Fools and their money

Multitel Corp. owner Rosario Baladjay is looking less and less of a rose with each new appearance at the Senate. Last I saw her on TV the well-coiffed hair and heavy make-up were gone, and she looked like a candidate for SARS quarantine.

Let’s hope her ignominious fall will serve as a warning to others planning to cheat people of their hard-earned money. And let’s hope this latest string of scandals involving fraudulent investment schemes will mean fewer gullible Filipinos.

Yet despite several sensational investment scandals that have erupted in this country over the years, Filipinos continue to fall for the same scams. Remember the Dewey Dee and Agrix capers? Or, more recently, the Bunny German scandal? That was just one administration ago. And yet here we are again, seeing thousands of people complaining about being cheated of their money by the glib Baladjay as well as Ervin Mateo and Ma. Teresa Santos, who ran their own investment firms.

Why do educated people fall for such schemes? Months ago Bangko Sentral ng Pilipinas officials told us alarm bells should immediately be set off when anyone offers a return on investment that is so much higher than bank rates. The BSP officials were blunt: greed and ignorance lead to financial folly.

You can’t blame the victims too much, however. Investors in these schemes are often recruited byfriends. Initial cash-outs are normally small. When investors reap 100 percent profits, they are enticed to plunk in more money.

These con games exploit the Filipino’s trusting nature and attraction to get-rich-quick schemes. Combined with a bit of plugging from irresponsible senators, scam artists can entice even military and police generals. When will we find out who these generals are, by the way?

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The thousands of victims of pyramid scams can take heart - swindlers do get convicted in this country and ordered to repay their victims.

In September 1998, the Supreme Court upheld with finality the conviction of a couple whose children had set up a foundation that was used for a pyramid scheme in Palawan. Guillermo Francisco and his wife Norma claimed they worked merely as paymaster and clerk, respectively, for the Panata Foundation. In fact Norma was the cashier and one of the incorporators of the foundation, which promised, among other things, to grant educational assistance and engage in a program to fight drug abuse in Palawan.

Government regulators should take a closer look at charity foundations. Osama bin Laden funneled money to Filipino Islamist terrorists through a charity foundation set up by his brother-in-law in Mindanao. Ousted President Joseph Estrada is being prosecuted for the alleged misuse of funds in a foundation he had set up. Foundations are used for money laundering and tax evasion. And, as the case of the Francisco family showed, foundations can be used for swindling.

Guillermo and Norma Francisco were found guilty of estafa committed by a syndicate, in violation of Presidential Decree 1689, which was passed during the Marcos regime in the aftermath of the Dewey Dee and Agrix financial scandals. The Franciscos’ case should serve as a warning to other con artists: they were sentenced to life imprisonment and ordered to repay their victims.

The couple’s deaf-mute daughter, who was listed as treasurer of Panata, was acquitted. But the other children led by Priscilla Balasa who set up the charity foundation are at large and may face stiffer punishment if ever they are caught and convicted for the pyramid scam.

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More accurately, according to the justice who penned the ruling, Flerida Ruth Romero (now retired), the foundation engaged in a Ponzi scheme.

An example of a pyramid scheme is when 10 investors each recruit 10 others, from whom the first 10 get their profits. Each of the new recruits in turn gets 10 additional investors, and so on.

The Ponzi scheme works a bit differently. It’s a con game as old as our grandparents, which should have given ample warning to potential victims. Over the years, however, thousands of Filipinos have fallen for this investment scam. It’s easy to be blinded by the promise of a fast buck.

In 1920 an Italian immigrant who ran a postal coupon enterprise in Boston devised the scheme that would eventually be named after him. Charles Ponzi sold promissory notes to the gullible, promising a 50 percent return in 45 days, or double their money in 90 days. He claimed he was sharing the 400 percent profits he was making from his trade in postal reply coupons.

In fact he was merely using money from one group of investors in his scheme to pay the maturing notes of the earlier batch of investors. The early investors got the promised returns and were happy, so word spread and Ponzi raked it in. Of course such a scheme could not be sustained indefinitely. Ponzi’s investment bubble burst after he ran out of new investors. By that time, however, he had collected a whopping $9.5 million from 10,000 investors.

Ponzi served prison terms in Canada and Massachusetts for fraud-related offenses before he was deported to Italy. In his case crime did not pay; Ponzi died a pauper in the charity ward of a hospital in Rio de Janeiro. He is said to have left behind all of $75 for his funeral.

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Will Ponzi’s life serve as a cautionary tale for Filipinos? Perhaps. Prospective swindlers will probably vow never to get caught, and to make surethey can do a Dewey Dee rather than end up like Rose Baladjay.

As for prospective investors, they will probably shrug and vow to make sure they get into the scheme first, when they are still relatively assured of big profits.

There’s a sucker born every minute, as P.T. Barnum said. Oh, and by the way, that quote in fact didn’t come from Barnum. Researchers have pointed out that it was uttered by a Barnum competitor, David Hannum, in a battle that foisted two fake giants on a gullible public.