China-Malaysia crackdown on alleged Ponzi scheme rattles Penang's corporate, political circles

CNA

6 hours ago

GEORGETOWN: A joint Malaysia-China crackdown on an alleged multi-billion-dollar Ponzi scheme that preyed mainly on Chinese nationals has garnered the attention of both countries' top leaders, Malaysian Home Minister Saifuddin Nasution Ismail told CNA.
He added that a recent wave of arrests made by Malaysian authorities was based on information provided by the alleged mastermind of the Ponzi scheme who is being detained in China.
Speaking to other senior officials in Malaysia and other sources in Penang, CNA has also found that the crackdown has rattled the political and business establishments of the northern state, one of the country's most industrialised states.
In recent weeks, investigators from the Anti-Money Laundering Division of the Malaysian police have detained 17 Malaysians, including several high-profile real estate magnates from Penang under a crackdown operation codenamed Op Northern Star.
Malaysian police have also seized and frozen an additional RM527.5 million (US$124.5 million) in assets linked to an investment scam by the now-defunct MBI International Group, bringing the total value of assets recovered to RM3.8 billion.
The enforcement efforts were talked about by Chinese President Xi Jinping and Malaysia Prime Minister Anwar Ibrahim when Xi visited Malaysia from Apr 15 to 17, Saifuddin Ismail told CNA in a brief interview this month.
'The crackdown of MBI came up during the four-eye talks between Xi and Anwar and the Chinese are very pleased by Malaysia's efforts,' Saifuddin said.
The enforcement agencies in China consider online scams, both at home and internationally, a top threat against its citizens, the minister added.
Malaysian police have been acting on information received from their Chinese counterparts regarding central elements of the alleged Ponzi scheme from their ongoing interrogation of MBI's Malaysian founder Tedy Teow Wooi Huat.
Teow has been in custody in China since last August following his extradition from Thailand.
'Teow has been providing the Chinese with detailed information on how the MBI scam was executed and the people in Malaysia who were involved in laundering the money operation, and we (the police) are acting on it,' said Saifuddin.
MORE ARRESTS, SEIZURES EXPECTED: MALAYSIAN OFFICIALS
Government officials here noted that the MBI Ponzi scheme — which promised high returns to investors and paid out returns from monies collected from new investors before the scam collapsed — had allegedly duped more than two million Chinese depositors of over 55 billion yuan (US$7.65 billion), or roughly RM32.4 billion at the current exchange rate.
Malaysian government officials told CNA that the ongoing clampdown, which is at its initial stages and is likely to involve more arrests and asset seizures, is part of a months-long joint operation between the Home Affairs Ministry and China's Public Security Ministry.
Mohammed Hasbullah Ali, the acting director of the Commercial Crime Investigation Department of the Malaysian Police, told local media recently that total seizures from the ongoing crackdown have recovered assets valued at RM3.8 billion together with 988 bank accounts frozen.
Senior government officials told CNA that police are also working on the theory that large amounts of the money collected were salted away into the island's property development sector under a variety of allegedly doubtful business transactions, particularly advances to real estate developers struggling to obtain financing from the banking sector.
What's more, investigators are also pursuing leads that monies raised by MBI allegedly helped finance purchases of state government land for large development projects, ventures that have been key to Penang's robust economic growth over the last decade.
One project that is of interest to investigators is the proposed development on reclaimed land near an island known as Pulau Jerejak located off the coast of Penang. Pulau Jerejak bears its historical significance as a former leper asylum, a quarantine station and penal colony.
'The police have the suspected recipients and how the deals were structured to launder the MBI money, and now those people need to show the source of funds for their wealth, properties and how projects were financed,' said a Home Affairs ministry official, who is receiving regular briefings on the ongoing money-laundering investigation.
The funds were later believed to have been laundered into a host of ventures, including funding property developers in Penang and trading in equities in the local stock market to manipulate the prices of so-called penny stocks, investigators noted.
The police have not identified the people arrested, only noting that three businessmen, who have been awarded the distinguished title of 'Tan Sri' by Malaysia's King, are among those who were remanded for a period of five to eight days.
But government officials and Penang-based lawyers close to the situation noted that police scrutiny has centered on several property companies with development projects on the island.
DISQUIET IN PENANG
The high-profile crackdown, which began days ahead of the three-day official visit by President Xi to Malaysia, also proved to be a boon for the Anwar government in its increasingly warm relations with Beijing.
While the Anwar government may have earned strong credits from China in pursuing the collaborators in the MBI scheme headed by Teow, the widening crackdown has triggered a serious disquiet in Penang's business community.
Penang's predominantly Chinese business community is closely-knit, Malaysian bankers and lawyers noted.
There is also talk of possible political fallout for the Democratic Action Party (DAP), a component of PM Anwar's coalition government and the dominant political party in Penang.
A former DAP politician, who asked not to be identified, said that there are concerns among senior party leaders that the ongoing crackdown could implicate leaders from the party because of their close ties with property developers.
'DAP leaders always boasted about how the Penang property market is so robust. But now it appears that the driving factors may not have been legal,' he said.
POLITICAL AND ECONOMIC DIMENSIONS
Given the potentially troubling political and economic dimensions of the MBI debacle, businessmen, lawyers, architects and politicians in Penang have been reluctant to speak about the expanding crackdown.
One senior lawyer in the state capital of Georgetown with close ties to the DAP said: 'One out of five businessmen and professionals here, from lawyers, architects, property valuers and bankers, are in some way inadvertently involved. No one is going to talk to you.'
Chinese nationals have long favoured Penang as a tourism destination.
In 2024 alone, Chinese tourist arrivals surged by 218.9 per cent over the previous year, with over 120,000 arriving via Penang International Airport.
The unfolding MBI saga – with little-known elements unearthed by CNA from interviews with government officials, police, and lawyers familiar with the working on Ponzi schemes – has shown how fraud schemes based out of Malaysian northern island targeted Chinese and other nationals.
In recent years, ordinary Malaysians and foreigners have been burnt by several Penang-based scamming schemes, such as the now-defunct forex trading platform known as JJ Poor to Rich and Richway Global Venture, another forex trading scam that went bust in 2017.
But these pale in comparison to MBI, judging by the number of people it is believed to have allegedly defrauded and the vast amounts of money embezzled.
HOW THE PONZI SCHEME GREW
Dubbed by the Chinese media as the 'Asia's godfather of pyramid schemes', the 59-year-old Teow, who has also been called ' Jho Low 2' after the financier who masterminded Malaysia's 1MDB scandal, is no stranger to controversy.
He set up MBI, or Mobility Beyond Imagination, in 2009, a year after he established another bogus franchising outfit called Island Red Cafe, which solicited funds with the promise of high returns.
Red Cafe went bust in 18 months and Teow and his son Teow Chee Chow were sentenced to a day's jail and fined RM160,000 in 2011 after pleading guilty to two counts of cheating and misleading investors of over RM1 million in the scam.
But the blight of scandal did not deter Teow from pushing a more audacious scheme through MBI, which aggressively pushed a pyramid scheme called MFC, which was anchored on a platform for a digital coin called M-Coin that not only provided high returns allegedly but also served as currency at MBI outlets.
The scheme started in 2012 and by 2016 had expanded to Taiwan, Japan and New Zealand, according to investigators. But Teow's main target was the potential investors from China.
Penangites recall how hundreds of Chinese tourists from luxury cruise ships would disembark at the Penang jetty, before being bussed to the Penang Times Square mall in the capital Georgetown where they could purchase cellphones and other items, such as handbags and cosmetics, using M-Coin.
Today, the Penang Times Square, which was also known as M Mall, is largely deserted. Visitors are greeted by the lingering smell of strong incense burning from a Chinese temple on the ground floor that draws devotees from nearby apartment buildings.
An operator of a nearby convenience store, who only wanted to be identified as Mohan, said that M Mall was struggling since late-2016 and went completely bust when COVID-19 hit.
SOURCE OF DIPLOMATIC IRRITATION
The MBI house of cards came crashing down in mid-2017 when enforcement agencies led by Bank Negara Malaysia, the country's central bank, raided MBI's offices, seized RM688,000, several luxury vehicles and moved to freeze bank accounts linked to the group.
But the amounts seized represented a very small fraction of funds of the estimated RM30 billion that Teow had allegedly embezzled.
What's more, he, his son, another director and two companies were only fined RM20 million the following year for money laundering and other offences, causing widespread consternation among its betrayed Chinese depositors.
Teow, who had built strong connections with politicians in Penang and neighbouring Kedah, and the top brass in Malaysian police, continued to regularly shuttle between Penang and Dannok in southern Thailand, where MBI carried out business operations.
In October 2019, the MBI scandal turned into a diplomatic embarrassment for Malaysia when about 100 Chinese nationals gathered outside the Chinese Embassy in Kuala Lumpur to protest Kuala Lumpur's inaction towards Teow.
At the time, relations between the Malaysian government under Mahathir Mohamad and Beijing were testy and Kuala Lumpur paid little attention to the problem.
In late-2020, Beijing raised the ante when it issued an Interpol Red Notice for Teow.
A Red Notice issued by Interpol is a law enforcement worldwide to locate and provisionally arrest a person pending extradition.
Little happened until July 2022 when the Thai police arrested Teow in Songkhla in southern Thailand for allegedly operating an illegal online casino.
MALAYSIA WANTED CUSTODY OF TEOW: OFFICIALS
The arrest triggered a little-known behind-the-scenes fight for Teow's custody between Beijing and Kuala Lumpur, Malaysian Home Ministry officials noted.
Malaysia had made representations to get Teow extradited but China put up a more vigorous challenge with Thailand's then-premier Srettha Thavisin, who eventually allowed for Beijing to take custody of the Malaysian fraudster in August 2024, according to the officials.
According to the Chinese media, Teow, who also goes by the name Zhang Yufa, was extradited under operation 'Fox Hunt', a codename for a sweeping campaign by China's police to bring back financial crime suspects.
Teow was the first wanted person to be extradited from Thailand to China in 25 years, according to Chinese media reports.
Teow's confinement in China has now resurrected the ghost of MBI that many Malaysians believed had been buried.
It also underscores the increasingly cordial ties between the Chinese and Malaysian governments and Kuala Lumpur's role assisting Beijing in cracking down on transnational cybercrime that targets its citizens.
Malaysian government officials noted that initial discussions with China were over how depositors who were duped could at least receive a portion of their money back.
But identifying monies tied to the MBI scam is currently the priority, together with identifying individuals connected to the scam, either through receiving funds as loans or in facilitating the laundering of the ill-gotten proceeds.
'It is going to be a complicated process because it is the first time that we are working this closely with China,' said a Home Ministry official.