Realist, not conformist analysis of the latest financial, business and political news

Ghana’s Menzgold – Welcome To Another Ponzi, This One From NAM

It always surprises when people get sucked into a Ponzi scheme such as the Menzgold one currently unraveling in Ghana. Surprises because the signs just seem too obvious – but then it’s true that I’m both a trained financial professional and also a connoisseur of the varied ways in which people try to scam investments. It may have been a long time ago that I passed my Stock Exchange exams but it did happen. And no one can work for a decade in Russian metals without seeing amusing variants of the time old scams.

Even so, the warning signs were strong with this one. For example, if you’re running a scam then skimming to find a media operation is a sensible thing to be doing:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Zylofon Media, the once richest entertainment company in Ghana seems to be going broke after its sister company Menzgold Ghana, which is believed to be the major source of income for the Zylofon Media CEO Nana Appiah Mensah, started jumping one hurdle after the other when the Securities and Exchanges Commissions (SEC) and Bank of Ghana (BoG) ‘poked’ their noses into the operations of the gold dealing firm.[/perfectpullquote]

After all, a Ponzi scheme lasts only as long as there’s a stream of new punters. Why not own your own media to advertise to them? In the end game though this becomes a forlorn hope:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]He added that the staff of the media house are still working even though they have not been paid for four months because there is a certain belief in a certain phenomenon which they want to look at and make it happen.[/perfectpullquote]

No, the Ponzi’s over, there is no more cash coming in. My advice would be to bail and go do something else right now. This also looks extremely hopeful:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] Artist manager Lawrence Nana Asiamah Hanson, popularly known as Bulldog, is urging the Chief Executive Officer of the embattled Menzgold to come out of hiding and defend himself. In a Facebook video posted by Bulldog himself, he told Nana Appiah Mensah (NAM1), he will not face any jail term because he has done nothing wrong. “Show up, you will not be jailed. You did not defraud anybody,” he stated. The artist manager at Zylofon, a record label owned by Nana Appiah Mensah, added, “you have a good case, you were running your business until this present administration messed it up.” [/perfectpullquote]

That’s not the way to read this at all.

As to what this is all about here’s Menzgold’s entry page. Or one of them at least. My reading of that is that it’s got scam written all over it. Or as this listing of what the firm does tells us, there’s a significant problem at the heart here.

Note that they’re “not a financial institution”. This means that they’re not regulated as a financial institution. The usual banking oversight organisations aren’t even looking at them. And we’re all entirely sure that the Ministry of Mines, who do authorise them, are well up with how a deposit taking institution – yes they are one, even if they’re “only” accepting gold – should be regulated, right? That being, obviously enough, the purpose of being so regulated.

The other thing to note is that they’re offering “up to 10%” returns per month. And they’re in the gold business. The two points are not compatible. It is simply not possible to be making a regular 10% per month return in the gold market. No, not even if you look to moves in the foreign exchange rate of Ghana and the USD and all that. Nor is there any clever operation with options, futures, differential time values or anything else which will make that sort of return. The global gold market is simply too large, with too many people in it, for that sort of arbitrage to be possible – the market’s too liquid for that.

Thus someone offering 10% per month return on gold is offering a scam.

The third bit? That if you introduce a new customer then you get paid. Bring in another onto the bottom level of the Ponzi and you get a little payout. You’ve noted that the payout is about the same as the non-refundable deposit? Roughly $300 US each? Good, well spotted.

Someone’s offering impossible returns on gold, paying people to draw in suckers to the bottom of the pyramid, yes, that sure looks like a Ponzi scheme to me. Menzgold? It’s done, it’s toast.

BTW, typically with Ponzi schemes there is no pot of money to be found. Sure, perhaps someone took some and ran off with it, that’s always possible. But if it’s not possible to make a 10% a month profit on gold but a 10% profit per month profit has been paid out then that money must have come from somewhere. The usual place being that the new investments flowing in become the “profit” payments flowing out. That’s why Ponzi schemes always eventually fail, at some point there are no more new investors. So, the pot of money, it’s gone, it’s actually in the pockets of the early investors in the profits that were paid out to them.

When Bernie Madoff’s scheme eventually fell apart the authorities then went around reclaiming all those profits that had been paid out. Simply because that’s how Ponzi schemes work, it’s the definition of them. Not only is, in my opinion, Menzgold a Ponzi scam that’s dead and gone there is no great big pot of money left to pursue. It’s gone because that’s the definition of a Ponzi scheme.

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