Who allowed Amber Gold to grow so big?

Looking back to late 2008 and early 2009 I remember first advertisements of Finroyal and Amber Gold in newspapers. Both shady companies would tempt potential customers with deposits meant to fetch income a few percentage points higher than traditional bank deposits. Cognisant of risk – return trade-off I wondered how it was possible to fix such income for customers, but never took the trouble to inquire into workings of such companies. In 2009, when browsing Polish Financial Supervision Authority, I ran across the black list of companies engaged in bank-like operations without required licences. Both business were listed there, but who actually visits the site of KNF?

Months went by and depositing money with such companies has grown in popularity. Poles have been put off risky investments on stock exchange and in investment funds after the bear market of 2007-2009, bank deposits could barely beat inflation, so guaranteed profits exceeding inflation rate by almost ten percentage points loomed as attractive investment opportunities. In the meantime some journalists tried to unravel the workings of companies offering allegedly guaranteed gains higher than offered by banks. With time Amber Gold began advertising itself aggressively. As long as inflows of money from depositors were bigger than outflows and OLT Express airline was managing to cover its expenses, the business drifted above water. Much of the money was probably swindled out of Amber Gold to its CEO and owner, currently 28-year-old Marcin P. In late July 2012, the house of cards was pulled down.

If you want to ask me to explicate how the whole scheme, or rather scam, worked, feel free; you’ll catch me naked. I know what principles underlie Ponzi schemes, I am familiar with some methods of laundering money, but each case is different. Unfolding the story will take relevant secret services and persecution offices years.

Marcin P., a man who at the age of 20 was sentenced for embezzlement for the first time and did his time, was allowed to set up another scam and run it undisturbed for three years. For years he kept away form the limelight and assiduously raked in money from the venture. In the days preceding the spectacular collapse of OLT Express and Amber Gold he came out of the shadow and acted as the number one celebrity in Poland. Currently Mr. P is behind bars, charged with several crimes. Personality of Mr. P is a good topic a separate posting – bold, unprincipled, lying through this teeth without scruples. There are supposition he is just a cog in the machine and much more powerfully and cunning criminal have contrived the scheme.

The money was taken away from the company, whose liabilities surpass its assets several times, so depositors who entrusted their savings to Amber Gold have little chance to recover their money. Thousands of people done out of money. The youngest aggrieved is aged 22, the oldest over 80. From all walks of life, some put there a few hundred zlotys, one sank there staggering 3.2 million zlotys. Some invested their savings there because they believed it was a bank, some realised it was a scam, but hoped to withdraw money before it falls apart. Most of Amber Gold’s customers had no notion of economics, were simply duped, fell prey to promises of gold-backed profits. Now they hold it against the Polish state that it has failed to protect citizens from deceitful businesses.

So who should be held accountable for dilatory dealing with Amber Gold case? The Financial Supervision Authority issued warnings on its website and filed a crime suspecting notion to the prosecution office. To no avail – sloppy prosecutors for some reasons, maybe the reason is imperfection of Polish law, full of loopholes, failed to get to grips with Amber Gold.

The scandal gave rise to a dispute who actually is to blame for loss of money deposited by people in the Amber Gold. There are generally two groups. Some, identified with enlightened economists, say these are depositors themselves who gave credence to implausible promises, others point at Polish state institutions failure to lay down clear law and to enforce it.

My take is that both groups are partly right. The state should secure a legal system under which a criminal cannot start up a financial company that works like a bank. The state should take steps to close it as soon as possible. The state should inform citizens about perils associated with putting money there. But the state should not forbid citizens from doing with their money whatever they wish. In a properly run country citizens should be able to easily access information (e.g. black lists should be printed in newspapers, presented in TV and put up in all bank branches) that Amber Gold, Finroyal and many other companies are on a black list of KNF, operate without license, are not covered by financial supervision and deposits are not guaranteed by the bank guarantee fund . Then fully aware citizens could choose to put their money at risk.

This, along with recent bankruptcies of travel agencies sheds some light not only on Poles’ carelessness, but also Poland’s advancement on the way towards welfare. Choosing to go on holidays with a dodgy travel agency to save, depositing money with a shady financial company to earn more. This illustrates not only unfettered and stupid avarice, blissful ignorance, but also the vague concept of dziadostwo. There is little wisdom in risking much to earn little and such was the case here.

In managing my financial surpluses I favour transparency. I keep 75% of my savings on bank deposits and make sure that the bank with which I deposit money is registered in Poland, thus overseen by Polish Financial Supervision Authority, deposits are covered by Bank Guarantee Fund and the bank is listed on the Warsaw Stock Exchange. The rest of my money is used for investment of speculation on the stock exchange. There I am exposed to market risk, i.e. that prices of financial assets I hold may drop, but at least it is transparent and I have no problems selling my stocks with a loss and recover the rest of money. It is not a matter of risk, as some say, it is a matter of transparency that enables you to control risks. Victims of Amber Gold surely had some problems with risk management…