Fraud-hit Poles facing financial meltdown

The affair is one of the biggest financial scandals to hit Poland since the fall of communism in 1989.

It seems to have run along the lines of a pyramid scheme, meaning the financial institution used funds from new clients to pay off older clients rather than investing them.

Prosecutors say investors lost about 163 million zlotys (£38m) a number that has been mounting as more and more victims come forward. Any lawsuits could take years to go through the courts.

The affair has raised questions about the effectiveness of Poland’s justice system and government because authorities failed to act against the scheme despite red flags from regulators and the criminal record of its owner.

Scrutiny has also focused on the prime minister due to business dealings his son had with those running the scheme.

“People are desperate,” said Pawel Borowski, a lawyer preparing a class-action suit. “In most cases the clients lost life savings or sold family properties to make investments.”

The financial institution, Amber Gold, promised guaranteed returns of 10 per cent to 14 per cent a year for what it claimed were investments in gold. Many of its clients were older Poles who grew up under communism and lacked the knowledge to question how a financial firm could guarantee such a high return on a commodity whose value fluctuates on the international market. The promised returns compared well with the three to five per cent interest banks offer on savings accounts - earnings essentially wiped out by the country’s four per cent inflation rate.

“These were people with a low level of financial education,” said Piotr Bujak, the chief economist for Poland at Nordea Markets. “They think it’s still like in the old times, where everything was guaranteed by the state. They underestimated the risk.”

Amber Gold launched in 2009, opening branches in city centres alongside respected banks, with white leather sofas and other sleek touches that conveyed respectability. It bombarded Poles with convincing advertisements. Some early investors got out with their expected gains, adding to the fund’s credibility.

The company, based in Gdansk, capitalised on gold’s attractions while playing on people’s anxieties in unpredictable financial times.

Amber Gold drew in 50,000 investors over its three years of operation, though its founder, Marcin Plichta, said there were only about 7,000 at the time of liquidation.

Soon after Amber Gold began operations, the Polish Financial Supervision Authority put it on a “black list” of institutions that operate like banks without authorisation. There are 17 other such black-listed institutions in operation, but the regulators lack the authority to shut them down.

Plichta was charged this month with six counts of criminal misconduct.

Plichta, 28, has past convictions for fraud, and many Poles are asking why the authorities – aware of his criminal record – did not stop him sooner.

The country’s top prosecutor, Andrzej Seremet, admitted prosecutors were negligent and announced personnel changes in the office he blamed for mistakes.