Those alternative investment schemes
By Jamaica Observer
Sunday, July 20, 2008
In retrospect, 2008 will be seen as the year that the alternative investment scheme bubble burst. The two leading schemes were Cash Plus and Olint. And they are slowly, but surely, being revealed as fraudulent. This comes as no surprise to me. But I was astonished, when visiting Jamaica two years ago, how many informed and intelligent people were taken in.
I remember a highly-educated friend telling me, in all seriousness, that she believed in Olint because David Smith had such nice parents and was a good churchgoing boy. People rhapsodised about the high returns, as if the 10 per cent they were getting monthly was in itself a guarantee of probity.
For most of the 1990s, I served on the Treasury Select Committee of the British House of Commons. We had complete oversight over banking and financial services in Britain. We investigated the collapse of Barings Bank, the collapse of the Bank of International Credit and Commerce (BCCI) and innumerable other financial wrongdoings and scams. I took one thing away from all my years of investigating the good, the bad and the downright criminal. That is, if the return on an investment is too good to be true, it is exactly that. It is not true. This is not a difficult principle to understand. But somehow people’s greed always gets the better of them.
Of course, initially everything in the garden was rosy. Olint was hailed as “a revolution in the local investment scheme”. In 2006 the founder David Smith was lauded as “Business Personality of the year”. Cash Plus was supposed to be another financial miracle. It (apparently) acquired real assets including the Hilton Kingston and the 800-acre Drax Hall Estates. The founder Carlos Hill boasted of investments in telecoms, financial, shipping, hospitality, fuels/chemicals and real estate. He claimed that he was going to build up an array of businesses in an “expanding and diversified portfolio of companies”. But there was no real documentation about how these, and other such, investment schemes were making their money. Yet people did not seem to care. In vain did the Financial Services Commission (FSC) implore people to “research and think before they invest”.
Journalist Ian Boyne quoted one undaunted Cash Plus investor as saying “mi prepared fi go dung wid Cash Plus. Wi nah tek it out and give the banks!”
Then in December of last year the Jamaica Observer broke the story that Carlos Hill of Cash Plus was a convicted felon. The US courts had sentenced him to near 30 years in prison. He had been at the centre of a web of fraud. Amongst other things, he had set up an elaborate “pyramid” scheme which involved taking fees from customers to arrange loans which never materialised. This alone made him US$8 million. The full extent of his fraudulent activities in America may never be known because, by pleading guilty, he avoided further investigation. Ultimately he served only 10 years in prison in America and returned to Jamaica in 2002. In April this year, Carlos Hill was arrested and charged with fraud. Assistant Commissioner Green revealed that Cash Plus was just another “pyramid” scheme. Hill was using the deposits from new investors to give old investors their 10 per cent. And, weeks after the arrests, the authorities revealed that Cash Plus was basically broke.
Meanwhile, Olint was having increasing difficulty in paying out regularly to its members. And there were still no audited accounts. The Financial Services Commission (FSC) tried its best to get David Smith (the Olint founder) to provide some basic documentation about his activities. He responded by taking his operation out of the jurisdiction of the Jamaican authorities and registering it first in St Kitts and then to Turks and Caicos. Last week a joint team of US and Turks and Caicos law enforcement officers raided Olint’s offices. The US authorities have closed his offices in Miami and his assets have been frozen.
And now a key recommendation of the latest International Monetary Fund (IMF) report on Jamaica is that the government must close down all fraudulent investment schemes. In the body of the report the IMF spells out what it means. It points out that Jamaica has 35 unregulated investment schemes. It notes that they all have the same three characteristics: a monthly return of at least 10 per cent; restrictions on withdrawals and the referral of new members by existing clients.
The IMF report goes on “these attributes are also common to Ponzi schemes which inevitable collapse. Ponzi schemes do not undertake productive investments but use funds from newcomers to pay earlier entrants”.
The international authorities have made their position clear. It is time for the Jamaican government to act.