Why do people keep falling for pyramiding set-ups?
We have not yet fully understood the scale and magnitude of the FrancSwiss investment scam. After a lot of speculation about how this particular operation was able to draw in so many gullible people principally from the world of show business, the investigation appears to have run into a thick wall of non-disclosure and non-admission.
Now, another “hybrid pyramiding operation” has fallen through the floor.
The NBI, in coordination with the Interpol across the region, are now trying to track down a Singaporean national named Michael H. K. Liew. Among several offshore investment companies, Liew’s Performance Investments (BVI) was reportedly able to draw in US$250 million from Filipinos.
A quarter of a billion dollars. That much of hard-earned savings, of undocumented money, evaporating into thin air in just one sting operation.
That is enough money to expand our existing microfinance facilities a hundred-fold. That is enough money, deployed more wisely, to enable ten of our 20 poorest provinces to achieve full employment.
That amount of money simply lost after Performance BVI bank accounts across the region were suddenly closed and Liew suddenly could not be found.
From what little we know of this operation, it appears that, like all pyramiding operations, Liew offered incredible rates of return for investments. The return for what is supposed to be investment in exotic financial derivatives ran in the vicinity of 1.5% a month.
Given the low interest rate regime now prevailing among mainstream financial institutions, that sort of return is indeed nothing short of fabulous. It appeals to that basic human instinct that makes all financial scams possible: greed. The greed of the indolent: those who wish to multiply their wealth without doing work.
In fact, without even trying to understand how their money is being put to work to deserve such a generous return.
Investments were drawn in through the typical pyramiding chain. Investors, having been given a taste of generous return, were asked to solicit more investments with generous commissions as an incentive.
On this basis, the scam could spread much faster than a deadly virus. The stage is quickly set for a financial plague.
Since it promises financial salvation in this life, the sense of affiliation can be more fanatical than any cult that promises salvation in the afterlife. And since it draws in people who likely do not properly declare their real net worth to the taxmen and hold money in such scale that it will attract the attention of our money-laundering authorities, the community of victims will most probably prefer enduring their loss in secrecy.
It also means, in this set-up, that the prey soon becomes party to the predator. Exploiting every vulnerability in the psychology of the greedy, Liew’s operation eventually achieves a certain degree of invulnerability: the victim would be reluctant to testify to the crime, having become party to the crime himself.
The victims, in this case, are not financially under-informed showbiz personalities who suddenly acquired some money marketing their pretty faces. These are people who very likely had a lot of money stashed in private banking accounts who could direct investments in the millions of dollars with as much discretion as is possible in the framework of existing laws.
From what we know about the profile of Liew’s victims, they are people with large established businesses. They reside in the most luxurious villages of Makati and Alabang. They most likely had voluminous funds held in private banking accounts that are easy to transfer by phone or email.
Plagues of malaria, we know, happen under certain conditions: warm weather, large pools of stagnant water and a lot of people sleeping without the protection of mosquito nets.
The present plague of financial plagues happen under a specific set of conditions: great liquidity in the financial system, the availability of private banking services, low interest rates in the mainstream banking system, some degree of economic growth that produced robust profits in open businesses and modern communications technologies that enable opportunities to be broadcast quickly and money transferred just as fast.
To be sure, regulation of investment houses could be strengthened. But there is little regulators can do against scams that operate on the fly.
There are limits to what the authorities could do. Our usual investigation agencies are not equipped to do analysis of financial adequacy of investment operations. The bank secrecy law inhibits monitoring of private investment decisions.
And then there is the final boundary: the state could never effectively legislate against stupidity.
The state could build railings to prevent people from inadvertently wandering off the ledge. But it cannot prevent people willfully climbing those railings to enjoy the experience of falling into the abyss.
Perhaps the mainstream financial institutions could help in a crusade to improve our people’s financial literacy. Corporations could help educate the public in building an ethic of hard work and sound investments.
But there is little defense against the naïve overcome by greed.