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Golden Key Fraud in Sri Lanka
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Joy09
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 16 Jan 2009 02:59:33 GMT Report for Abuse
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I agree with 777Roger that so far the CID seems to be impartial. Apart from employing Ex CID officers I understand that the present Director CID Mr. Sisira Mendis's wife is also employed at The Finance and through her influence he gets a lots of investigations stopped at CID.
Ceylinco also has a lot of influence with the AGs deparment. I understand that the criminal case filed against LK in 2002 and referred to by Vasu in his letter was filed on a private plaint since the AGs refused to file charges in spite of enough evidence against LK. Mr.CR De Silva was the solicitor General at that time and this matter came under his purview. His appearing for the Ceylinco Group now reveals the nexus he has with them. I also understand Mr.SS de Silva CR's brother is one of the main lawyers for Ceylinco for sometime. That explains the favourable treatment he gets from the AGs.
It appears that in paradise we have wheels within wheels and the system is corrupt to the core. Under the circumstances I won't be surprised if LK goes scot free.
Edited By - Joy09 - 16 Jan 2009 03:02:48 GMT |
Joy09
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17 Jan 2009 01:46:57 GMT Report for Abuse
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| The latest news is that yesterday LK and all other directors of Golden Key who were hereto cited as witnesses were named as suspects in the fraud. The auditor of GK, 78 year old Nallanthuwan was also remanded yesterday along with the three remanded earlier till the 30th of January. Mr. LK was ordered to submit the list of depositors by the 20th of January. Mr. C.R.De Silva, the former AG and presently the counsel for LK submitted that they have already started paying the depositors and that Rs. 31 Million had been paid to 251 depositors. |
Senaka2
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 18 Jan 2009 21:42:11 GMT Report for Abuse
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| [I got to know that one of the Ceylinco Companies - F&G Properties is in serious financial crisis. They have housing schemes in Malabe, Nawala and several other places. They are now in a situation that they can't pay the worker's wages. Also the cheques they issued to some of their suppliers were returned by the bank. Also they have Fixed Deposit saving arrangements. Some people who saved with them have difficulties in withdrawing money from their accounts. |
NonResident
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 20 Jan 2009 15:21:22 GMT Report for Abuse
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31 Million Rupees paid to 250 Depositors!
At this rate, if they pay out at Rs 1 Million a Day they will take 26,000 days to settle all the depositors!
26,000 X 1 Million = 26 Billion!
26,000 days translates to 100 Years! (Based on business days)
I am not surprised why so many are in the deposit taking business!
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NonResident
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20 Jan 2009 15:43:03 GMT Report for Abuse
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Readers, this is an interesting Read!
Central Bank in Slumber Part II
Picking up from my previous story (Golden Key Scam: Central Bank in Slumber), I am convinced the following identified facts, confers validity to my conclusion on the Governor and Officials of the Central Bank of Sri Lanka. In light of this I like to share these facts with the readers to highlight the level of hypocrisy and mediocrity prevalent at the Central Bank, which is purported to be commandeering the Sri Lankan financial system.
Before I start discussing the issue at hand let me recap on what prompted me to pursue on this course
Firstly, Sunday times (FT) article captioned CB on alert on Ceylinco Group s other finance Cos (28 December 2008), whereat it is stated
CB Governor Nivard Cabraal however told The Sunday Times FT that Golden Key is not a registered financial institution with the Central Bank and therefore there is nothing the Central Bank can say (or do).
Furthermore the Central Bank contends
Golden Key is a 'separate institution'. In our supervision scope this company is not covered.
And many other CBSL contentions are as follows
'We are not concerned about the GK side, but we are monitoring other Central Bank registered companies of the Ceylinco Group,'
They deal in credit cards (as their primary business line) and credit cards are not under finance or leasing
' The official noted that in 2003 the regulator received complaints from the public alleging the company was accepting deposits. 'We wrote to the company and (Ceylinco Chairman) Dr. Lalith Kotelawela told us that he will not allow the company to take deposits from the customers without giving them credit cards. Then we put these correspondence to the Monetary Board,'
He said the Monetary Board was satisfied and the investigation had ended there.
And this is what Ajith Nevard Cabraal, our erudite Governor, had to say at a media briefing (reported by Island 1/1/09)
Taking of deposits is not an illegal act, many organizations do so for example Elephant House on their empty bottles .. (for clarity one can sell the Elephant House bottle to the bothal Karaya and recover part of the value!)
Now that we have all the CBSL outbursts outlined, I want to rationally analyze these outbursts, using their own (CBSL) yardstick to prove to myself I am wrong and I was irrationally being verbose to bring disrepute to the esteemed Governor and the institution he heads.
As a first step I browsed the CBSL website in order to find some material to support our esteemed Governor s stand, which would have made me eat humble-pie!
Alas!, I found two interesting pieces of material
1. Pamphlet Series No. 5 Institutions Authorized to accept deposit from the public, published in May 2006 (http://www.cbsl.gov.lk/pics_n_docs/10_publication/_docs/pa/pamphlet/pl_5.pdf )
and
2. Pamphlet Series No. 4 Danger posted by Pyramid Schemes and Network Marketing Programs, published in May 2006 (http://www.cbsl.gov.lk/pics_n_docs/10_publication/_docs/pa/pamphlet/pl_4.pdf)
Evidently these Pamphlets are prepared, by the CBSL after extensive research and based on real-time experience, for the benefit of the general public to ensure the general public is made aware of dangers out their in the market place which is purportedly regulated by the CBSL!
The following statement is a reproduction from the cover of pamphlet series No. 5
The purpose of this pamphlet is to inform the public of the various categories of
institutions that are legally authorised to accept deposits from the public. The pamphlet
also defines the meaning of deposit and warns the public of the attempts of certain
unauthorisd institutions to mobilise monies by calling them other names, such as
investments or borrowings .
Furthermore I picked up the following paragraph from the same pamphlet
It has been brought to the notice of the Central Bank that some institutions, which are not legally authorized to accept deposits from the public, are raising monies from the public in various forms by calling them investments or credit or borrowings or placements , and interest is paid thereon. If any scheme has the characteristics given in the above definition, mobilization of funds under such a scheme amounts to acceptance of deposits irrespective of any terminology used.
This pamphlet also has the following quote
Licensed commercial banks, licensed specialized banks and registered finance companies have been given authority by the Central Bank of Sri Lanka to mobilize deposits from the public under the existing laws.
Based on the contents of this pamphlet, I could not convince myself to eat humble pie! But, to rationally contend that (unless some scholarly legal wizard at CBSL or elsewhere contradicts my contention)
Any institution not authorized by the CBSL, which raised monies from the public in varied forms (including deposits to issue plastic cards) and pays interest thereon on these deposits, such an institution is guilty of an offence under the existing laws.
Now let us turn to pamphlet series No. 4.
The following is the reproduction from the cover of the said pamphlet
In the recent past, the Central Bank became aware of the operation of a Pyramid Scheme which was disguised as a network marketing scheme and had attracted a large number of participants from Sri Lanka. The Central Bank, recognising the danger such schemes would pose to the economy and to its participants, took immediate steps to prevent the spread of the scheme. These included initiating changes in the law to make such schemes illegal in Sri Lanka, and mounting of an awareness campaign to educate the public on Pyramid Schemes. This pamphlet which explains the nature of different types of Pyramid Schemes, outlines the danger they pose and provides tips on identifying Pyramid Schemes. It is issued by the Bank as a part of its awareness campaign on Pyramid Schemes.
In light of the theme in discussion (Golden Key Scam), there is one piece of material in this pamphlet which made me step back to ensure I had my eye glasses on and I was reading right!
In a boldly highlighted box, I found this piece of information under the heading PONZI SCHEMES
Another type financial scam which bears similarities to a pyramid scheme is the Ponzi Scheme named after Charles Ponzi who ran such a scheme in 1919-1920. This type of scheme is run by a central company or an individual who receives funds from clients falsely claiming that such funds will be invested in very productive ventures and promising very attractive returns. In reality funds received from later investors are used mainly to pay earlier investors the promised returns, and very little if any is invested. When funds run out as is inevitable, the scheme collapses. Unlike in the case of pyramid schemes, participants in Ponzi schemes will be unaware of the nature of the scheme in which they participate.
Now, let me come back to the subject under discussion and evaluate the outbursts of the erudite Ajith Nevard Cabraal and his band of scholarly officials, by using material prepared by the institution they represent and try and prove myself wrong! (make me eat humble pie!)
I will let the readers ask themselves the following questions, and decide who should be sitting at home eating humble pie, far away from the CBSL which is purported to steer the financial system of our beloved homeland!
Was Ajith Nevard Cabraal talking through his hat when he told The Sunday Times FT Golden Key is not a registered financial institution with the Central Bank and therefore there is nothing the Central Bank can say (or do). ?
Was one of Ajith Nevard Cabraal s cronies again talking through his hat when making the following statement They deal in credit cards (as their primary business line) and credit cards are not under finance or leasing
And finally the biggest of all Howlers
' The official noted that in 2003 the regulator received complaints from the public alleging the company was accepting deposits. 'We wrote to the company and (Ceylinco Chairman) Dr. Lalith Kotelawela told us that he will not allow the company to take deposits from the customers without giving them credit cards. Then we put these correspondence to the Monetary Board,'
Now read this statement in conjunction with the two pamphlets
And, Alas!
Wasn t Dr. Lalith Kotelawela running a Ponsi Scheme as defined in pamphlet series No. 4?
Didn t the CBSL know Dr. Lalith K was running a Ponzi Scheme (they were informed in 2003) when they published pamphlet series No. 4 in 2006 and warned the public to be on the look out?
Well readers, the next time when someone complains to you of being robbed, what would you do if the person who stole told you I did not steal, I took the money but I made sure I left a plastic card ?
Would you do a Ajith Nevard Cabraal and pamper him and say he is not violating any laws or would you complain of the robbery and include those who aided and abetted too?
In my view, The Governor and his officials are guilty of the same offence and as such liable for the same punishment! |
kiwikanga
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 20 Jan 2009 21:19:33 GMT Report for Abuse
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Non-Resident,
Fanatsatic posting and perfect analysis with legal precision!
BUT...
Since you are 'Non-Resident' you don't seem to be aware that now in SL being corrupt is the rule rather than the exception. You also could not be aware ( as you are Non-Resident) that now SL is ruled by the corrupt for the benefit of the corrupt and unscrupulous. Of course being corrupt necessitates to have the right connections high up to the highest possible levels in the administrative and political structure!
Unfortunately still SL's legal structure, rules and regulations are those formulated during the days when corruption was the exception rather than the rule.
So now when the tables have turned and times have changed the 'erudite officials' we have now, find themselves lost for words in trying to cover up fraud (which they now don't see as fraud!) viewed in the light of the rules and regulations formulated during the days and times when a spade was called a spade. That's why these 'erudite officials' come out with 'rational analytical talk' such as the likes of 'Elephant House and the bottle deposits'!
In SL fraudsters with the highest connections get off leaving genuine and honest people to become the scapegoats. Those without connections to the high and mighty get collard ie: Danduwam Mudalali, or else they simply abandon ship like Sakvithi Ranasinghe.
Now in SL the straight picket in the fence stands out amidst the crooked pickets, rather than it being the other way around. Sadly but truly that's what SL is today with no sign of changing.
Edited By - kiwikanga - 20 Jan 2009 21:25:31 GMT |
NonResident
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21 Jan 2009 06:38:34 GMT Report for Abuse
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Kawikanga,
You are spot on!
Eventhough I am a nonresident I keep abreast of what is happening back at home.
Its a shame transparency and accountability which are the basic ingrediants to maintain the integrity of financial systems are limited to the vocabulary of the regulators for the purpose of eye-washing! |
Deepthroat
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 21 Jan 2009 10:09:27 GMT Report for Abuse
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Non Resident:
Of course on hindsight it seems there are violations. I don't think your post adds that much to the debate as it is repetitive. My heart goes to people who deposited their life savings in Golden Key.
Finance Companies promising high rates and going bust is nothing new in Sri Lanka. People somehow got blindsided that a Ceylinco Company may just be making great profits to pay these high interest rates. After all Mr. K was so solid and it was he who the Central Bank calls upon from time to time to take over failed Finance Companies and bail out depositors.
Now be it Lalith Kotalawela or any bank for that matter is only good as the amount trust the depositors have in the institution.
Was Golden Key a Pyramid scheme? No. Was Is it a Ponzi scheme?,or as you seem to suggest in your post, was it part of a more elaborate scheme to rip off the depositors that was hatched by Mr. Khavan Perera, The Chairman and Board of Directors, and perpetrated by Sarada Sumanasekeara? Great plot but highly unlikely.
Seriously,
Has there been criminal intent? No.(very hard to prove)
Has there been mismanagement? Yes. (hard to quantify & prosecute)
I personally think the Judge went a bit overboard.
You got to look at this thing in a more realistic, pragmatic and in historical context. Could the Central Bank have avoided this? Chances are not. Could they have intervened in 2003? Probably. They are not an enforcment body. I believe Seylan Bank was a first.
In the late 80's when GK first started to take in a Security Deposit of Rs.50,000 for the issue of a GK Gold card it was collateral for an almost unlimited credit line. You could literally marry your daughter and pay for the wedding at the Galadari, Taj or wherever and charge the whole thing to your Gold Card.
GK, credited the interest component as rebate to Gold Card holder's accounts. If a bank offered you 14% it had to deduct 3% as withholding taxes. You got 11% net. If GK offered you 18% you got to keep it all.
Plus for the Depositor/Gold Card Holder there was access to your capital in way of credit instantly, now this was good instrument to have in a growing economy. No body was complaining. No action need to be taken by the Central Bank.
Now what did GK do with depositor's money? no one ever asked. Not even the Chairman or the Board It was generally used for servicing GK debt, expansion programs and sometimes Intra Company short term lending.
The past two years everyone in the industry knew the credit crunch was coming. One of the first industries to falter is independent small banks and credit card companies. GK seems to have gone on investing and servicing its mounting debt, with little or no oversight from the parent company, Remember the rouge trader Nick Leeson in Singapore? I can t believe the Auditors did not catch on and give the Board a 'heads up' as surely this took a few years before it hit the point of no return.
Edited By - Deepthroat - 21 Jan 2009 10:16:06 GMT |
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21 Jan 2009 11:35:13 GMT Report for Abuse
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Deepthroat,
Point taken, but want to emphosise on following
Why are deposit taking institutions regulated all over the world including Sri Lanka? The answer is simple - To provide protection to depositors who put their life savings purely on trust based on the stature of the institution.
How do regulators regulate a deposit taking institution? By ensuring these institution periodically report to the regulator the financial state of play of the institution and also by ensuring these institution have sufficient cusion in the form of liquidity to service any unforeseen drawdowns (run!). This is done by way of capital adequacy requirements, whereat the regulators specifiy a ratio (liquid assets/non liquid assets) these institutions are required to maintain. On periodic reporting to the regulator (usually quarterly) any deviation from this requirement is an early warning sign.
Thanks to the regulator carelessly or ignorantly or fraudulantly ignoring the regulatory requirements way bak in 2003 is the root cause for this catastrophy. This is was the point I was impressing on by way of my posting!
Now on the question of a Ponzi Scheme, When Lalith K started Golden Key was it his intent to run a ponzi scheme? My answer too is - NO.
What Lalith K did was use his historical personal credibility and that of his group and source easy capital to fund his ambitious investment programs. I am sure you will agree that his investment programs in the form of Real Estate Developments and other infrastructure related programs would not have provided him returns immediately. He would have had to pay his depositors interest out of the principal. With time he would needed to source more deposits primarily to service the interest of older deposits and the new ones. This would have gone on for years! In the later years before the collapse all the energies of the management would have been directed at sourcing deposits to service interest payments!
My contention is that a program started with commercial intent turned to a PONZI SCHEHME!
What is the similarity of with the Berny Murdoff Scheme?
Both individuals had historical stature to support them! Berny Murdoff was a member of the SEC and was also a chairman of NASDAX. Berny Murdoff too started his Asset Management business with the pure intent of providing superior returs to his investors, when his investments trned sour he would have opted for the easy way out!
On the question of criminality
Was their criminal intent when Lalith K started Golden Key?
Answer is No.
Did Lalith K breach depositors' trust during the later years prior to the scam going public by sourcung deposits to service interest of older depositors?
Answer is YES, he did breach the trust of depositors.
Criminal breach of trust in SRi Lanka is an offence punishable under the penal code.
I have been refering to Lalith K and not Khavan P is because I do not buy the 'I did not know what was happening' song. |
SeylanEmp
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21 Jan 2009 12:48:53 GMT Report for Abuse
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| Seylan Bank is planning to have a door to door deposit canvassing campaign on 31st of this month as they are loosing a lot of deposits as well as public faith for them. still the ceylinco seylan matters are not solved, it is heard. so beware if you are planning to invest your hardly earned money again with seylan bank. |
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