Tuesday, 25 November 2014
"When he realised he'd lost all our money, more than $9,000 [£5,661] in savings, he had a massive heart attack," says Gita Mandal tearfully.
She pauses as grief chokes her throat mid-sentence. Gita, 55, is recounting how her husband Sunil died suddenly last year, leaving her penniless with six mouths to feed.
Gita's family is one of 300 in Daspara village, an hour's drive south from Calcutta, which were swindled in a variety of unregulated "investment" schemes that have swept across India - swallowing up the life savings of some of the country's poorest citizens.
Some estimates suggest that such Ponzi or pyramid schemes have already cost unsuspecting Indian investors $160bn.
West Bengal, where investors like Gita's husband were caught up in the biggest schemes were based, has been dubbed the "Ponzi capital of India".
As she sits surrounded by other victims, including farmers, labourers and milkmen, all of whom lost the modest sums they'd scrimped to save, Gita struggles to articulate how angry she feels.
"That money was everything to us. It came from selling our land and it was supposed to be for our granddaughters' future.
Now it's all gone - the land, the money, my husband, everything," she says.
India's new Prime Minister, Narendra Modi, has been on a charm offensive to attract global business to the country.
His government has also launched major legal, social and economic reforms at home.Complex frauds
But the scale of India's Ponzi schemes reveals the enormity of the task of protecting the country's vast illiterate, financially vulnerable population, as well as the epic loopholes in enforcement of existing law.
Ponzi schemes work by pooling money from new investors to pay off existing investors. The seemingly good returns fuel new business, but eventually most schemes collapse, leaving ruin in their wake.
Ultimately there are more existing investors to be paid than there are new investors coming in.
India's biggest Ponzi scheme uncovered so far involved more than $3bn in losses when the Saradha Group, a consortium of about 200 companies including factories, newspapers and television channels, was shut down two years ago.
The name Saradha played on messages of religious good fortune and the company used images of popular politicians and movie stars to build trust.
Its company structure was so complex that regulators took years to untangle it. It offered agents, recruited from local communities, up to 40% commissions - making them crucial evangelists for the company.
So far, according to media reports, at least 80 people linked to the scam have committed suicide. Its chief executive and other officials are in prison.
An investigation is probing the company's links with top officials in West Bengal and other states in eastern India.Regulatory failures
In neighbouring Bangladesh, ministers have raised questions on whether Saradha money was brought into their country by extremist organizations seeking to destabilise the government.
But while Saradha and other major scams have been shut down, few investors have been refunded, and experts say despite new laws, hundreds of other unregulated schemes - involving ones involving emu farms, mango orchards, fake hospitals and resorts - are still operating across India.
"We already have a total of about half a million individuals or entities that have either been indicted or been declared non-compliant by regulatory bodies," says Prithvi Haldea, who runs watchoutinvestors.com, a website dedicated to naming and shaming fraudsters.
He blames the ignorance and greed of investors seeking unrealistic returns, combined with India's regulatory framework, which is too unwieldy for the current mess.
More than 20 bodies oversee financial transactions in India, including the Securities and Exchange Board of India, or SEBI.
However in August, SEBI was given permanent powers to search companies, seize records and property, freeze assets and fast track investigations and prosecution.
So far, with its new powers, SEBI has issued orders against some 40 companies, compared to only a handful last year.
Although SEBI did not respond to numerous interview requests, they did give the BBC access to recent public awareness TV ads, which warn investors not to trust word of mouth or fanciful claims when scrutinising companies.
But according to Prithvi Haldea, India's regulatory regime is failing.
"There are too many bodies and too many gaps," he says. "They have not been empowered enough, or they're not manned well. Their investigative or surveillance mechanisms are poor, so they are not able to deliver."Lack of bank accounts
In central Calcutta, more than 200 people who lost their money in a variety of companies, block traffic as they protest at both the state and central government's response to their plight.
Despite arrests, continuing investigations and a state commission formed to probe the situation, few victims have seen their money returned.
"Hundreds of thousands of people have been cheated. It has totally been endorsed by this state government," says Sujan Chakraborty of the Chit-Fund Sufferers Unity Forum, which represents the victims.
"It's a very precarious situation. There are still lots of scams. How many? Nobody knows. Nothing has changed."
When it comes to the proliferation of scams, there is another elephant in the room.
Currently, more than half of India's population has no access to banks. Prime Minister Modi's Jan Dhan Yojana scheme, or Bank Accounts for All, aims to rectify that, by streamlining procedures and reducing the onerous paperwork needed to access accounts.
According to the government, 64 million people have opened new accounts so far, a tenth of those who lack accounts overall.
For victims like Sanjib Naskar, 27, who works in a guesthouse in Kolkata, it is too little too late.
He lost more than $3,000 - saved over seven years - to a bogus investment scheme precisely because he lacked the ability to open a bank account. Ponzi schemes offered him a convenient alternative.
"The agent would come from my village all the way to Calcutta to collect my savings because he knew I had nowhere to keep it safe," he says.
Despite the prime minister's drive to make accounts easier to open, Sanjib says rural banking remains problematic.
"Banks in villages are no good, there are so few to begin with. Villagers are illiterate and depend on bank clerks to help them.
"But the clerks deliberately take their time and make people wait all day, or tell them to come back later," he says.Tougher deterrents needed
Prithvi Haldea, who tracks investment fraud, also blames the lack of political will to prosecute fraudsters, as well as a worship of entrepreneurs.
"Because we were a capital starved country, we put people who set up companies on a pedestal. They are our gods.
"They are the providers of employment, capital and entrepreneurship and therefore there has been a hesitancy to take action against them," he says.
"My view is that unless we come down very heavily on these offenders, including life imprisonment, disgorgement of all the gains they have made, giving it back to small investors - unless we create that kind of a deterrent, the human ingenuity to create new scams will continue because the greed for money is there."
Here more from Anu Anand on India's Ponzi schemes in Business Daily on BBC World Service at 08:32 GMT on 25 November 2014 - or you can download the Business Daily podcast here.
(Copyright BBC 2014)
Friday, 14 November 2014
'Shill' or 'Schill' (a.k.a. 'Outside Man'), is American slang for one of a crew of charlatans who is used to lure victims into frauds (particular rigged gambling games) by appearing to be an ordinary everyday guy in the crowd who keeps winning or (sometimes) losing. In the classic sleight-of-hand scam known as, the 'Shell Game', (a.k.a. 'Three Card Monte', 'Three Card Trick', 'Three Card Molly', 'Chase The Lady', 'Chase The Ace', etc.), victims are deceived into believing that the game is genuine and they can win, by the use of innocent-looking shills (often with highly-distracting females on their arms). In the end, no victim can win, because they are up against a team of experienced criminals who all act-out a carefully-scripted, closed-logic scenario which always inverts reality. If a losing victim begins to challenge the honesty of the front man 'Handler' (a.k.a. 'Tosser'), other muscle-bound criminals, also pretending to be ordinary members of the crowd, will falsely-accuse the victim of cheating, kick over the table, start a fight or an argument, etc., all these are pre-planned distractions created just to enable the 'Tosser' to run away with the money. Complaining-victims can also be silenced by telling them that they cannot go to the police, because they were breaking the law by gambling in the street.
Interestingly, if you disregard what finally happened to 'Enron,' then this multi-billion dollar shell game, and the multi-billion dollar version of the 'MLM Income Opportunity' fairy story entitled, 'Herbalife', are remarkably similar, in that they both survived for many years by hiding in plain sight; for right under the noses of a flock of dunces with diplomas, the market price of shares in both these effectively-valueless corporate structures was maliciously inflated, and maintained, by the constant repetition of mystifying lies, and half-truths, and the withholding of key-information.
In both cases, the racketeers behind 'Enron' and 'Herbalife' were assisted by echelons of attorneys (some of whom were former US regulators), accountants, stockbrokers, stock analysts, bankers, economists, academics, financial journalists, politicians, etc., and it became against the interests of almost everyone concerned (particularly, major investors) even to consider the truth in private, let alone face reality and blow the whistle in public.
We all now know that, in reality, 'Enron's' massive, and chronic, hidden trading losses were merely being off-loaded onto an expanding labyrinth comprising hundreds of legally-registered corporate structures, which (to casual observers) gave 'Enron' itself the appearance of perpetual expansion and prosperity.
Similarly, some of us have long-since worked out that in the 'Herbalife' racket, massive, and chronic, hidden losses have been off-loaded onto an endless-chain comprising millions of ill-informed persons whose unlawful investment payments have been laundered as 'sales,' and who have been (until very recently) arbitrarily defined in their take-it-or-leave-it contracts as 'Independent Distributors.' Yet again (to casual observers), these crimes have given 'Herbalife' itself the appearance of perpetual expansion and prosperity.
Just as in the case of 'Enron', there are far too many intellectually-rigorous observers who now know exactly how the 'Herbalife' racket has functioned. Thus, making it an inevitability that it too will eventually collapse.
Readers should also be aware that, in the late 1990s, the bosses of the 'Enron' racket hatched a deal with the bosses of the 'Amway MLM income opportunity' racket, and the two gangs then used numerous deluded adherents of the 'MLM Income Opportunity' fairy story, to commit related-frauds in California.
Although briefly-reported by the media, these particular crimes have never been fully-investigated, let alone prosecuted.
|'Herbalife MLM Income Opportunity' Tossers |
(left to right):
Michael O. Johnson Chairman and Chief Executive Officer
Brett R. Chapman General Counsel
Des Walsh President
Richard P. Goudis Chief Operating Officer
Y. Steve Henig Chief Scientific Officer
John DeSimone Chief Financial Officer
'Herbalife MLM Income Opportunity' shill, Pedro Cardoso
|Pedro Cardoso + trophy wife, Juliane.|
|Pedro Cardoso + trophy automobile.|
Deluded 'Herbalife' adherents, like Scotsman Ewan Robb, can be found on the Net admitting that virtually no one makes money from 'Herbalife,' but praising Pedro Cardoso as an 'Awsome Herbalife Leader.' The most deluded adherents have been conditioned to duplicate the example of their masters, by pretending to have access to a miraculous secret knowledge which has transformed their lives and which they are prepared to share with anyone.
Pedro Cardoso is yet another (otherwise-mediocre) little, grinning charlatan play-acting the unoriginal comic-book role of ordinary poor man: turned multi-millionaire 'MLM' superman Saviour (admired by men and desired by women) who is prepared to share his miraculous secret knowledge with anyone (for a price). However, due to the fact that they have to keep acquiring, and flaunting, the kitsch trappings of wealth (trophy: cars, helicopters, planes, yachts, houses, wives, etc.), 'MLM' shills like Pedro Cardoso invariably turn out to be living the lie that they are financially free, when they are actually up to their eyeballs in a sea of mounting debts.
David Brear (copyright 2014)
NEW YORK/SAO PAULO (Reuters - November 13th 2014)) - A director of U.S. nutrition company Herbalife is among 12 people charged in a years-old Brazilian embezzlement case that has never been mentioned in Herbalife public disclosures, according to court documents and company filings.
Herbalife has become one of America's most closely-watched companies after billionaire investors William Ackman and Carl Icahn squared off with enormous bets on its future, with Ackman betting on its demise and Icahn on its success.
Prosecutors in Brazil charged current Herbalife board member Pedro Cardoso with money laundering in 2008 for allegedly participating in an embezzlement scheme a decade earlier that siphoned 26.7 million Brazilian reais ($10.4 million) from the state government in Espirito Santo.
The 8th Criminal Court of Vitoria ordered bailiffs to serve him with a subpoena in 2010, but they did not locate him and the case remains open, according to court filings and a court source.
According to the U.S. Securities and Exchange Commission's rules on disclosure, companies must report legal proceedings that are material to evaluating the integrity of a director. Herbalife has not made the information about Cardoso's case public, according to proxy statements it has filed since 2009 when Cardoso joined the company's board.
Cardoso said in a statement dated this week emailed to Reuters by an Herbalife official that the lawsuit was a private matter dating back to 1998 which had no bearing on his work for the company, and that he was unaware he was being sought in the case.
"I have received no official notification of any kind with regards to this matter," he said.
Herbalife declined requests for additional comment. The SEC declined to comment.
The company is under investigation by the SEC, the Federal Trade Commission, and the Federal Bureau of Investigations after billionaire Ackman began publicly accusing it of running a pyramid scheme that targets minorities, a charge Herbalife vehemently denies.
After Ackman announced a $1 billion short bet against the company in December 2012, other prominent Wall Street investors took the opposite side of Ackman's position, including Carl Icahn who has since become Herbalife's biggest shareholder.
Herbalife stock has tumbled 51 percent this year on weaker-than-expected earnings and guidance.
Cardoso is a member of Herbalife's Chairman's Club of top distributors and has been a board member since 2009.
According to the court, Jose Carlos Gratz, who was president of the Assembleia Legislativa do Espírito Santo (ALES) led a criminal operation that stole public funds by pretending to allocate donations to community centers, schools and hospitals. Instead the money was used to pay for private events that had no public interest.
Gratz has been sentenced to prison time but remains free while pursuing an appeal. He said in a statement posted on a personal blog that his signatures on checks issued by the local legislature were forged.
Prosecutors say Cardoso was part of the embezzlement scheme because a firm in which he was a partner cashed an ALES check for 6,000 Brazilian reais that was signed by Gratz in 1999, according to the court documents.
If found guilty by a judge, he could face anything from a fine to up to 10 years in prison, a court official in Vitoria informed Reuters in a written statement.
The court official said authorities have been unable to find Cardoso because he has moved several times without notifying the court as required by law.
Brazil's judicial system has a reputation for being disorganized and it is common for court cases to languish for years without being resolved.
Read more: http://www.businessinsider.com/r-herbalife-board-member-a-target-in-long-running-brazilian-fraud-case-2014-11#ixzz3J1uC6sTj
I will confidently predict that Pedro Cardoso will be air-brushed out of the 'Herbalife' fairy story in the very near future.
David Brear (copyright 2014)
Thursday, 6 November 2014
More than two years ago, I posted some articles in which I clearly explained why, despite the dense wall of thought- stopping 'American Dream' jargon and imagery, the nightmare-enterprise lurking behind two so-called 'Multi-Level Marketing Direct Selling' companies, 'Herbalife' and 'NuSkin,' has been unlawful, and why, consequently, shares in these corporate-fronts for fraud, are effectively-valueless.
Faced with a further significant loss of its monopoly of information, it now seems that the Wall Street 'MLM' bubble is finally about to burst. Yet it would appear that I remain almost alone in publishing a clear explanation of why 'Herbalife,' and various other essentially-identical organizations, should be investigated, and prosecuted, not as wayward multi-national commercial companies in breach of civil legislation, but as subversive fronts for an up-dated form of ongoing, major, racketeering activity (as defined by the US federal Racketeer Influenced and Corrupt Organizations Act, 1970). That said, a significant part of my published analysis of the 'Herbalife MLM income opportunity' racket has been in broad agreement with various other informed observers, notably Robert FitzPatrick of the Pyramid Scheme Alert and, lately, Bill Ackman of Pershing Square Capital.
In December of 2012, Bill Ackman called the outrageous 'Herbalife' bluff, and announced that he had bet $1.2 billion that the company's shares are effectively-worthless, because, although legally-registered in the USA and elsewhere, 'Herbalife' is a fundamentally unlawful enterprise run by manipulative charlatans who, for decades, have been allowed to withhold key-information from the regulators and from the public, and who have never faced an intellectually-rigorous, independent inquiry.
In simple terms, Bill Ackman's central charge against the so-called 'Herbalife MLM Direct Selling Income Opportunity' is that, since common-sense, + the available independent evidence, indicates that the scheme's revenue can only have largely-derived internally from its own participants (based on their false expectation of future reward) rather than from authentic profitable external retail sales to the general public (based on value and demand), 'Herbalife' has been hiding a giant pyramid scheme in plain sight, in which billions of dollars of unlawful, losing investment payments have been laundered as 'sales,' simply by giving a never-ending chain of ill-informed participants banal, but over-priced products, of a dubious pseudo-medical nature, which virtually no rational customer would choose to buy on the open-market, and which, therefore, might as well not exist.
Like all 'MLM Income Opportunity' racketeers, the 'Herbalife' mob have never said that their company makes its profits by retailing anything directly to the general public. For decades, if challenged, they have steadfastly pretended that their company makes its money lawfully by selling its exclusive good-value products to its distributors at a discount, who then can sell these highly-desirable materials for a profit themselves, to their own customers and end-users. Amazingly, even though certain key-information would obviously reveal to regulators whether 'Herbalife' is a dissimulated pyramid fraud, the company's bosses initially responded to Bill Ackman's central charge that 'Herbalife's' profits have largely been unlawful, because they have derived from the company's own non-salaried agents, by making the extraordinary claim that they have never tracked and, therefore, do not know for sure, what percentage of their company's own products sales have actually been resold by their company's distributors, but that they believed that this percentage of outside retail sales (to customers and end users) has always been significant.
The common-sense key-questions which the 'Herbalife' bosses have always avoided answering, are as follows:
Since the instigation of your company:
- Exactly how many people overall have signed up to become so-called 'Herbalife Distributors?'
- What percentage of all these many millions of former so-called 'Herbalife Distibutors' (whom you lately have attempted to re-define as 'Herbalife Members/Customers'), have actually got back more money from the so-called 'Herbalife MLM Direct Selling Income Opportunity,' than they invested in it?
- What possible lawful reason can you put forward for withholding full, and truthful, answers to the above questions, from regulators and the public?