Thursday 3rd March 2005

 

Financial fantasies

 
 
 
 
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Photos: Keith Matthews

The US Securities and Exchange Commission on Pyramid Schemes

In the classic “pyramid” scheme, participants attempt to make money solely by recruiting new participants into the programme. The hallmark of these schemes is the promise of sky-high returns in a short period of time for doing nothing other than handing over your money and getting others to do the same.

The fraudsters behind a pyramid scheme may go to great lengths to make the programme look like a legitimate multi-level marketing programme.

But despite their claims to have legitimate products or services to sell, these fraudsters simply use money coming in from new recruits to pay off early stage investors.

But eventually the pyramid will collapse. At some point the schemes get too big, the promoter cannot raise enough money from new investors to pay earlier investors, and many people lose their money.

The local Securities and Exchange Commission has opened a file on Fantasy Tours, the popular money collection scheme, based in Port-of-Spain.

Following an enquiry from an investor on Friday, the SEC promptly dispatched an investigator to sit in on a meeting Fantasy Tours held at the Roman Catholic school in Rio Claro on Saturday.

The investor enquired whether the Fantasy Tours investment scheme was registered with the local SEC.

He was told that it was not, sources said.

Fantasy Tours is distributing two products—one targetted at retail customers and the other to the business community.

For the retail product, investors are invited to make a loan to Fantasy Tours after being promised a return of 15 per cent every 10 working days for a 60-day period, according to promotional material made available to the Business Guardian.

This means that an investor lending $10,000 to the company receives $1,500 after two weeks. The investor receives three more payments of $1,500. At the end of the two month investment period, the investor would have received $6,000 and gets the initial investment of $10,000 back.

If the returns promised sound too good to be true, that’s because they probably are.

Fantasy Tours has been promoting its products by claiming that part of the money investors “lend” the company is invested in the Unit Trust Corporation.

“All funds put into these investments are pegged against protected

instruments such as the Unit Trust of Trinidad and Tobago Second Unit Scheme and Roytrin Units covering 45 per cent of the funds with the other 55 per cent unsecured but put into income bearing production immediately,” according to the company’s promotional material.

The UTC, along with Guardian Life, issued a paid newspaper advertisement over last weekend seeking to distance the financial institutions from Fantasy Tours.

In an interview, UTC marketing manager Gayle Daniel-Worrell said the UTC objected to its name being used without its permission.

“We are not involved and we do not endorse it in any way,” said Daniel-Worrell.

An RBTT spokesman said he could not answer whether Fantasy Tours has any investments with the bank because of confidentiality issues.

Efforts to contact Claudius Phillips, described as the marketing manager of Fantasy Tours, proved futile as he was reported to be out of the country.

The SEC is reported to be paying particularly close attention to whether what Fantasy Tours is selling qualifies as a security.

As defined in the Securities Industry Act, a security is “any document evidencing ownership or any interest in the capital or debt, property, profits, earnings or royalties of any enterprise or proposed enterprise...”

It includes bonds, debentures, notes or “other evidence of indebtedness.” It also includes any share, stock, unit, unit certificate, participation certificate or certificate of share or interest.

If the Fantasy Tours “loans” are in fact securities, the SEC has powers under Section 144 of the Securities Industry Act to “apply to the High Court for a permanent or temporary injunction stopping Fantasy Tours from accepting the “loans.”

 

 

 

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