Ponzi scheme “investors”: You were fooled, period

Last week, the Securities and Exchange Commission (SEC) reported that “Bislig City, Surigao del Norte Regional Trial Court Branch 29 issued warrants of arrest against KAPA founder and President Joel Apolinario and his cohorts for a case of violation of Republic Act 8799 or the Securities Regulation Code.”

To recall, “The DOJ has accused KAPA of ‘willfully, unlawfully and criminally’ engaging in the selling or offering for sale or distribution of securities in the Philippines without registration statement duly filed with and approved by the SEC.”

So that, while KAPA insisted it was legally selling securities, for better understanding, we must be guided by Republic Act 8799.  Particularly, Sec. 8 of such act provides that “securities shall not be sold or offered for sale or distribution within the Philippines, without a registration statement duly filed with and approved by the Commission.”  This was primarily the reason why on April 3, last year, the SEC revoked the certificate of incorporation of KAPA for soliciting investments from the public without securing a secondary license first.

Yet, despite the warnings then of the SEC and the Bangko Sentral ng Pilipinas, KAPA persisted and the so called “investors” or “donors”, gullible or greedy as they were, continued to pour either their hard-earned or borrowed money to this dubious investment scheme.

Therefore, as the SEC has again reminded the public of some suspicious scheme that is now starting to resurface, before we part with our wealth, we must understand fully what this scheme is all about.

Take the case of KAPA.  For the sake of argument, if we should assume that they were legitimate and that this was not another Ponzi scheme, let us do some math and try to figure out if this is (their investment scheme) really sound.  Remember, they claimed to have five million members.

Assuming that these members invested (or should we say, donated?) P10,000 (some claimed to have invested millions) each, then, conservatively, the pooled amount shall be P50,000,000,000 (three commas mean billion).  Therefore, at 30 percent monthly return, KAPA pays P15,000,000,000 per month or an incredulous annual payout of P180,000,000,000.

We should, further, assume that this annual payout represents net income. Why? This is because paying investors out of the company’s capital is not allowed, that is illegal. Unless the company folds up, it should pay its investors from its accumulated profits.

So that, we may ask, if this payout represents accumulated profits, what business is KAPA engaged in? Remember this is a staggering 360 percent return of their (investors or should we say, donors?) investments. San Miguel Corporation, for one, never turned in this much annually in net profit nor had it declared this much dividend in a year. Yet, we saw their factories and delivery trucks. We also have tasted its products and cheered for its heavily funded basketball team in the PBA.

What about KAPA? Did we see its factories or delivery trucks?  Have we tasted its products or services? Or, if we say, it is largely involved in e-commerce, then, have we visited its website?  Have we used its platform?

Clearly, what we only saw were tiny offices. Yet, most of our gullible investors then trusted them (the owners and officers of KAPA). As clear as daylight, that was a Ponzi scheme.  The same was true of what happened in 2012. To recall, some of our “get-rich-quick” enthusiasts were grieving for the loss of their hard-earned money or were spending sleepless nights staring at the prospect of losing their homes which were used as collateral to obtain money for very high-yielding investments perpetrated by the Aman Future, also a Ponzi scheme. Then, it was victimizing the gullible investors in Pagadian and the nearby municipalities.

Ponzi schemes, actually, are not difficult to understand. There are five key elements for it to succeed. These are beyond (1) normal benefits, (2) a systematic flow of how the rates are achieved, (3) initial credibility of company owners, (4) pay-off of early or initial investors, and (5) the “word-of-mouth” approach in advertising or communicating pay-offs.  KAPA did all these so they succeeded. Remember, headed by a Pastor, he had credibility.

Indeed, as we stare on the prospect that other dubious companies will take advantage on some potential investors’ gullibility or lust and greed for money, we should be constantly reminded by the misfortunes the fooled victims have suffered then and agonized until today.  Moreover, let us all heed the legitimate warning of the SEC. Ignoring both is a monumental display of stupidity.