Thousands of people have lost their savings by trusting those who promise a lot of money in a short time
By < /p>Yalilé LoaizaFrom Quito
Close up concept shot of fingers walking crawling up a pile of one hundred dollar bills
Thousands of Ecuadorians have entrusted their money to illegal money collectors who offered high interest rates in a short time. The last scandal thatit even involved military personnel in active service of the Armed Forces of Ecuador ended with the murder of the leader of the illegal system of collecting money. But this is neither the first nor the only scam of its kind in the country. So why do Ecuadorians continue to fall for these systems?
Just 16 years apart, two cases in Ecuador are emblematic: that of notary Cabreraand that of “Don Naza”. In both illegal systems the captors died and the people lost their money. In addition to these, in 2022 it was known that in Loja, in the south of Ecuador, at least 200,000 people were immersed in pyramids that offered them interest on their capital in the short term.
In April 2022, it was learned that two police officers received money illegally in a fundraiser called “Grupo Renacer”. The Minister of the Interior, Patricio Carrillo, confirmed that the police officers are being investigated by the National Police’s General Inspectorate and Internal Affairs.
The Superintendence of Banks has indicated that complaints of financial fraud pyramid schemes rose from 2 to almost 50 per month. In addition, it has detected hundreds of cases in which companies and individuals contact citizens to offer them alleged financial services, often via WhatsApp.
The Financial and Economic Analysis Unit warns that for this type of scams “facade companies, services and/or products are used: health and medicines; aesthetics and beauty; tourism, recreation and sports; professional advice; provision of equipment and machinery; food and natural and artisanal products; and, national money orders; pension plans, housing, cars, sale of prepaid cards, among others.”
Pyramids as a business
A pyramid scheme is a deceitful business planthat illegally captures resources and that supports its operation in the rapid growth of its depositors. This growth is driven by contributions from clients who receive interest rates higher than those that can be paid by companies in the formal financial system.
This scheme works as long as a large amount of new money enters the mechanism, otherwise the saturation score is obtained and the clients who are in the system at that moment lose their money.
Of the pyramid schemes, the most common is the Ponzi scheme which poses as a financial company or intermediary of resources and investments. Clients often know they are participating in a fraudulent scheme because of the high interest rates they receive on their deposits given to collectors.
Carlos Ponzi, in 1920, went from being an Italian immigrant with a few dollars in his pocket in the United States to a millionaire in less than half a year.
The name of this fraud is due to Carlo Ponzi, who in 1920 went from being an Italian immigrant with a few dollars in his pocket in the United States to a millionaire in less than half a year. His plan, however, was not the first to be known. The fame of the Spanish business Baldomera Larra spread like a plague in Madrid in the 1870s and that paid, in full view, 30% monthly interest with the fresh money of the new income from new clients.
In 1997, about 2 million Albanians, or 60% of the population at the time, experienced a loss estimated at USD 1.2 thousand. Due to this great crisis, Albania was preparing to suffer a civil war and thousands of people died in the midst of the crisis.
Bernard Madoff’s Ponzi scheme, discovered in December 2008, reached USD 64.8 billion, the largest fraud ever recorded by a single person.Madoff served as president of a Wall Street investment firm named after him and the one he founded in 1960. In December 2008, the FBI arrested Madoff and charged him with fraud. On June 29, 2009 he was sentenced to 150 years in prison.
The illegal collection of money is a crime against the financial system and is typified in the criminal law of Ecuador as the activity carried out by a person or group of persons who organize, develop and promote, publicly or clandestinely, financial intermediation activities without legal authorization, aimed at illegally collecting money from the public on a regular and massive basis. The Comprehensive Organic Criminal Code of Ecuador sanctions these actions, in its article 323, with a prison sentence of five to seven years.
The notary who handled more money than the banks
José Cabrera Román, 71 years old and second notary of Machala, died in a luxury hotel in Quito after getting drunk with huge amounts of alcohol and inhaling coca, testified to justice Jessica Priscila Valle, the 18-year-old woman who accompanied the notary in his last hours of life The medical part registered the death caused by a heart attack.
The notary José Cabrera Román had an illegal money collection system that managed millionaire figures even exceeding the reserves of some banks in Ecuador.
The news of the death spread like wildfire and caused an outburst of despair among its thousands of depositors among whom were at least 6,000 soldiers, 535 police officers, in addition to hundreds of judges, politicians, prosecutors, merchants, prostitutes and immigrants who appeared on the list of people associated with this fraudulent business.
With the list it was discovered that the notary Cabrera was the head, for more than 10 years, of a money deposit network of more than 35,000 depositor clients, including at least 200 Colombians, whom he paid up to 12% monthly with interest.
Cabrera’s illegal recruiter came to handle around USD 800 million, an amount much higher than what it managed then < b>the Banco de Guayaquil with USD 700 million and only below the Banco del Pichincha, the largest bank in Ecuador, which handled USD 1,350 million in deposits, according to the then deputy Carlos González of the Democratic Left who was investigating the case. The case was never clarified and there were never any arrests or sentences.
The pyramid that ended with a murder
Thousands of people attended Miguel Nazareno, a former Ecuadorian military man, to leave his savings. Don Naza, as Nazareno was nicknamed, offered to pay clients 90% interest in 8 days. Miguel Nazareno operated in Quevedo, a coastal city in Ecuador 265 kilometers from Quito.
‘Don Naza’ has been featured in local media saying that he is a manager for Big Money, a “company” that is part of the business. to capture money that, according to experts, would use the Ponzi scheme to defraud its clients.
Nazareno started his “company” called Big Money, in 2017, receiving money from 40 partners among whom were the military, doctors and “other professionals who took the risk of investing.” The pyramid grew to reach, in the words of Don Naza, 6,000 people.
On July 30, 2021, the National Police authorities raided the home of Nazareno and two other houses. According to the authorities and according to what was published in Vistazo Magazine, Don Naza had been operating his financial institution for three months and had also opened a store where he delivered free groceries and appliances on weekends.
< p class=”paragraph”>Nine months after those events, Miguel Nazareno’s body was found in a vacant lot south of Quito. His hands were tied with a blue rope and his torso was naked.
The murder occurred a week after Nazareno had visited the Ministry of Defense with other suspicious persons.Nazareno entered the military complex, which has high security filters, in a truck full of bundles of bills and then escaped from the military and police authorities who were carrying out an operation, according to the official version.
The body of Miguel Nazareno, known as “Don Naza,” was found on a piece of land south of Quito.
Ecuadorian Defense Minister General Luis Lara Jaramillo, said in his first press conference that more than a hundred members of the Armed Forces appear as possible investors of Big Money. According to General Lara’s declarations, 139 military personnel on active duty would have invested in the pyramid, including three officers and 136 members of the troops.
The authorities of the Armed Forces identified the soldiers who would have invested money through an unofficial list that they were able to access from the investigation carried out by the Quevedo Prosecutor’s Office, which includes 2,655 people who participated in the pyramid. There, the names of more than a hundred soldiers were verified. However, Lara justified that this is a “minority number”, since there are 40,000 members of the Armed Forces, so only 0.346% would have invested in Big Money.
On that occasion, General Lara indicated that seven soldiers would be administratively prosecuted for Don Naza’s entry into the complex. The current disciplinary proceedings are against four officers and three members of the troop for allowing the security violation of the complex: “It is not for alleged illegal collection of money, it is for having been responsible for this security violation,” he stressed. the minister.
Why pyramids are so attractive
The promise of earning higher interest rates than those offered by the financial system, of obtaining high returns in the short term and of receiving commissions for the incorporation of new investors, attracts thousands of people who decide to entrust their money to illegal money-raising systems. The idea of earning quick and easy money is attractive to anyone. However, pyramid schemes always reach a point of no return. At that moment, those who deposited their savings lose all the capital they gave to the scammers.
Tatiana Macías, professor at the Faculty of Economics of the Universidad San Francisco de Quito, told the newspaper La Hora that, to explain why people are attracted to the pyramids, the law of least effort must be considered: “To obtain profitability I have to work, but we see these ‘entrepreneurial’ opportunities, in which I become an investor, leave the money and put it to work. But, as the popular saying goes, greed breaks the sack . So, by trying to have a very high performance, at the end of the day we can end up with nothing. Macías also assured that fraudsters “also play with the illusions” of those who become their “investors”.
In Ecuador, in addition to that reality, still today the bad memory of the banking holiday weighs on some sectorsthat happened in 1999 and where thousands of people lost their money after the banks froze their savings. The financial crisis that would lead to Ecuador becoming dollarized also caused thousands of citizens to emigrate in search of better opportunities.
During the presidency of Jamil Mahuad, the bank holiday was decreed. It was also Mahuad who decided to dollarize Ecuador after the devaluation of the Sucre currency. (AP)
According to a report published in the newspaper La Hora, one of the causes of the banking holiday was that the banks’ overdue portfolio increased so much that it quadrupled the provisions of financial institutions. The past due portfolio refers to unpaid loans by customers. “In other words, the banks that failed did not have enough money to cover the losses generated by delinquent customers,” the text explains.
That tragic episode has not been completely forgotten by Ecuadorians, because it has also become a fundamental piece of political discourse. For example, in the last presidential elections of 2021, in which Guillermo Lassodefeated the correísmo candidate, Rafael Correa’s party pointed to the now president of Ecuador as one of the causes of the bank holiday, despite the fact that the 1999 Financial Crisis Investigation Commission determined that he had no responsibility.< /b>
With this background, people who decide to deposit their money in illegal collection systems could distrust the bank.
Although the Superintendence of Banksreported that as of November 2021, deposits in the Ecuadorian financial system were 11.2% higher than the same month in 2020 and 23.2% higher than 2019. Some institutions did register anomalies with the appearance of pyramids such as Big Money of Miguel Nazareno.
The manager of a financial institution, who asked to keep his identity confidential, told Infobae that in one of the branches, located 62 kilometers from Quevedo, the city where Don Naza operated, there was an increase in withdrawals from his savings accounts: “A month later it became known through the news that there was the case of Don Naza. People took almost all the money out of their accounts to leave it with him”, he indicated.
According to figures from the State Attorney General’s Office, in 2020 complaints for the crime of fraud increased. In 2018, there were 14,413 lawsuits for this crime, while just two years later the figure reached 18,569.