Handling Ponzi Schemes

The development of ponzi schemes in Ghana dates from the 1990s with the occurrence of Pyram and others. Ponzi schemes attract patrons because people have a considerable appetite to get rich without focusing on the risk of their investments and returns on the investment. People patronise it because of the vast difference between the borrowing rate (the lending rate) and the return on investment given by the banks in Ghana. However, the two situations should not be a cause for such risky investments by the public.

It is highly likely that, given the ignorance of the people in the country as well as the refusal of the public to take serious instructions from the Bank of Ghana, the Securities and Exchange Commission and other regulators ponzi schemes will be developed in the future as the history favours that. These schemes occurred in the past with casualties which did not instruct people any lessons of their weak investment choices. The development of such schemes continues and has the tendency of recurring if proper measures are not put in place to curb that from happening.

The handling of ponzi schemes in Ghana by authorities and institutions with power to do so has been bad. The famous case of DKM in the Brong Ahafo is a case in point. For this microfinance institution, the Bank of Ghana acted wrongly and did as if DKM engaged in an acceptable business or line of businesses. The Central Bank upon the revocation of the license of the said institution, claimed it was auditing the accounts and activities of the microfinance. Meanwhile, the BoG had no right whatsoever to audit the accounts of this institution by going for its physical cash. Even if the BoG embarked on a money laundering audit, the depositors ought to have received their deposits after the said audit. In 2016, I described the action of the BoG as a breach of the auditing standards as no audit can be undertaken in this manner.

The powers and rights of such an authority as well as others are bounded by law to the revocation of the license they always issue to microfinance and other institutions. Here, clearly, the Central Bank breached standards which should be enforced by it as it regulates the activities in the financial sector. This may be the possible reason the Ministry of Finance deemed it fit to refund depositors’ money upon a successful validation. The case of DKM stands unique and different in several ways from the rest of the ponzi schemes that are developed and run in this country. The handling of the case involving DKM should be a basis for lessons to be learnt now and in the future in the financial sector.

The current reforms in the sector should consider aspects of monitoring and evaluation of the BoG to detect and plug the development of such schemes in the system. The BoG and other institutions such as the Securities and Exchange Commission upon detection of these schemes (ponzi schemes) should take determinate steps to close such schemes down immediately they are developed.

The investing public needs to learn lessons from the past and heed to the advice of the BoG and other institutions concerned with managing and controlling financial and other issues with regard to investments. The recent case of Menzgold could have been handled better if the operators were humble enough to reach a better consensus in streamlining and mainstreaming the activities into the formal financial business or other accepted businesses that are allowed in the country. The investing public needs to listen to the advice of the regulators on detecting that some activities have ponzi characteristics. The public can always save its hard-earned money by listening to the advice of the regulators of businesses in Ghana than lose them to fraudulent activities of ponzi schemers.

The regulators of business activities in Ghana must educate people on the activities of ponzi scheme institutions from time to time while the general public needs to listen without whining about the lack of profitable investment opportunities especially in the financial sector in the country. The general public must listen, a bird in hand is worth two in the bush. Ponzi schemes must be handled with care and so the owners must always comport themselves in order to regularise their activities since their collapses do not bring any fortunes to the BoG and its agents as well as the government of the day.

The use of state money to pay depositors’ funds after the liquidation of an institution with ponzi scheme activities such as that of DKM create the grounds for moral hazards and the prevention of such ill-conceived ideas to cease to exercise caution to avoid such occurrences will be difficult. The coffers of the state must be safeguarded but DKM was a test case.