EDITORIAL: Ponzi schemes on the rise ... again

The disclosure earlier this week that Ponzi schemes are on the rise again in Jamaica should come as no surprise to anyone. These fraudulent schemes flourished during the last decade with the schemers promising investors high-yield returns, essentially by using new investors' money. The result is that when new investors dried up and old investors demanded their money the schemes collapsed.

Hundreds of Jamaicans are still reeling from the massive fallout from these schemes. And despite grand public announcements about recovering assets to pay back investors, nothing has materialised so far. Even more distressing is the fact that nothing has been done by way of prosecution or legislation to discourage the re-emergence of such schemes. Even though there were more than 20 such schemes in Jamaica, not one case has yet been brought to trial. If we needed any example of how slowly the wheels of justice turn in Jamaica, we need look no further than the Bernie Madoff case in the US. He was investigated and arrested in December 2008, convicted and sentenced in March 2009, a matter of months. Reference the Cash Plus case which came to the fore long before Madoff's case.

And even in the face of evidence that these schemes have bilked millions out of Jamaicans, there has been no initiative to introduce legislation aimed at improving investor protection for victims of pyramids and Ponzi schemes. There is a disturbing lesson here: when it comes to securities fraud, remedy is uncertain - the investor can expect no restitution and no swift justice.

Re-emergence of Ponzi schemes

Ironically, we are learning of the re-emergence of Ponzi schemes in the same week that the Americans have indicted Olint boss David Smith on fraud charges. Smith will likely be extradited to the United States to answer these charges. Albeit, he jetted off to the Turks and Caicos Islands leaving in his trail scores of 'investors' in Jamaica who had poured millions of dollars into his scheme. Are the Jamaican authorities interested in prosecuting Mr Smith?

There is every likelihood that Mr Smith's case will be taken through the American courts and disposed of long before we see any Ponzi prosecution in our local courts. So with no prosecution and no legislation, what is there to deter others from concocting similar ventures in the future?

The Financial Services Commission (FSC) did come in for sharp criticism for failing to protect investors from fraudulent investment schemes. For sure, these schemes were not registered with the FSC and they appeared to be selling securities without the legal permission to do so. It seems that the Bank of Jamaica should also share responsibility for failing to clamp down on these schemers for acting as deposit-taking institutions in breach of the law. It is somewhat ironic, too, that in the first wave of Ponzimania Brian Wynter was head of the FSC, and this time he is head of the Bank of Jamaica.

May we hope that all the legal authority at the State's disposal will be put into gear to ensure better enforcement so that investors can be protected and our financial system rendered more reliable.

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