No shoulder to weep on as State abandons pyramid scheme victims

A UK court last Wednesday found Kevin Foster — a former cab driver who turned his hand to investment — guilty of defrauding clients of 34 million pounds (Sh38 billion) through a pyramid scheme that ran for nearly a decade.

And last June, a US judge jailed Bernard Madoff for 150 years for running a similar scheme, signalling the significance of the crime based on the number of victims, the amount of money he stole and the extent of the damage he caused.

But as all this was happening, in Kenya, investigations into a similar fraud––orchestrated through pyramid schemes hit the country two years ago––seem to have ground to a halt.

Grown weary

A report, prepared by a taskforce, which shed light on the activities of the pyramid schemes, is beginning to gather dust inside government offices despite the hullabaloo that occasioned its launch in June 2009 and its tabling in Parliament three months later.

The 20,000 Kenyans who lost Sh8 billion cumulatively in the collapsed pyramid schemes are in for a long wait as the Government drags its feet in implementing recommendations of the taskforce.

Even men and women who helped investigate the fraud have grown weary of waiting for government action and are demanding that the authorities pursue the crooks, some of them well-connected, nine months after the experts handed over the report.

The taskforce chairman is a disappointed man.

“The State has done very little, if anything, since none of our proposals has been implemented,” said former MP Francis Nyenze who chaired the Ministerial Taskforce on Pyramid Schemes.

The fraud has been linked to loss of lifetime savings, family and matrimonial break-ups, suicides, depression and exacerbation of illnesses such as diabetes and high blood pressure.

“These people who defrauded Kenyans are still driving around in town. We see them every day and nothing is being done,” said Joseph Kinyua of the National Pyramid Scheme Survivors Initiative, based in Nairobi.

“This is state-sanctioned impunity and must be stopped,” he added.

Apart from the expected victims’ compensation, as proposed in the taskforce report, what has been of more importance to many investors is whether or not the financial system — whose loopholes were blamed for the fraud—will be reformed to protect investors and deal with crooks.

Some analysts reckon that the financial system cannot be fixed until there is a candid assessment of who let things get out of control, allowing the pyramid schemes to thrive in an economy that boasts of having one of the most stringent systems in the region.

The report points an accusing finger at legal gaps within the financial system, which allowed the schemes to operate as savings and credit co-operative societies (Saccos), companies, and non governmental organisations (NGOs).

The taskforce sought an amendment to the current financial laws, making provisions for prohibition and promotion of pyramid schemes — coupled with the enactment of the Anti-Pyramid Schemes Act.

The law, if enacted, will provide for stiffer penalties and custodial sentences for offenders, a move that could see Kenya borrow a leaf from the Madoff case in the US.

In the UK, Kevin Foster was convicted of 14 counts of theft and deception.

Through his KF Concept roadshows, he promised investors that he had a foolproof gambling and multi-level marketing system, claiming that for every £1 invested investors would make £28.50, and that his scheme was sitting on a fortune of over £203m.

“The (Kenyan) masterminds are still at large, doing business with the money they defrauded us as if they did not do anything wrong,” said Wycliffe Yamo, a retired engineer. He lost Sh850,000 to the fraudsters, he said, adding that his close relatives lost much more.

The Ministerial Taskforce on Pyramid Schemes chairman, Mr Francis Nyenze, has joined thousands of victims of the fraud in demanding that at least one of his team’s recommendations be implemented — that the Central Bank reveals the status of frozen pyramid scheme-related bank accounts, amid fears that powerful figures linked to the schemes have quietly been moving monies from the accounts.

The report identifies 80 accounts, spread across the country and in all major banks, operated by an estimated 12 collapsed pyramid schemes.

“The accounts were either held in the names of the pyramid schemes or those of the individuals that formed them,” says the report.

Frozen accounts

Both the taskforce report and victims said some of the accounts have since closed down, with minimal or nil balances.

Out of the Sh7.4 billion suspected to have been stolen through the schemes, the taskforce managed to track down a paltry Sh273 million as the schemers hurriedly moved to cover their tracks.

“The (bank) closures were preceded by huge withdrawals in the form of transfers and cash withdrawals for undisclosed reasons,” the taskforce noted.

“We have information that the money has been withdrawn, and moved elsewhere,” said Bishop Erastus Njoroge, representing 18,000 victims of the collapsed schemes in Mount Kenya region who, according to the taskforce report, lost Sh800 million.

Similar fears were expressed in Nairobi, the leading loser in the scam with losses amounting to Sh5 billions, where investors said they feared that the schemes’ inventors might be regrouping and mooting other sinister scams.

And the only institution that can shed some light on how much money remains in the frozen accounts has so far remained mum.

According to Mr Nyenze CBK, which ordered the freezing of the accounts, has refused to reveal their status on grounds that such information is confidential.

Contacted for comment, CBK could not confirm or deny that some of the accounts were emptied long before they were frozen.

Instead its communication handlers termed the matter “sensitive”, promising to “raise it with the Governor,” Prof Njuguna Ndung’u.

But it is not just the recommendation that CBK releases a status report on pyramid scheme-related bank accounts that has not been implemented.

The Nyenze-led taskforce came up with 22 recommendations, chief among them the speedy investigation of more suspect bank accounts run by the masterminds.

The deadline for the completion of investigations expired on January 24, with no indication of success.

Not even the Kenya Anti Corruption Commission has been of help, the victims said.

One of the recommendations in the report was that Kacc be brought on board to probe the schemes further.

But according to the report, Kacc said it did not deal with cases involving private individuals and companies.