The Central Bank of Laos has rejected claims by the director of an agricultural company running a pyramid scheme that a warning it issued informing the public that the firm was operating illegally was responsible for the loss of millions of U.S. dollars of investor’s money.
The PS Agriculture and Industry Promotion Import-Export Company of Laos ceased providing promised interest payments in January this year and as investors sought to withdraw their capital, they were told it had been used to build infrastructure and attract new deposits through high rates of return, leaving them little recourse.
On July 6, PS Agriculture failed to meet a deadline ordered by the Bank of the Lao PDR—the country’s Central Bank—to repay the nearly 100 million kip (U.S. $12.14 million) it owes investors.
A week earlier, PS Agriculture director Por Her told investors that the company’s financial problems “occurred because the bank intentionally accused PS in order to damage its public image” and that they had “become poor due to … the bank’s warning notice.”
PS Agriculture’s fund had at one point grown to include more than 200,000 investors with deposits worth more than 900 billion kip (U.S. $109.3 million), but after the government issued a warning at the end of last year calling the investment scheme illegal because the company was not registered as a financial firm, stakeholders began to withdraw their money.
On Thursday, director general of the Cabinet Office of the Bank of the Lao PDR Phetsathaphone Keovongvichith, told RFA’s Lao Service that the bank could not be blamed for PS Agriculture’s default.
“It is not right that the company says the problem occurred because the bank issued a notice accusing it,” he said.
“In fact, we issued the notice to raise people’s awareness [about the company’s legal issue related to its registration], and it was up to them whether or not they decided to invest. We didn’t want the situation to become worse.”
PS Agriculture and Industry Promotion Import-Export Company of Laos registered as an agricultural company in 2012 with 900 million kip (U.S. $109,240) of capital to produce purified drinking water, noodles, run a rice mill, and farm organic chickens and vegetables.
The company solicited deposits of between 500,000 and 5 million kip (U.S. $61 and $608) per person for an expansion fund, promising monthly interest payouts of at least four percent, and bonuses of 24 percent to those who maintained their deposits for a year—far surpassing rates offered by Lao banks.
Phetsathaphone said that after investigating PS Agriculture, the Central Bank determined that the company had promised investors “impossibly high dividends” and had issued its warning “to inform the public about the company’s performance, as well as risks associated with investing.”
Either way, he said, PS Agriculture was not legally permitted to raise funds because it was not registered as a financial entity, and the bank had ordered it to obtain a new registration.
A committee at the Central Bank is monitoring PS Agriculture and holding meetings with the company now that it has passed the deadline to repay investors and will work with it to “address problems appropriately,” he added.
Attempts to contact Por Her by telephone went unanswered Thursday.
Loss of trust
At the end of June, investors had called for Por Her to step down after it became clear that PS Agriculture would be unable to repay them, saying he no longer had the trust of the firm’s stakeholders.
Por Her told investors at the time that the company planned to repay the 100 million kip it owes them, although not before the deadline ordered by the Central Bank.
Once the debts are repaid, he said, the company plans to list on the Lao Securities Exchange, adding that the roughly 50,000 investors who have kept their deposits with the firm will be invited to purchase the shares of those who withdrew them following the government warning last year.
He vowed that PS Agriculture “will sell everything” it owns to clear its debts.
Sources have acknowledged that investors were at least partially to blame for pursuing what they saw as a get-rich-quick scheme, without fully researching how PS Agriculture’s expansion fund operated, and that many who decided to contribute to the fund based on the advice of friends or family “didn’t understand the contract” behind their investment or even the “basic procedures of the company.”
But a Laos-based legal expert recently called PS Agriculture a “scam” that operates by “taking money from one person and paying it as interest to another,” with an elaborate network of brokers who “hunt for innocent investors as victims” in exchange for commissions.
Reported and translated by Ounkeo Souksavanh for RFA’s Lao Service. Written in English by Joshua Lipes.