Colombian Ponzi scheme used to launder drug money?

Houston Chronicle:

In retrospect, the name probably should have set off a few alarm bells: Rapid Money, Easy Cash.

But if police officers, professors and city officials were sinking the equivalent of millions of dollars into the upstart financial institution that promised to double their money every month, why shouldn't bartender Jairo Labio? He plunked down $1,500.

The firm, however, was on the verge of collapse. Earlier this month, Colombian authorities closed it down in a nationwide sting operation against pyramid schemes that affected 2 million investors, sparked street riots, and led to at least three deaths.

"Now," Labio said, "I'm bankrupt."

More than a cautionary tale about a financial house of cards, the rise and fall of Rapid Money, Easy Cash — widely known by its Spanish acronym as DRFE — exposed deep class divisions that have left poor Colombians slamming traditional bankers and government regulators while heralding mysterious flim-flam men.

The most high-profile of these operators, David Murcia Guzman, was deported from Panama to Colombia on Thursday and stands accused of using his massively popular DMG investment club to launder profits from drug traffickers.

A tall, lanky man, Murcia has a high-school education and is 28. Just a few years ago, he was living in a flophouse in the Colombian outback.

But DMG — the name comes from Murcia's initials — accumulated hundreds of millions of dollars. Officials said Murcia operated three yachts, two airplanes and a dozen luxury vehicles while living in Panama.

Colombia's attorney general, Mario Iguaran, said that none of DMG's leaders was capable of running a financial services company, and he said the firm was linked to drug traffickers.

But Murcia's arrest and the closing of the DMG and DRFE sparked demonstrations around the country. Because both were closed before they collapsed, angry investors blamed the government for pulling the plug on businesses that benefited average folks.

"The company was still making payouts when the government shut it down," said Edinson Muñoz a strawberry seller who lost about $900 when DRFE was shuttered.

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Financial sleuths contend that up to 90 percent of investors in pyramid schemes lose their money. But the initial depositors in DRFE reaped big profits as money from late-coming investors at the bottom of the pyramid flowed upward.

One Popayan couple cashed out with $50,000 after six months and flaunted their wealth, buying a new house and car. Word of the windfall spread. Housewives, security guards and taxi drivers, who were just scraping by, sold their belongings, borrowed from friends and put their cash in DRFE.

"Even I was tempted," said Jose Vicente Galvis, the city's treasury secretary and a former banker who tried to alert Bogota officials about pyramid schemes popping up in Popayan.

All told, the Popayan branches of DRFE and DMG soaked up more than $50 million in the past year, with about $8 million transferred from traditional banks, according to Galvis, the treasury official.

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Those crying because a scam was closed before it folded certainly miss the point. Closing it saved the fortunes of those who would have been sucked in to keep the scam going. These types of scams acquire an almost religious following and it is not unusual for the con men to use religion to explain "Gods reward" for their faith. The true believers are more likely to blame law enforcement than the conman. In many cases the conman will claim that it would have been successful if the state had not interfered. I have seen people continue to invest even with the knowledge that indictments are on the way and there lawyers and bankers are telling them not to make the investment. The lure overwhelms not just common sense, but reality itself.