News
Another pyramid scheme busted
Around September last year, Malin, a businessman from Beliatta, received a phone call from his elder sister who happily informed him about the “really high” returns she was receiving from an “investment” at a company called Panora Advertising. She talked about receiving some Rs. 40, 000 a month from this company.His sister had heard about Panora from a relative of her husband. This relative was recruiting members of his family, and so far had recruited “about a hundred” people for a Rs. 3,000 fee for each person roped in. Even an old aunt of Malin’s had taken out a huge lease on a vehicle to invest in Panora. Around this time, Panora had become “very well known” in the area.
Malin, too, wanted a piece of that pie. So he and a friend drove to Ambalantota, “a little bit further from the town, near the temple,” where Panora’s main office was located “to check it out.” When his sister first told him about the company, frankly, he was suspicious. It all sounded just a bit too good to be true. But when he visited the office, his suspicions began to dissipate little by little.
“The office looked like a legitimate place,” he recalled. “There were about 10 to 15 support staff, computers and the rest. Even some Army personnel were there. I don’t know whether they were buying anything, but they were there.”
Malin and his friend were told that they could receive monthly payment for “watching ads” online. The company’s director, Somalal, explained to them the “business of advertising.” Big marketing companies paid huge sums of money, “about 15 to 20 lakhs,” Somalal told them, to advertise on TV shows. Panora could do for customers like Malin what the big marketers were doing for TV shows, was Somalal’s sales pitch to them.
“He said big ad companies paid them for showing ads,” Malin said recounting the encounter. “He said with that ad revenue, they’d be able to pay about a 25 per cent interest rate on an initial investment from us.”
So Malin purchased a Panora “investment package” for Rs. 156,000 (the minimum package was Rs. 1,800) where he was promised a Rs. 10,000 weekly payment for two years for watching ads online on www.panoraadvertising.net. Malin is only a small-time businessman. He collects “things like pepper” from villages to be sold in Colombo. He got the money to invest in Panora by pawning his wife’s jewellery, thinking he’d recover it all in a couple of months.
Last Monday the Tangalle Police arrested Jayasinghe Manachchige Somalal for defrauding people by running a pyramid scheme. The Central Bank defines a pyramid scheme as “… where a participant is required to contribute or pay money, and the benefits earned by the participant are largely dependent on the increase in the number of participants in the scheme; or increase in the contributions made by the participants in the scheme.”
network marketing, where “individuals sell products to the public — often by word of mouth and direct sales,” according to consumer protection information provided by the Federal Trade Commission, an independent U.S. Government agency. If the money the marketers make is based on actual sales to the public, it could be considered a genuine marketing plan. But if the money is based on the number of people recruited and the number of sales to them, then it’s a pyramid scheme.
According to Central Bank information pamphlets, pyramid schemes can take many guises, such as buying gold coins or “colourful” wrist watches, providing some services online, or as in the case of Panora, asking customers to deposit or invest a sum of money. These schemes were made illegal in Sri Lanka by an amendment to the Banking Act No. 30 of 1988, where offering or participating in a pyramid scheme is deemed a criminal offence.
“Pyramid schemes are ultimately unsustainable because the number of participants increases exponentially,” said Dr. Sirimal Abeyratne, Professor in Economics at the Colombo University. “It can’t run forever, when participants come to withdraw money it collapses, and more the participants greater the damage. A big, island-wide scheme like this could even cripple the whole financial system.”
For his deposit in September last year, Malin received only one week’s payment after a five-week waiting period. After that the payments stopped. Last December, Panora was closed for weeks and its accounts were frozen pending a Central Bank investigation for not being a licensed financial institution, and yet Somalal continued to promise his customers payment. In a YouTube video uploaded about a month ago, Somalal described his legal troubles as “agitation” caused by “jealous people.”
Somalal had been running the scheme for about five months and had recruited about 25,000 customers, said OIC Wasantha Kumara, one of the investigating officers. The company had three bank accounts, and had even issued receipts to customers for transactions, OIC Kumara said. Somalal made around Rs. 150 to Rs. 200 million from the whole venture. He used the money mostly to buy supermarkets and filling stations. By the time he was arrested he had spent over three-fourths of the money he made.
He and a partner of his, Nilan Indika, who has an arrest warrant out for him, had got the idea for floating Panora from an identical establishment in Tissamaharama called Luminous Advertising, which was also busted earlier this year. Somalal and Nilan had worked at Luminous, where they “quickly picked up the business,” OIC Kumara said.
“Somalal was a mason baas by profession,” he added. “He was only educated up to O/L and barely passed even that, but his customers were engineers, doctors, teachers, and even some policemen. However, he is a good orator and really knows how to convince people. He says he did this to earn a living.”
Somalal, a 32-year-old impoverished man from Dikwella, promoted Panora as a legitimate, up-and-coming business with weekly meetings and community events, including one at a Hambantota hotel where about 200 people turned up. The company even got a two-page promotional write-up published in the Sunday Lakbima.
Despite the hype, it eventually came to a point where Somalal could no longer pay his customers. Some angry customers even protested outside his home some months back until the Police dispersed them. Customer complaints mainly prompted police investigations into Luminous and Panora.
Malin is only one out of hundreds of people who lost money in this scheme. A number of victims the Sunday Times spoke with said they had pawned gold jewellery to raise money, jewellery they’ll never get back. Chitra, a small tea shop owner from Tissamaharama said she borrowed money from a number of people last year for a Panora “investment,” when it was gaining popularity in the town. Now she has to ward off the moneylenders, on top of worrying about her children’s school fees.
Central Bank officials say, despite the many public warnings people continue to fall for scams like Panora’s because they are “fooled by the high returns, and get greedy.”"There are so many legal ways to invest but people want to make easy money at whatever risk,” a Central Bank communications official said. “These things are difficult to prevent. It is difficult to convince people of the risk until it’s too late. Despite what happens to others, they think they will somehow get their money back.”
To avoid such potential frauds, officials advise the public to be aware of a country’s normal interest rate and be wary of anyone offering “extraordinary rates.” The Central Bank advises the public only to transact business with financial institutions licensed by the Bank.