Financial Times

Protecting the investing public
The authorities have somewhat belatedly issued warnings to the public against investing in easy moneymaking pyramid schemes, which although offering high returns to initial investors are also very high risk.

The warnings come weeks after The Sunday Times FT and Lanka Business Report television broke the story in a joint investigation into such schemes and the dangers of investing money in them. Subsequently, other media organisations too picked up the story and there is now growing public awareness of such scams.

However, despite the exposure in the media, which is acting in the public interest, and the acknowledged risks of such investments, we are still hearing of large numbers of people thronging the seminars being held by the organisers of these scams.

The Central Bank has said that public education is the best method to counter such scams while the Securities and Exchange Commission has gone to the extent of threatening legal action against those promoting such schemes and misleading the public by making them believe that these schemes have the sanction of the markets regulators.

The Central Bank has pointed out that there will not be enough people in Sri Lanka and even in India to allow these schemes to continue to operate. While these warnings are certainly welcome the big question is what the regulators are doing about preventing the proliferation of such scams. Saying that it is difficult to convince people about the risks of pyramid schemes, as they have an innate desire to gamble, is not enough.

This is not the first time that the Central Bank has acted too late in preventing the public being duped by crooks operating in the guise of respectable businessmen. The best example of recent times is the Pramuka Bank collapse. The collapse of finance houses, in which large numbers of people lost their deposits in a different period, is another.

Laws prohibiting pyramid schemes have been drafted but we know from experience that our lawmakers take months, if not years, to approve new legislation. In any case our MPs do not appear to be in the mood right now to debate and approve legislation, given the hooliganism witnessed in the House recently.

The Joint Business Forum, the apex body representing the organized business sector, has pointed out that there are a large number of Bills which are awaiting parliamentary approval. Even certain Bills relating to the 2003 budget have yet to be passed by Parliament.

In such a situation it is incumbent on the authorities to move quickly to raise public awareness about the dangers of easy money scams and take whatever legal action that may be possible.

In the absence of legislation banning such schemes outright, the authorities have been conducting investigations into certain aspects of such schemes where the law appears to have been violated, either knowingly or unwittingly, by those operating on behalf of the organizations promoting them. But it is important to catch the 'big fish' - those behind these scams. It would also be a good idea to monitor the investments made here by these organizations.

The country it appears is beset with a multitude of worries - from get-rich-quick scams to a sinking rupee to unseemly brawls in parliament as a shaky government struggles to find enough numbers to ensure its survival.

This is not entirely unusual for a country such as ours, which has lived through some pretty tough times and survived extraordinary shocks to the system. But that's no excuse for the authorities - be it the government or market regulators - not to fulfil their obligations in protecting the public. Failure to do so could undermine their confidence in the system.

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