Perspective
Ponzi schemes
Geoff Wijesinghe
A former Chairman of Nasdaq international stock exchange Bernard
Medoff stands accused in the New York City Federal Court of having
committed the biggest ever Ponzi scam by defrauding his clients of US
dollars 50 billion.
One of his clients, a French financier committed suicide after losing
US $ 01 million. Bernard Medoff has allegedly admitted to what the
Securities and Exchange Commission calls a 'stunning' 50 billion dollar
fraud. Investigators are trying to find out what on earth he had done
with all that money obtained under false pretences from his clients
drawn from many countries, most of them in the US and Europe.
According to the Time magazine, - in which a swindle touts outsize
returns, parries questions about legitimacy with hefty dividends and
creates the illusion of solvency by paying off early investors with
capital raised from later entrants. Ponzi schemes are named after its
infamous founder Charles Ponzi who raked in a massive US dollars 250,000
a day at the peak of his scam from 1919 to1920 where he deceived the
public into investing in bogus international postal rates scam which he
claimed would earn his clients 50 per cent profit.
While Sakvithi, an English tutor who became an inveterate gambler
diddled many an investor by operating a spurious finance company where
he resorted to the Ponzi scheme of collecting money from his clients
paying, interest to others with money taken under false pretences from
new clients. Probably his main investments were in casino gambling where
he was reported to have lost heavily. But, when things got too hot for
him he slipped out of the country leaving his minions to face the wrath
of victims in the billion rupee Ponzi scam.
But, Sakvithi was mere pedestrian to the sleek, silver haired
ebullient international fraudster and con man Emil Saundranayagam, a
well connected Sri Lankan, born in this country in 1923.
This man took Britain by storm and finally hit the world headlines as
one of the slickest international crooks. At the time he was one of the
biggest and most notorious Ponzis ever.
Hailing from a well known and well respected wealthy family in
Colombo Saundranayagam, was a haughty character who thought he could
have the world dance to his dubious schemes.
After disastrous business deals in China, Ghana and Belgium
Saundranayagam arrived in Britain at a time when the British economy was
booming, after the economic shambles left by the second world war.
This was in the 1960's and cars were being bought as fast as they
were rolling out of the factories. Having taken a close look at the
economic scene in Britain Emil Saundranayagam decided that the most
viable proposition for a Ponzi scheme was motor car insurance. Using the
cash reserves his wife Pushpam was left with, he established a Fire,
Auto and Marine insurance firm.
The company offered car insurance policies at half the premium
charged by the established insurance companies.
The business was an instant hit and insurance policies poured in from
virtually overnight. Fire, Auto and Marine were inundated with policies
from eager car owners. Little did they realise that Saundranayagam was
playing them for right royal suckers.
The voluble insurance crook was even brazen enough to say his methods
are the most modern and cost effective. Traditional insurance companies
need to charge exhorbitant fees because their out of date system loads
them with big overheads and costs. The public is forced by law to have
car insurance, and for too long they have been paying inflated premiums
to support inefficient businesses.
Meawhile, Emil Saundranayagam, aristocratic of bearing and
immaculately clad began living it up, in style.
He bought a mansion in the posh Mayfair district and patronised
exclusive business clubs and restaurants.
It was a life of the finest champagne and caviar and taking rides in
his powerful four Jaguar engined ocean speed boat with beautiful women.
He drove around in a Rolls Royce.
But, this good life could not last for long. The flow of cash started
ebbing as he had to pay accident claims.
He had not invested the premium money, and the bills for his
extravagant living had to be paid by the premiums. He was now on the
roller coaster to disaster.
In two years cash claims had oustripped the income of Fire, Auto and
Marine which did not have the funds to pay the claims of 400,000
trusting motorists.
His Ponzi insurance operation crashed with a resounding thud and his
health. He was rushed to a London hospital after suffering a heart
attack. Then he fled to Switzerland and returned to Sri Lanka or Ceylon
as we were then known to elude a British Board Trade investigation.
But, with his clouded vision the swindler returned to the scene of
his dastardly crime labouring under the impression that he could only
face a civil bankruptcy case.
He drew unemployment benefits while his insurance scam was
investigated.
Saundranayagam who was publicity crazy even appeared on television
and was interviewed by David Frost. Confronted by two women victims who
had received dud cheques as payment for their claims he screamed at them
"I have no legal or moral authority".
When the studio audience protested he arrogantly shouted "I do not
want to cross swords with peasants."(Source:'The world'greatest scandals
of the 21st century).
Emil Saundranayagam paid a very high premium for his audacious Ponzi
scheme when he was sentenced to eight years in jail for fraud. Because
of his heart ailment he was released after serving six years of his term
of imprisonment.
But, he was an unrepentant sinner. On his release, he embarked on his
most ambitious fraud. He offered a payment of US$200 million to let the
United States establish a nuclear base on an estate in the North of
Ceylon. His offer was consigned to the waste bin of cranks. |