Annex I. Other Recent Investment Schemes
Caribbean Policy Research Institute (CaPRI), 2008, “Investigating Informal Investment Schemes in Jamaica,” (Kingston: Caribbean Policy Research Institute).
Caribbean Regional Technical Assistance Center (CARTAC), 2008, “Seminar on Understanding and Combating Unregulated Investment Schemes in the Caribbean”, web site www.cartac.com.bb.
Carvajal, Ana. Opening remarks: Understanding and Combating Unregulated Investment Schemes in the Caribbean”, cosponsored by Jamaica’s Financial Services Commission, the IMF’s Monetary and Capital Markets Department, the U.S. Securities and Exchange Commission, the U.S. Commodity Future Trading Commission, the U.S. Agency for International Development, and the Caribbean Regional Technical Assistance Center (CARTAC); see CARTAC (2008).
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)| false Carvajal, Ana. Opening remarks: Understanding and Combating Unregulated Investment Schemes in the Caribbean”, cosponsored by Jamaica’s Financial Services Commission, the IMF’s Monetary and Capital Markets Department, the U.S. Securities and Exchange Commission, the U.S. Commodity Future Trading Commission, the U.S. Agency for International Development, and the Caribbean Regional Technical Assistance Center (CARTAC); see CARTAC (2008).
Carvajal, Ana and Jennifer Elliott. “Mission Impossible: Why Securities Regulators Must Enforce the Law,” IMF Working Paper, forthcoming.
Central Bank of Lesotho, 2008, Press Conference Summary—MKM/Star Lion, September 23, 2008, web site www.centralbank.org.ls.
Eastern Caribbean Securities and Regulatory Commission, 2008, web site www.ecsrc.com.
Financial Services Commission of Jamaica, web site www.fscjamaica.org.
Financial Services Regulatory Commission of Antigua and Barbuda, web site www.fsrc.gov.ag.
International Financial Services Authority of St. Vincent and the Grenadines, web site www.svgifsa.com.
International Monetary Fund, 2008, “Jamaica: 2008 Article IV Consultation Staff Report”, IMF Country Report No. 08/199, Washington, DC:, pp. 16.
Soonthornsima, Wipada, Philip Bartholomew, and Mary Zephirin, 2009, “IMF Advice Helps Fight Financial Fraud as Schemes Multiply” IMF Survey, February.
Supreme Court of the Judicature of Jamaica, 2006, “Claim No. 2006 HCV 01365 between OLINT Corporation Limited and David Smith versus the Financial Services Commission” and judgment dated January 10, 2008.
Supreme Court of the Judicature of Jamaica, 2008, “Claim No. 2008 HCV 01365 between OLINT Corporation Limited and National Commercial Bank Jamaica Limited”.
United States Attorney for the District of Oregon. Press Statement: “Four sentenced to jail in massive fraud case”, August 27, 2007.
United States Commodity Futures Trading Commission, web site www.cftc.gov.
United States Securities and Exchange Commission, web site www.sec.gov.
Vander Nat, Peter and William Keep, 2002, “Marketing Fraud: An Approach for Differentiating Multilevel Marketing from Pyramid Schemes,” Journal of Public Policy and Marketing, Vol. 21, No. 1, pp. 139–51.
Verdery, Katherine, 2005, “Faith, Hope and Caritas in the Land of the Pyramids: Romania, 1990 to 1994” Comparative Studies in Society and History, Vol. 37, No. 4, pp. 625–69.
Wynter, Brian, 2007, “Opening Remarks: Public Forum of the Financial Services Commission on The Role of the Investor in Investment Schemes”, Kingston, Jamaica.
This paper incorporates material prepared by a team consisting of Hemant Shah, Philip Bartholomew, Ana Carvajal, Anna-Maria Kokenyne Ivanics, and Virginia Rutledge. It also draws upon presentations at an October 2008 seminar on “Understanding and Combating Unregulated Investment Schemes in the Caribbean”, which was cosponsored by Jamaica’s Financial Services Commission, the IMF’s Monetary and Capital Markets Department, the U.S. Securities and Exchange Commission, the U.S. Commodity Future Trading Commission, the U.S. Agency for International Development, and the Caribbean Regional Technical Assistance Center (CARTAC); see CARTAC (2008). The authors also thank Paul Cashin, Luis Cortavarria, Alfredo Cuevas, Hamid Davoodi, Chris Faircloth, Enrique Flores, Thomas Laryea, Isaac Lustgarten, Guy Meredith, Thordur Olafsson, Wendell Samuel, and Therese Turner-Jones as well as seminar participants at the Caribbean Development Bank and Eastern Caribbean Central Bank for helpful comments on earlier versions of the paper. The paper covers developments to March 31, 2009.
Those cases raise additional issues in relation to the adequacy of the regulation and supervision of licensed institutions in off-shore jurisdictions. However, this paper focuses on unregulated schemes, how they can be used as a conduit for investment fraud and how regulators can address such problems.
Bailouts appear to be rare; governments bailed out depositors in two Ponzi schemes, involving Dafiment Bank in Serbia and the TAT savings house in Macedonia, both in 1993.
There is anecdotal evidence that some of the schemes presented below diverted deposits and increased NPLs, but not to the extent of posing a systemic risk.
One of the co-authors of this paper, Brian Wynter, was Executive Director of Jamaica’s Financial Services Commission (FSC) until December 2007; he was not involved in preparation of this section of the paper. Sources for this section include FSC press releases and public notices, court documents, FSC presentations in CARTAC (2008), and newspaper accounts.
Major Neil Lewis worked with several religious organizations, including Operation Save Jamaica and Family Life Ministries.
See “Football’s Perspective on the Cash+ Debacle,” The Gleaner, April 19, 2008. The MMM scheme in Russia employed similar techniques: it financed the 1994 World Cup soccer team, and financed free days on the Moscow subway.
See “OLINT starts foundation with US$1m to help needy Jamaicans,” The Jamaica Observer, December 4, 2007, and “Hotshot Traders,” The Jamaica Observer, January 25, 2008.
See “World Wise sponsors Miss Jamaica Universe 2008,” The Gleaner, January 7, 2008.
See “OLINT Funded the JLP, PNP”, Sunday Herald, July 26, 2008. In other cases, schemes have also sought to use political connections. For instance, the Romanian Caritas scheme which collapsed in 1994 obtained an office in city hall from the Mayor of Cluj-Napoca, who was also a losing presidential candidate.
The FSC issued cease and orders against OLINT, LewFam and Cash Plus, as described below, and also against World Wise in August 2008.
In addition to the Cash Plus notice which will be discussed below, the FSC issued public notices in regard to Swiss Cash (July 2007), World Wise Partners Limited, Higgins Warner (both October 2007), Capital Blu, and PFG Best (both March 2008).
The seizure of documents was the basis for an unsuccessful court action by OLINT and LewFam to have the documents returned before the 30 days allowed by the SA and to prevent the FSC from carrying out any further searches. OLINT also sought to recover damages allegedly caused by the FSC searches.
The Supreme Court is the court of first instance in Jamaica.
According to court documents, Hill and his collaborators had allegedly defrauded U.S. investors of about US$8 million. In addition, his conviction on a Texas mail fraud reportedly entailed a cost to taxpayers of more than US$100 million.
See “Clarke, Bunting slam forex traders; investment banker compares operation to lottery game,” The Gleaner, November 1, 2006.
In May 2008, he sued Cash Plus Limited for the repayment of a J$117 million (US$1.5 million) loan at a monthly interest rate of 10 percent.
Sources for this section include country authorities, the Eastern Caribbean Securities and Regulatory Commission, scheme web sites, and newspaper accounts.
Havaway apparently informed GARFIN that it also planned to start operations in other ECCU jurisdictions.
The U.S. Attorney for the District of Oregon determined that the off-shore bank, the First International Bank of Grenada, was a Ponzi scheme; see United States Attorney for the District of Oregon (2007).
SEC v. Stanford International Bank et al in the US District Court for the Northern District of Texas.
Mexico’s bank regulator has stated that mutual fund distributor Stanford Fondos is only authorized to invest in Mexico, and that this unit is therefore unaffected by these developments.
SEC v. Millennium Bank et al in the US District Court for the Northern District of Texas.
Indeed, several Jamaican schemes emerged and collapsed as early as 2001, including the Community Partner Club, Revolving Plan, and Speedy Cash; see CaPRI (2008).
For an in-depth analysis of how countries fare in relation to preconditions for effective enforcement, see Carvajal and Elliott (forthcoming).
In Grenada, GARFIN and the ECSRC were in practice able to gather needed information, except on the off-shore operations of OLINT TCI.
Powers to compel the provision of documents, testimony and other information under pain of prosecution.
Red flags for possible investment fraud identified by the SEC and CFTC include promises of high return, guarantees, low risk, availability only to members, lack of registration, lack of financial information, affinity frauds aimed at religious or ethnic groups; lack of clear and detailed explanations; lack of background information on promoters; and pressure to reinvest. The Caribbean experience with fraud based on claims of foreign exchange trading is not unique: the U.S. Commodity Futures Trading Commission reports that in a recent period it filed 80 enforcement actions in which investors lost over US$300 million.
For example, the scheme in St. Lucia mentioned above was identified through an Internet search.
The Caribbean jurisdictions which are signatories to the IOSCO MoU are Bermuda and the British Virgin Islands.
SEC v. Madoff, et. Al., No. 8 Civ. 10791 (LLS) (Docket No. 8).
Technically it was a “reposicion” since it was heard by the same authority that issued the initial resolution.
The bill increased the penalty for collecting money from the public in a massive and habitual manner and made the failure to report to the regulatory agency by non financial institutions a criminal offense.
Administrative intervention is a legal mechanism similar to conservatorship.
Rather than establishing a specific amount for the monetary penalties, Colombian law uses an index, the “minimum legal monthly wage”, as a way to keep their value. This is a practice common in countries that have faced inflation.