Effect of Ponzi schemes on a country: the case of Ghana
| DOI | https://doi.org/10.1108/JFC-09-2020-0177 |
| Published date | 15 July 2021 |
| Date | 15 July 2021 |
| Pages | 926-939 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial crime |
| Author | Umar Mohammed |
Effect of Ponzi schemes on a
country: the case of Ghana
Umar Mohammed
Department of Economics, Ankara Yildirim Beyazit University, Ankara, Turkey
Abstract
Purpose –This paper aims to examine the nature and operations of the two main Ponzi schemes (DKM
Diamond Micro Finance Companyand Menzgold Company Limited). It explores how such dubious schemes
were able to circumvent financial regulatory bodies and their impact on the social, political and economic
spheres of Ghana.
Design/methodology/approach –The paper adopts both quantitative and qualitative research
approachesand relies on secondary sources of data from the Bank of Ghana, World Bank and textbooks,etc.
Findings –It was found outthat inadequate supervisory role by financialregulators was a factor that made
these schemesthrive in Ghana which had dire consequences on the socio-economicof the country.
Originality/value –This is the first paper thatexplores the major Ponzi schemes in Ghana.
Keywords Investment, Ghana, Investors, Risk, Ponzi schemes
Paper type Case study
Introduction
Ponzi and pyramid schemes do occur both in developed and developing countries and their
consequences are not different no matter where they happen. These investment schemes
have a peculiar feature which is the promise of a higher rate of returns above the normal
market rates. These schemesare not new to the investment world and have recently become
widespread in the era of globalization and advanced technology. Throughout the world, a
number of these schemes have been reported. In the USA, a scheme operated by Allen
Stanford defrauded nearly30,000 investors to the tune of US$7bn. Allen was later convicted
of fraud in 2012 and sentenced to 110 years in prison (Haugh, 2013, p. 3157). Similarly, in
2008, another Ponzi scheme which came to be known as the “Madofffraud”took the US by
storm. Madoff allegedly cheated about 4,000 to 10,000 investors in an amount between US
$15bn and US$65bn (Geis, 2013,pp.85–103). In India, a married couple floated Stock Guru
in 2010 without a valid license from the reserve bank of India or securities exchange board
of India and promised to pay 20% returns per month up to six months on the principal
amount and a refund of principal in the seventhmonth, it was later discovered to be a Ponzi
scheme (Ukey, 2014). In China, Ezubao, a lending company defrauded more than 900,000
people out of the equivalent of US$7.6bn through an online peer-to-peer lending scheme
(Owen, 2018, p. 8). From 1991–1994, Damara Bertges and Hans Günther Spachthol
spearheaded what was called theEuropean kings club in German, Austria and Switzerland.
They sold “letters”as shares and then promised a profit return of 70% to investors. The
scheme was later discovered to be Ponzi with investors losing about US$1bn. The leader
Damara Bertges was arrested and later imprisoned for eight years for fraud and
participationin a criminal organization(NYIP, 2016).
In the African context, mention can be made of Barry Tannenbaum’s scheme. Barry in
2009 succeeded in luring investors into schemes with the promise of 200% annual returns
which was linked to pharmaceutical imports and forged Acquired Immunodeficiency
JFC
28,3
926
Journalof Financial Crime
Vol.28 No. 3, 2021
pp. 926-939
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-09-2020-0177
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