Thousands caught in Polish scam
The affair is one of the biggest financial scandals to hit Poland since the fall of communism in 1989. The extent of wrongdoing is still unclear, but it seems to have some elements of a pyramid scheme, meaning the financial institution used funds from new clients to pay off older clients rather than investing them.
The affair has raised questions about the effectiveness of Poland's justice system and government because authorities failed to act against the scheme despite red flags from regulators and the criminal record of its young owner. Scrutiny has also focused on the prime minister due to business dealings his son had with those running the scheme.
"People are desperate," said Pawel Borowski, a lawyer preparing a class-action suit. "In most cases the clients lost life savings or sold family properties to make investments."
Financial institution, Amber Gold, promised guaranteed returns of 10 to 14% a year for what it claimed were investments in gold. Many of its clients were older Poles who grew up under communism and lacked the knowledge to question how a financial firm could guarantee such a high return on a commodity whose value fluctuates on the international market. The promised returns compared well to the 3 to 5% interest offered by banks on savings accounts - earnings essentially wiped out by the country's 4% inflation rate.
"These were people with a low level of financial education," said Piotr Bujak, the chief economist for Poland at Nordea Markets. "They think it's still like in the old times, where everything was guaranteed by the state. They underestimated the risk."
Amber Gold launched in 2009, opening branches in city centres alongside respected banks, with white leather sofas and other sleek touches that conveyed sophistication and respectability. It bombarded Poles with convincing advertisements. Some early investors got out with their expected gains, adding to the fund's credibility.
The company, based in Gdansk, capitalised on gold's allure while playing on people's anxieties in unpredictable financial times. "We are dealing with a loss of confidence in the entire financial system and an urgent need for safe investments," one ad said. "The environment for gold is perfect."
Amber Gold drew in 50,000 investors over its three years of operation, though the company's founder, Marcin Plichta, said there were only about 7,000 at the time of liquidation.
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