Friday, December 2, 2022

Revisiting pyramid schemes

Historically, humanity has known different financial schemes where naive investors are attracted by false intermediaries who promise a return on money, much higher than the average granted, at the time, by regulated and authorized entities to capture third-party resources and, at the same time, time, invest and/or lend it for a profit.

One of the first events of this type was the Spitzeder Case, a bank that, in 1869, offered a 10% return on investment, but the modus operandi was that it paid old investors with the savings received from new ones. they were captured. Another emblematic case was the Ponzi Scheme, a form of scam run by Carlo Ponzi, an Italian living in the United States during the 1920s.

The Ponzi Scheme was a fundraising mechanism through the promise that coupons were being acquired whose price in North America was more expensive than in other countries. So, many investors saw a business opportunity there, which led them to invest a large amount of money, hoping that these transactions would generate high profits (Fern√°ndez, M., s/f).

However, the truth was that Carlo Ponzi was not acquiring coupons, but rather the large sums of money he was capturing, allowing him to pay interest rates of up to 100% in “three months using the capital of successive new investors.” . Along the same lines, and according to the Bolivian Financial System Supervision Authority (2009), “already in 1989, William Miller, nicknamed “the 250%”, due to the high interest he offered (5% a week), he had beaten Ponzi to a similar fraud.

Another paradigmatic case was that of Bernard Maddof, an American stockbroker and investment expert. The scheme used by Maddof was similar to that of Carlo Ponzi, although the former was a businessman specialized in finance, and with two legal companies from which said scheme worked.

Likewise, the scam consisted of receiving capital in exchange for large profits that, at first, became a reality but later it became clear that it was another case of financial fraud, although in this case it involved a disproportionate sum of money amounting to more than 50 billion dollars. Another important summary was that of the American Robert Allen Stanford who, for almost a decade, raised at least 8 billion dollars from investors with the promise that they would be used to buy reliable financial instruments.

To sum it up, there are several elements common to all Ponzi scheme cases. The first of these is the promise of high returns in short periods of time, which should always be suspicious since money does not multiply even with inorganic emission. The second element is that the recruitment of new investors is always required, since the scheme requires that new people contribute more resources, while the third element is linked to the investments made by those who receive the money from the investors, which are never clear or transparent, nor do they generate the expected returns.

Based on all of the above, it can be summarized that the Mantequilla case that has been in force in recent months in the Dominican Republic is another vulgar Ponzi scheme, without the need to analyze it much, with the difference that it can bankrupt an entire small community, one of the poorest in the country, by the way. What must be remembered to the aforementioned is that, throughout history, all those linked to this type of scheme have ended up in prison, with high sentences, while others have decided to commit suicide. And the story must serve for something.

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