Poland suffers collective failure to regulate

By bne IntelliNews August 20, 2012

Jan Cienski in Warsaw -

Amber Gold, the failed unregulated Polish investment firm, was difficult to avoid - one of its 60 branches was located just metres away from the headquarters of the Polish Financial Supervision Authority, the government's consumer watchdog agency, the National Bank of Poland and the Finance Ministry.

Its advertisements, promising "guaranteed" investment returns of as much as 16.5% a year, graced the pages of the country's leading newspapers and magazines, while enormous billboards featuring a grizzled Clooneyesque man contemplating his golden future with Amber Gold adorned the buildings of Poland's largest cities.

For those with a grain of financial sense, a company offering returns like that at a time when most banks were giving their best customers deposit rates of about 6% (which were then also hit with a 19% capital gains tax) seemed highly suspicious. But with the notable exception of the Financial Supervision Authority (KNF), government agencies did nothing.

Now that Amber Gold has gone spectacularly bust, with at least PLN80m (€20m) of customers' money missing, Polish government agencies are scrambling to make up for years of neglect that allowed the firm to operate in apparent violation of a host of laws and regulations - but the whole operation has a bit of a close-the-barn-door-after-the-horse-has-bolted flavour.

Pariah banks

A special Financial Stability Committee involving most financial sector regulators met on Thursday and came out with a series of recommendations to tighten up the law on so-called "parabanks," to get government agencies to more closely investigate firms that find themselves on the KNF's watch-list for acting without a banking license, to penalise companies that do not publish financial results, to limit the ability of companies on the KNF watch-list to advertise and to improve communication among government agencies.

The trouble for Amber Gold's clients was that the company and its founder, Marcin Plichta, broke all of those recommendations, and suffered no consequences - until now.

Plichta, whose original last name was Stefanski, is a 28-year-old with a knack for getting people to lend him money, but with a history of problems in paying them back.

He founded Amber Gold in 2009, after an earlier venture which was aimed at allowing people to pay utility bills at a lower cost than at a bank failed, leaving almost PLN200,000 of customers' money missing.

Despite a suspended sentence for fraud, Amber Gold started promising customers fantastic returns by investing in gold - a metal that was in the midst of a massive leap in value. Yet the business plan was never quite clear, as Plichta promised to ensure customers' returns out of past profits if the price of gold fell - something that happened this year. Amber Gold never fulfilled minimal legal requirements of filing accounting results, and its investment strategy was murky at best.

It became even more mysterious when Amber Gold jumped into the tricky airline business last year, buying OLT Jetair, an ailing German carrier, and setting it up as an airline serving Poland's national market. OLT Express launched in April, selling tickets for as little as PLN99 on flights between larger Polish cities.

Just how much Amber Gold sank into the airline is unclear - estimates range from PLN30m to more than PLN200m- but in July the investment firm pulled the plug, forcing OLT Express to ground its airliners and declare bankruptcy.

The KNF had placed Amber Gold and 15 other companies on a watch list of acting without a banking license, but the prosecutor's office took only a desultory interest in Amber Gold despite pressure from the KNF. Other institutions did nothing. OLT's very public implosion finally stirred the media and the authorities to take a closer look at Plichta and Amber Gold.

Chequered past

The press quickly found that Plichta had not one but nine past convictions for fraud and other financial offences, receiving suspended prison sentences for all of them. The past convictions should have made it impossible for Plichta to be the CEO of a registered company - however no one bothered to check his record when he founded Amber Gold.

His criminal past also meant that he should have been unable to trade in gold and platinum, however neither he nor Amber Gold had applied for the required license with the central bank, and again no one bothered to check. The central bank has tried to shift the blame on the tax inspectorate and the customs department - who also did nothing to control Amber Gold.

In a press conference held just before Amber Gold shut its doors for good on August 13, Plichta assured reporters that he had 110 kilograms of gold (worth about PLN20m) on hand, and that the total assets of his company were easily more than required to pay off the 7,000 unfortunates who still had funds deposited with the firm. However, no one had any proof of just what clients' money had been spent on, and the true state of Amber Gold's assets.

The prosecutor's office, which had not acted on the KNF's request to investigate Amber Gold, now has about 150 fraud claims filed by the company's clients.

Plichta's apartment was raided on August 17, and he has been charged with issuing illegal loans, violating banking regulations and falsifying documents. Polish radio says that police found 60 kg of gold on the premises.

However, it is unclear that Amber Gold has any money left in its accounts. The Dziennik Gazeta Prawna newspaper reports that the accounts are empty, and the German gold merchant cited by Plichta as his source of precious metals denies having anything to do with him.

"There is a task for all of us, that in the future so many people, so many institutions not fall prey to people who want to exploit their naivety, sand sometimes lack of care and sometimes the desire for gains, so that people cannot be fooled on such a scale," said Donald Tusk, the Polish premier, whose own son is in the firing line for having worked briefly at OLT Express.

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