet Voice of Democracy reported.
That explanation, however, has not satisfied investors unable to access their accounts. Many have taken to social media to demand that the company refund their cash. "This is their responsibility" GFX investor Roum, who asked his surname be withheld, told Nikkei Asia.
GFX says on its website that it has more than 30,000 clients and handles "diversified forex investments" on its trading platform. The minimum amount for an account is $1,000, and one local news outlet reported that at least $27 million was tied up in the company.
The scandal has turned a spotlight on the relatively new market for derivatives trading in Cambodia, and, experts say, highlights the risk that inexperienced investors may not understand what they are getting into.
Stephen Higgins, a former bank chief in Cambodia, told Nikkei Asia that GFX's reports of monthly 5% to 10% returns were "absurd" from a forex trader. "You don't earn that much money consistently every month from FX trading," said Higgins, now a partner at investment management and advisory company Mekong Strategic Partners. He said there are other derivatives brokers and investment companies in Cambodia that have thrown up red flags, too, such as managers who appear to have no prior experience in finance.
The Securities and Exchange Regulator of Cambodia, or SERC, began issuing licenses for derivative traders in 2016. It has sought to promote the sector to retail investors, even holding roadshows throughout the country.
Regarding GFX, the regulator released a statement telling aggrieved investors to lodge an official complaint. SERC Director General Sou Socheat did not respond to Nikkei Asia's request for comment. He told the Khmer Times last year that the derivatives market grew from $5 million in 2017 to $200 million in 2019.
A fund manager with years of experience in the region said many local forex and gold derivative traders promised returns that were "just not feasible" and bled naive investors with commissions and service charges.
Such investors "have little to no fundamental understanding of finance, and usually get talked into thinking they can get rich quick, which is nearly impossible through trading in that way," the manager said. "This is not just a Cambodia issue as well, I've seen them all over the Mekong region."
Whether GFX will face any legal or regulatory action remains to be seen. The investment company's management has political connections in a country with a "pervasive culture of impunity" for government-linked individuals, according to a recent report from the U.S. State Department.
The chairwoman of GFX, Ke Suonsophy, is married to the son of Sar Kheng, Cambodia's interior minister and deputy prime minister. She is also the daughter of Deputy Prime Minister Ke Kim Yan, a general. The company's managing director, Sar Channet, is the niece of Sar Kheng. Channet is married to Ly Sopheark, vice president of LY Hour Group, a Cambodian conglomerate with interests in banking and finance.
GFX did not respond to a request for comment. In a statement on March 31, it called on investors to join a legal case against the former board members whom it accuses of embezzlement.
Roum, the investor, said he does not believe the company's claims that it was also a victim. A medical professional in his late 30s, Roum said he invested $3,000 two years ago and had received monthly payments, but did not understand how the money was generated.
"Sometimes it was $150, sometimes $100 and sometimes less," Roum said. "They do [the trades] for you. My friend introduced me to investing. They said it was better than saving money in a bank."
He said that unless a resolution was reached, the scandal would scar many Cambodian investors. "If they can't solve the problem, people will be afraid to invest, even in good companies," he said. "It's a wound that needs to be healed."