Financial Scams

Over 7,000 depositors still in the lurch:

Three years after Ceylinco scandal

Shirajiv SIRIMANE

December 18, 2008 will be written as one of the darkest days in the Sri Lankan financial history as it marked the beginning of a collapse of series of finance institutions starting from Ceylinco Golden Key Credit Card Company. Last Sunday marked three years of this infamous financial scam which is yet to be settled.

It is very sad to note that the Ceylinco Group had to end 2008 on such a crisis situation and hit a climax point just before the Christmas festivities. To those unfortunate investors, the regular festive season has brought financial disaster but no bonuses to enjoy the New Year, one of the news items carried on this scam said.

The Golden Key Credit Card company had a deposit base of Rs. 26.5 billion with 9,054 depositors which made it one of the biggest asset based financial institutions. The catch to attract customers was obviously the lucrative interest which started from 16 percent and even went up to 35 percent for selected depositors.

Another plus point to attract customers was the unblemished financial record of the company and the trust people had for its Chairman Lalith Kotelawela who was also awarded a Deshamaniya title and several other accolades.

The depositors included doctors, engineers, business professionals, housewives, parliamentarians, past and present test cricketers, pensioners, retired bank executives and heads of state bodies.

The first ‘germ’ that led to the crippling of the Golden Key Credit Card Company was when the interest for depositors got delayed and some of the cheques issued by them started to bounce from November onwards. The Sakvithi scandal and ‘word of mouth’ information that Golden Key too was also in trouble triggered large-scale fund withdrawals.

Small time depositors too started getting panicked and most of them wanted to withdraw their deposits and however found that this too was not possible leading to the Golden Key Credit Card Co. crashing and closing down. The contagion has spread from poorly regulated companies like Golden Key to more legitimate entities like The Finance. All over the country Ceylinco Group offices were either closed or in a state of disarray.

At the group’s most high profile and ambitious venture - the 40+ story Celestial Residencies Tower in Kollupitiya construction work stopped.

The scandal also had an impact on the economy as the cash flow to the Western Province alone was reduced by over Rs. 3 billion due to the Ceylinco Group issue.

Golden Key Credit Card Co. Ltd Chief Executive Director S. Khavan M. Perera, was subsequently arrested.

Ceylinco Group Chairman Dr. Lalith Kotelawala issued a public statement that during the last few days of November, he had realised that the Golden Key has been involved in a major credit card fraud and that the employees of Golden Key are now beginning to reveal certain facts regarding the involvement of Khavan Perera.

Perera admitted to mismanagement. In newspaper advertisements Golden Key customers were summoned for a meeting to the BMICH where angry depositors chased away Ceylinco Group Chairman Lalith Kotelawala who said that his group would exit Seylan Bank to raise funds.

It was through the perseverance of Dr. Kotelawela that Ceylinco grew to be group of companies numbering over three hundred, web sites and news items published on the issue said.

‘His business card was supposed to be in a unique design to include all the names of companies which are under his purview-some say that one needed to ‘unfold’. The business card was folded many times to accommodate the contact details of all the companies!

No doubt, he was indeed a happy man once because he tried his hands at everything possible - the latest being the Diabetic Detection Centre, the Bakery, Grameen Banking and a number of others outside the finance companies, real estate developments, Golden Key Credit Card Co., Seylan Bank, Ceylinco Savings, loan schemes for agricultural smallholders, SOLO-U, Ceylinco-Grameen Automobiles Private Ltd (through which ‘Ceygra’ four stroke three wheelers were sold through a tie-up with People’s Leasing Company), Ceylinco Travels, insurance, leasing, car rentals, employment agencies, security services, home-nursing services, Ceylinco Sarana cattle protection centre - in other words it became a heavily diversified business operation.’

According to a report in a Sunday newspaper, “Kotelawela who leads a business empire comprising over 300 companies is well known of his charitable and philanthropic efforts to improve the conditions of the poor and marginalized in the country.”

It could very well have been this massive diversity that eventually caused the downfall of this ‘philanthropic businessman’ as Dr. Kotelawela became known as within the business community. He and Mrs. Kotelawela’s donations using other people’s money even to foreign institutions aggravated the situation while the high salaries that were offered did not help to sustain the institution. It was even said that Mrs. Kotelawela was paid a six figure salary.

The news items published on the issue summarized the scandal in great detail.

‘Due to huge pressure Dr. Kotelawela placed advertisements in all newspapers and invited investors to come to BMICH to explain the situation on December 23 and 24, 2008. Contrary to his expectations, there were angry clients who supposedly had dared to manhandle Chairman Dr. Kotelawela and even threw water on him as reported in the Sinhalanet website. The tea party he had planned as a peaceful parting between the grieved investors and the Chairman was hurriedly cancelled when it became obvious that people were not in a mood for pleasantries! One cannot expect pleasantries when investors have busted all their savings and assets in a credit card company that has over-advertised its capabilities.

Due to the angry reactions of investors (Colombo) on December 23, the meeting scheduled for December 24, targeting the ‘outstation clients’ had to be cancelled.

In the wake of the Golden Key scandal depositors rushed to withdraw money from other Ceylinco Group companies, and a cycle of no confidence, rapid withdrawals and financial collapse has pushed the group to the brink of collapse.

Depositers gather at BMICH and during a protest

Having faced the wrath of angry clients, it became obvious to the ‘philanthropic’ Chairman, that clients wanted a satisfactory solution here and now - not something promised many months from now, therefore he decided to sell Seylan shares as well as some other companies within the Ceylinco Group of Companies.

Magnanimously, the government and the Central Bank came forward to salvage the situation and save Seylan Bank from collapse which will incur an additional burden on government coffers for unscrupulous and dishonest dealings of private companies.

‘Let us sincerely hope that although Dr. Kotelawela no longer believes in the words of the Buddha, there is a thing called the Ditta Dhamma Vedaneeya Karma (retribution within this life) unlike in Christianity where a mere ‘confession’ can cancel all one’s misdeeds,’ a news items said.

When the Golden Key Credit Card Company went down, taking with it the giant Ceylinco Group, many thought Ceylinco Insurance would fold-up as well. But it came out of 2009 leading in market share in both the general insurance category (27.12 percent) and in life insurance, 31.65 percent. It maintained this dominance last year as well in the life insurance business with a 28.21 percent market share while coming in a close second in the general insurance category with a share of 24.7 percent.

Due to the intervention of the Central Bank of Sri Lanka, Seylan Bank too today is a sound financial institution.

People who deposited their hard earned money keeping the trust in an individual from 2009 faced utmost difficulties and the scandal had led to the suicide and deaths of ten people.

The first victim was Jayantha Cooray, a resident of Kalutara who suffered a stroke. His wife said that doctors had prescribed drugs which had to be taken daily by him to recover. His wife kept Jayantha alive by providing these drugs out of the interest they generated from the Ceylinco Group.

However, with the monthly interest drying up, she had no access to finances and was seen weeping helplessly begging the Ceylinco authorities to give her money (Rs. 3.5 million) back. With no medication Jayantha’s health deteriorated and he ultimately met his death. The second victim was Hubert Fernando of Wennappuwa who had deposited Rs. 6 million and died of a heart attack as the interest dried up.

Musician Peter Prince was another victim of the Ceylinco scam along with Beatrice Mendis of Kohuwela. Journalist R. Manamendra also committed suicide from sheer desperation. Another depositor who had invested Rs. 20 million hanged himself last Wednesday in Mount Lavinia and M. Dhanapala was the seventh victim to meet his death due to the pain he suffered as a result of the scam.

“That money was our savings, we depended on the interest to live, to pay our bills, now we can’t educate our children, we are about to lose our house.” one depositor said last year.

To be continued