Sunday, 27 May 2007

Watching a Ponzi-scheme implode

Over and over again, people get involved in Ponzi schemes (most likely since before Ponzi's time). The ones who get in early on can profit - sometimes handsomely, if they get their exit timing right.

In Slovakia, we are currently seeing what looks dangerously like a Ponzi scheme unravel and it seems fur is gonna fly...

In November 2006 a company called Duna-Trade, s.r.o. based in Galanta, a small town some 50 km from Bratislava, changed its name to Auto-Reklama, s.r.o (which means "car advertising"). The seat of the firm changed from a run-down Galanta prefab block of flats to an attractive address in the historical centre of Bratislava.

Soon an offer that sounded too good to be true but good enough for those who wanted to fall for it came to light: if you own a car, pay SKK 25,000 (about USD 1,000) upfront, Auto-Reklama will plaster advertising all over your car and pay you SKK 7,000 every month. Or lease a new car through the company and they will pay the same amount towards your leasing. All you have to do is show up once a month so the company can check you are driving the required amount (900 km).

Cars of all makes and ages with aggressive Auto-Reklama stickers proliferated around Bratislava and Slovakia and people started to get paid. More people signed up. The media did a little sniffing - the owner of the company turned out to have debts vis-a-vis the state Social Insurance Agency from other companies. More interestingly, all the ads were always for Auto-Reklama itself. After all, whoever would pay over SKK 100,000 per year (assuming a VAT tax and some minimum fee for the middle-man's transaction costs) to put a sticker on someone's ugly car? Perhaps one of the Miss Auto-Reklama candidates? Or the 82 Bratislava cars featured on the website (notice the licence plates, readable on most cars)?

In May Auto-Reklama missed its monthly payments, the owner disappeared (a spokesman for the company explained only the owner had the right to release payments and the owner was abroad). Auto-Reklama offices in some towns stayed closed, with employees reportedly fearing an angry mob.

Two big questions remain:
1. Where is THE MAN behind all this now (a Mr. Porozsnyák)?
2. Do those butt-ugly stickers come off without trace?