Sunday 5 February 2023

Ponzi businesses like Pietraverdi in Costa Rica would be considered a crime

Pyramid or Ponzi scheme operates could land in jail if initiative by PAC legislator Laura Guido becomes law

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4 February 2023 - At The Banks - BCCR

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QCOSTARICA – A bill by PAC legislator, Laura Guido, tries to classify as a crime the capture of money from third parties through pyramid or “ponzi” scheme. The plan, which gives an example of what happened in the Pietra Verdi case, a company of Brazilian origin supposedly dedicated to the commercialization of emeralds and precious stones, which had been recruiting investors for some time, stopped making the respective payments.

The initiative would add a final paragraph to article 63 of the Law for the Promotion of Competition and Effective Defense of the Consumer to qualify as a scam whoever “directs, executes or promotes a pyramidal business plan or any other analogous” and impose a sentence of two months to 13 years in prison on those who obtain resources with these structures, depending on the amount defrauded.

Pietra Verdi: the pyramidal clouds driven by “influencers” that end in scams

According to the project, the pyramid structure occurs when a consumer or user makes “consideration for the seller, or for a third party, in exchange for the opportunity to receive compensation derived from the adherence of other consumers or users to the plan, and not the sale or supply of goods or services”.

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When presenting her bill, Guido explained that pyramid schemes lack regulation in Costa Rica and “unscrupulous people offer large profits in companies that make themselves look and advertise themselves as legitimate multi-level marketing and investment systems, so deception is difficult for the public to detect and almost impossible for the authorities to punish”.

“The most famous case of a scam based on a pyramid scheme was committed by Bernard Madoff, president of a prestigious investment firm on Wall Street, through which he raised large investments from a high-level clientele, in exchange for the promise of high rates of return. In 2008 he was arrested and sentenced to 150 years in prison for the fraud of more than $64.8 billion dollars from the United States of America,” explains the explanatory memorandum of the project.

“In May 2021, the General Superintendency of Financial Entities (Sugef) warned of the risks incurred when investing in companies that carry out financial intermediation in Costa Rica without any supervision, raising money to multiply it fundamentally through the incorporation of new members of the pyramid business scheme. For this reason, at least 50 complaints of pyramidal businesses were sent to the Public Ministry, among which the Pietraverdi company stood out,” continues the memo.

Dozens of Costa Ricans report having lost their investments in the Petra Verdi pyramid, when in  2020 a group of businessmen organized to market emeralds, inviting people online to invest from $ 25 to $ 10,000 for which they promised returns of 20% per month, for a year. However, it stopped paying the interest.

In recent years, this type of pyramid scheme has gained popularity thanks to a strong presence on social networks and with the frequent support of influencers.

These pyramid schemes are different from direct sales and multilevel marketing businesses, in which people receive profits through a commission on the percentage of sales of real products, or, of the sales made by their own network of people.

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This class of multilevel companies have been regulated and protected in countries such as Spain, Colombia and the United States. For its regulation, legislator Guido presented another bill.

This is the project Law of Direct Selling and Multilevel Marketing, which seeks to regulate companies engaged in this line of business, in order to guarantee their legal security.

Guido’s idea is that both projects work together to create a necessary legal framework to protect direct selling companies and distinguish them from fraudulent pyramid structures.

“Direct sales companies are an engine of the national economy. They are the source of income for more than 230,000 people in our country and they are legitimate businesses that urgently require legal protection and mechanisms to differentiate themselves from the fraudulent pyramid schemes that seek to take advantage of the population to steal their money,” commented Guido.

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Likewise, the legislator indicated that, in pyramid structures, income is based on the recruitment of new people and not on the sale of products or services.

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