Full disclosure Fidel O. Abalos Ponzi Scheme: It takes two to tango

CEBU, Philippines - Intriguingly, the phrase, takes two to tango, was used in Australia in the 1930s to connote premarital sex.  Taking a different meaning, it was made popular by Al Hoffman and Dick Manning in 1952 in the song, Takes Two to Tango.  Recently, however, it takes two to tango, as provided by Wikipedia, “is a common idiomatic expression which suggests something in which more than one person or other entities are paired in an inextricably-related and active manner, occasionally with negative connotations”.  

Today, this phrase is more pronounced as some of our “get-rich-quick” enthusiasts are grieving for the loss of their hard-earned money or are spending sleepless nights staring at the prospect of losing their homes which were used as collateral to obtain money for very high-yielding investments, the Ponzi Scheme. 

Ponzi Schemes, actually, are not difficult to understand.  Commonly, all these schemes have three basic steps.  First, they convince a few investors to trust them with their money for investment purposes with beyond normal but supposedly believable interest.  Secondly, after a specified time, return the invested amount plus the agreed interest or rate of return.  Lastly, emphasizing the historical success, convince paid early investors to tell their friends of the benefits and lure them to reinvest theirs. 

However, these steps are easier said than done without the basic ingredients for a Ponzi Scheme to succeed.  There are five key elements and these are beyond normal benefits, a systematic flow of how the rates are achieved, initial credibility of company owners, pay-off of early or initial investors, and the “word-of-mouth” approach in advertising or communicating pay-offs.

Of these five, the four key elements are a lot easier as these will simply require good communication skills and great first impressions on pay-offs.  The initial credibility of the owners though is the hardest to establish.  

First, in the recent scam (Mindanao), in particular, they (scammers) promised 49% interest in 17 days.  Considering that 91-day T-bills right now earns less than 1% in a year, this yield is suspiciously high but temptingly irresistible.  Secondly, they are trying to tell prospective investors that their money shall in turn be used to purchase gold or invested in oil exploration related undertaking, thus, the higher yield. Thirdly, they showed good initial track record by paying on time the early investors.  Fourthly, they urged initial investors to tell their friends of these benefits and reinvest theirs to earn more.   

Absolutely, the most significant aspect of the scheme, the initial credibility of the business owners is not easy to establish.  For instance, in 2008 we were witnesses of how Bernard L. Madoff Investment Securities LLC pulled the biggest Ponzi Scheme in history by fooling Americans of about US$50 billion.  However, it was able to do it because it had great credibility. The founder, Bernard L. Madoff, had been in the investment business since 1960. Madoff had also been the chairman of the board of directors of NASDAQ, an American stock exchange. 

In Aman’s case (the Mindanao Scammers), no one among the incorporators/stockholders are ever known.  Therefore, the initial credibility isn’t there.  The question is, why do the victims still went for it?  The answer is very simple.  The Aman group used people of great credentials in the area.  For instance, reportedly, the group’s chairman had a picture with the mayor of Pagadian City.  That’s great packaging.  He got him as initial investor and, probably, some of the areas’ residents who are non-gullible, so to speak.  Therefore, to the naïve-minded individuals, who are they to suspect them when the mayor and a few influential or credible people are investing and are getting their returns.  

Thus, the move to investigate LGU officials, who are themselves, “investors”, must be pursued.  Absolutely, they allowed themselves to be used.  Knowing them, no one would believe they allowed it for free.  As the song goes, it takes two to tango.

For your comments and suggestions, please email to [email protected]. (FREEMAN)