Gold Fund’s Collapse Rattles Poland
WARSAW—This week’s collapse of a gold-derivatives business that Polish regulators say was a Ponzi scheme has hit tens of thousands of customers, shaken confidence in the effectiveness of the nation’s financial regulation, and is roiling national politics in the European Union’s largest emerging economy.
On Monday, the company, Amber Gold, Sp. z o.o., which sold a gold-indexed investment of its own design and offered higher interest rates than banks, said it was halting operations. It pledged eventually to repay about $24 million it said it owed to roughly 50,000 clients in Poland.
Amber Gold’s 28-year-old founder, Marcin Plichta, who has publicly acknowledged past convictions for misappropriating funds, couldn’t be reached to comment. Amber Gold representatives were also unreachable.
Despite three years of warnings by Poland’s financial authorities that the company was operating without a license, it continued expanding and spent heavily on marketing. Among its businesses, the company launched a budget airline this year to compete with state-owned LOT Polish Airlines SA on domestic and European routes.
The airline, OLT Express, ceased flights last month and the gold fund unraveled this month after renewed government warnings prompted commercial banks to close Amber Gold’s accounts. The company said “the liquidation process will be spread over time,” without specifying when people might get their money back.
On Tuesday, Prime Minister Donald Tusk referred to Amber Gold as “a scheme” and said he ordered his finance minister to convene top financial authorities—including the central bank and consumer protection office—to discuss the company’s demise and the effect on customers. “All signs on heaven and earth suggest that people who put their trust in that company have been cheated,” Mr. Tusk said. He said it is the duty of the state “to move fast enough to protect people from those schemes.”
The case has become a political headache for Mr. Tusk, in large part because critics say the government failed to move more quickly, but also because his son, 30-year-old Michal Tusk, did public-relations work for OLT Express. The younger Mr. Tusk has faced criticism for consulting for OLT while also employed by the state-run airport in Gdansk, of which OLT was a customer. The prime minister Tuesday defended his son, but said he hadn’t been careful enough and was paying a high price for “serious mistakes.” Michal Tusk couldn’t be reached to comment following his father’s statement.
Poland’s Financial Supervision Authority, which regulates banks and flags unregistered companies acting like banks, put Amber Gold on its warning list in 2009. The FSA said Amber Gold was acting as an unlicensed bank and urged prosecutors to take action against the company. No charges have been filed, prompting opposition calls for a parliamentary investigation.
Wojciech Szelagowski, spokesman for the prosecutor’s office in Gdansk, which is investigating Amber Gold, said investigations involving business matters “take a long time because of their nature.”
ReutersPolish Prime Minister Donald Tusk faces criticism over his response to the Amber Gold fund crash.
The Financial Supervision Authority’s warning list now names 16 institutions, including Amber Gold.
“I’m shocked at this point and I don’t know what to do,” said a woman in her 40s, who didn’t give her name but said she was an Amber Gold client. “The boss of this company is a very wealthy man and I don’t know who will have the authority to block his wealth so he doesn’t escape.”
The woman was one of dozens who turned up outside a closed Amber Gold branch in the center of Warsaw on Monday looking for information.
“It’s like a typical pyramid scheme,” Andrzej Jakubiak, head of the Financial Supervision Authority told Polish daily Rzeczpospolita in an interview published Tuesday. “People stopped bringing in money and hence the end.”
Amber Gold has said it has $45 million in assets, including 100 kilograms of gold. For years it hasn’t issued required financial statements, a lapse that draws a small penalty.
One tangent of the aspects of this story is when parties ” buy gold ” ie physically from such institutions and get a certificate as a quasi – receipt.
In other words, you are lead to believe that you buy say one ounce of gold…., that ounce is kept in their vaults, and you are given a certificate for that one ounce. Thus, if and when you chose, you bring the certificate, and should be able to have an ounce of gold handed to you.
However, it appears many institutions are OVERSELLING the gold…ie they may actually have 500 ounces….but are selling the equivalent of 1,000 or 2,000 ounces. The instituions logic is that people will not show up all at once for their gold….. so they can maintain this juggling act.
However, what is occurring is that people are lining up and wanting their gold..the institutions are obliged to provide them or whatever gold they actually have.
Thus, if the institutions only have 500 ounce, yet have sold ” 2,000 ” ounces…once 500 ounces are picked up, the remaining purchasers wanting the gold they bought are SOL.
Keep this in mind if you have ventured in this direction.