Editorial | FSC must stop looming disaster
It's a given that people are drawn to investment schemes where the risks seem low and the rewards high. It's a psychology made for shysters, who play on the presumption of people's greed.
Even in legitimate operations, promoters often play to the brink, making events like the financial crash of 2008, and the accompanying Great Recession, possible and almost cyclical. And it is why a dozen years ago, names like Olint and Cash Plus were mooted as supposed routes to easy wealth.
It is the reason, too, why governments establish regulatory agencies for their financial and investments sectors to ensure that prescribed operators conform to established rules and to protect the investing public from the excesses of corporate gamblers, or worse, from being swindled by outright fraudsters. And it is why we are surprised at the apparent absence of urgency and robustness of the Financial Services Commission (FSC) in going after an outfit called Loom.
As this newspaper reported on Sunday, Loom promotes itself as an investment club, utilising social media platforms such as Facebook, Instagram, WhatsApp, and other messaging services. People are invited to invest as little as J$5,000 and to invite at least two other persons to do the same. They are promised returns of up to 300 per cent a week. That is nearly 43 per cent a day.
Put another way, an investor, over a year, could earn 15,642.8 per cent on his money. In other words, he or she would have a return of around J$782,000 on the initial investment of J$5,000. That is not too good to be true. It is a fantasy!
This promised profit is better than what was offered by David Smith's Olint, which paraded as a foreign exchange trading operation, and Carlos Hill's Cash Plus, which passed itself off as an investment vehicle, using cash from lender/members. Generally, they promised returns in the range of 10 per cent a week or in the range of 5,210 per cent a year.
Olint and Cash Plus turned out to be massive Ponzi schemes. They used the cash collected from one investor to pay the other. That was unsustainable, as it was in the case of the schemes in America run by Bernie Madoff and Allan Stanford. When Olint and Cash Plus collapsed, they left an estimated 40,000 Jamaicans out of pocket for well over J$20 billion.
Subject of debate
Those ventures have been the subject of much debate, including, many people argue, the alacrity, or the failure thereof, with which the authorities responded to them. That shouldn't be the case this time. The FSC not only has the power to issue cease-and-desist orders to entities that operate outside of the law, without the appropriate licences, but those powers were confirmed by the courts during the Olint case. The rules applied to outfits even when they claim to be private clubs. Further, these powers were strengthened by updated regulations in 2013 that expanded and clarified the definition of securities and securities dealing. It is in this context that we are surprised at the tone and terms with which David Geddes, the FSC communications manager, spoke of Loom. He didn't announce that the FSC had issued a cease-and-desist order against the agency, which, on the prima facie evidence, trades in securities and does so without a securities licence.
Mr Geddes expects that Loom will "come to a painful crash". The impact of any such crash will be harder, louder, and with more pain to individuals and the economy to more of people's money on which Loom is allowed to gorge itself.