Why MKM is too hot to handle

11

MASERU — It’s the early bird that gets the fattest worm, so goes the English adage.

Pyramid schemes work the same way.

Those who join early get handsome returns on their investments and those who come last get nothing at all.

There was a time when MKM was a godsend.

The scheme was “oozing” money for those who had invested early.

Many built houses, bought cars and the enterprising ones started businesses with their profits.

In the villages, lives were changed.

Even sceptics, including very prominent and educated people who should have known better, eventually came around to believe that there was money to be made.

Convinced that MKM was here to stay, some invested their pensions and life savings.

How could they not take the gamble with a scheme that was offering an annual interest rate of 60 percent when banks were offering less than 10 percent?

“The evidence of its goodness was there for all to see,” recalls one senior government official who invested nearly M100 000 when MKM’s end was nigh.

“In the beginning we thought only fools would put their money in such a dubious scheme but when we saw how much some of the investors had reaped we, the so-called clever ones, started feeling like fools ourselves,” she recalls with regret.

She jumped in.

That is precisely how more Basotho, a significant number of whom are poor, were lured into the scheme.

Enticed by the promises of quick riches and assured by what they could see MKM doing for those around them, many felt compelled to join the bandwagon.

Many did join.

And by the time the Central Bank of Lesotho (CBL) eventually moved to close the scheme in November 2007, nearly 400 000 Basotho had invested in MKM.

That means nearly one in every five of Lesotho’s 1.8 million people had invested in the scheme.

The consequences of its abrupt closure on people’s lives were far-reaching.

MKM had sunk with nearly M400 million, auditors hired by the central bank were soon to discover.

But nearly three years down the line a solution to the MKM quandary is yet to be found.

Depositors — poor and rich, powerful and weak — are still waiting for their money.

Court battles have been fought and accusations, some valid and some malicious, have been exchanged.

Still depositors’ monies have remained locked up.

The central bank is now pushing for the liquidation of MKM in court.

Yet for all its efforts it doesn’t look like a solution will be found any time soon.

Here is why.

The biggest problem with MKM is the amount of money involved and the number of depositors who have committed their hard-earned money with it.

It is precisely for these two reasons that the MKM issue has become political.

All things being equal, the managing director of MKM, Simon Thebe-ea-Khale, should have been a villain rather than the victim the public believes he is.

Here is a man who lured poor people with ridiculous and unachievable interest rates and lost nearly three quarters of the depositors’ funds.

Yet Thebe-ea-Khale has managed to turn the tables to cast himself as a victim rather than a villain.

Granted, he might not have actively worked to conjure this notion but that is still what people think.

Instead of it being seen as a case of the government reining in on a crooked money-lending scheme it has become a matter of the government “punishing” the only scheme that promised to save many Basotho from the clutches of poverty.

To many people Thebe-ea-Khale was somewhat of a “saviour”.

Thebe-ea-Khale’s enigma has fed the wrong notion that he is a victim of machinations to stifle entrepreneurship by poor Basotho.

That he is a poor man who rose through the ranks to become a millionaire has not helped matters.

Thebe-ea-Khale is seen as a man of the poor, who after unshackling himself from the bondage of poverty had “tried” to help others rise as well.

At least that is the impression people had and still have of him.

It is because of that reason that he is seen as different from other local businesses, according to the public perception.

The reasoning is like this: he didn’t win government tenders to be rich and once rich from his own initiatives he tried to help others by starting a scheme for people to make money.

To many, especially those who invested with it, MKM was not a pyramid scheme but an investment plan that had good returns.

The inherent fear among depositors that should MKM be sunk through a liquidation process then their lives are ruined also makes the case even more complicated.

Among those who invested with MKM are pensioners and former mine workers who after getting their terminal benefits decided that they could earn some interest by investing their money.

The idea, so they thought, was that with an annual return of 60 percent, they could afford to live off the interest and leave the principal amount intact.

There are orphans who invested money they got from their parents’ estates.

There are people who emptied money they had saved for decades to invest in the scheme.

Then there are those who speculated by selling their prized assets to raise money to invest in the scheme.

MKM’s fate is therefore very much tied to the fate of these people.

It is the difference between a miserable old-age and a reasonably comfortable retirement.

It is the difference between destitution and a better life.

The people’s anger is therefore justifiable.

Add that to the fact that most of the depositors are poor people who still have not understood that they were putting their money in a pyramid scheme that was going to collapse sooner or later even if the CBL had not intervened to shut it down in November 2007.

Many are yet to accept that what they were calling an “investment scheme” was actually an illegal business which is notorious for enriching a few and impoverishing many.

It has not dawned on them that it was a “gambling scheme” that takes money from the poor to pay off those at the top of the scheme.

But even if they understand this reality it does not necessarily mean they will accept that they deserved to lose their money in that way.

When you invest in a pyramid scheme, fake company or even illegal drugs you expect a return and MKM investors are no exception.

There are other reasons why MKM is a hot potato.

Given the emotional and monetary attachment that people have to MKM it is not wild to postulate that any government that does not deal with the case in such a way that depositors can salvage some of their deposits may be punished at the polls.

One only has to look at the number of people involved to see why MKM’s closure may pose a serious threat to the government.

With 400 000 in its books MKM probably has more people than any political party in Lesotho.

Notice too that most of the MKM depositors are economically active people who are most likely to be registered voters.

Add that to the fact that there is an engrained perception among those 400 000 depositors that the government’s decision to shut down MKM was an “injustice”.

Because of that, the MKM issue might have become an albatross on the government’s neck.

If the government liquidates the company it risks the wrath of the people.

If it doesn’t it risks facing a serious financial crisis whose ripple effects would be felt beyond Lesotho’s borders.

An amount of M300 million missing is not a small matter in a small country like Lesotho.

Also what MKM had become in the years before its closure is part of the problem.

So strong was the lure of its promised riches that even prominent people including government ministers had invested in the scheme.

Therein lies the other possible reason why the MKM issue is too hot to handle.

If it is true that some ministers had their money locked up as well then the decision to liquidate the firm might meet strong dissent in cabinet.

It would take real courage and selflessness for a minister who had, say, M100 000 locked in MKM to give his blessings to its liquidation.

It’s safe too to say that most ministers have relatives who are set to lose dearly if the company is liquidated.

Many would not want to see it liquidated.

In the years before its closure MKM’s influence had grown immensely.

Its tentacles had spread to almost every facet of Lesotho.

One of those sectors that has become entangled in MKM is the judiciary, the very sector that is naturally supposed to provide a fair solution when all others have failed.

It is understood that at least three judges of the 11 that sit on Lesotho’s bench had invested with MKM.

There could be more.

At least two judges have children employed by the company.

There is speculation that a number of judges are reluctant to hear MKM’s liquidation case.

One judge’s relationship with MKM illustrates the main reason it would be difficult for anyone to be seen as impartial in dealing with the case.

Justice Tseliso Monapathi, Lesotho’s most senior judge after the chief justice, recused himself from the MKM case in April after it emerged that he had borrowed a car belonging to the company when his official vehicle had gone for service.

Many prominent people are understood to be entangled with the MKM.

So what’s to be done about MKM’s woes?

There is no easy answer to this question because whatever solution that is settled for is likely to enlist bitter resentment from someone.

With a hole of nearly M300 million in its books MKM is almost beyond redemption.

Its directors however do not share this pessimistic assessment and insist that they have the money to pay out the depositors.

MKM could find investors who would pour money into its operation but there is a huge problem this route might face.

What will the new investors be investing in?

Is MKM an investment company or a pyramid scheme?

It will be hard to find an investor who is willing to pump money into an investment that has guaranteed depositors a 60 percent return on investment.

Even casino businesses are not that profitable.

This could explain why some South African insurance companies that MKM has courted might be developing cold feet.

The government might opt to dip into its already shallow pockets to provide some bail-out but that again might be a problem.

For starters, before a bail-out can be provided MKM must explain what it did with the money it received from investors and how it used it.

There must be thorough due diligence before the government can offer a package.

Yet even if they manage to trace how the money was used there will still be other hurdles to deal with.

That problem arises from the definition of MKM.

MKM was not a bank. Neither was it an insurance company.

It was an “investment scheme” with opaque operations and was based on unfounded and unrealistic promises.

In any case it will be difficult for the government to justify bailing out a business that had already been labelled a pyramid operation.

The MKM case is surely going to be with us for a very long time.

 

This article originally appeared in the Sunday Express, our sister paper, on May 16 2010

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