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  1. Law
December 15, 2009

My Friend the Ponzi Schemer

By Spear's

Jonathan Chambers on his former schoolmate turned financial shyster David Smith, currently facing fraud charges in the Caribbean

WHY DID HE do it? Why did he commit a fraud on such unprecedented levels? I’m almost certain that he started with the best of intentions, to make good honest money and maintain a healthy and wealthy lifestyle for himself and his family. After all, we went to prep and high school together and his cool, quiet mannerisms back then suggested that he would have been incapable of conning people.

We weren’t best friends, but we knew each other well and would chat at length every time we saw each other. Affectionately called Smitty (the Jamaican pronunciation of Smithy), David Smith garnered respect among his peers in a way others would have to work years to achieve. Very laconic but gracious in greeting, and quietly humorous, Smitty sure fooled me. When I heard about it, I sat there in complete disbelief and shock to learn he had conned so many of my (and his) fellow Jamaicans.

As I write this, I feel embittered and sad. To say that I’m glad that I did not invest money in his Ponzi scheme is an understatement. In the years leading up to his arrest in February 2009 (the company was in operation from 2006), my friends would say, ‘Smitty is truly a genius. He’s great, he’s the saviour of the poor and you can earn as much as 10 per cent on your investment every month. Don’t worry as we can get you in, or simply get in touch with him as he knows you and would not turn you away from exclusive membership.’

By then, of course, Smitty was too ‘important’ for me just to call. I live in the UK, so if I invested £1,000, at 10 per cent per month it surely wouldn’t have been a bad idea. My money would be in and out — a quick deal.

But every time I visited Jamaica, a red flag appeared: how on earth was it possible for one f/x trader to return this percentage per month on investments when other traders with more experience worldwide couldn’t? It cast acute doubt in my mind on the authenticity of this operation. This, inter alia, prevented me from investing a penny and I had to check that my family had not become entangled in this fairly obvious web of deceit. Thankfully they hadn’t.

Smitty ‘traded’ forex via his (now) beleaguered investment company Olint (Overseas Locket International). He was a licensed representative at the Jamaica Money Market Brokers company for seven years, where he studied and specialised in international forex trading. Upon leaving, he and friends formed a club where they would trade foreign currencies and make returns of around 15 per cent per month.

WORD OF THIS success spread and he set about making this practice accessible to the ordinary man and woman in the street, encouraging them to place most of (if not all) their hard-earned money into a scheme promising astronomical returns. It took off and caught the Jamaican public (and diaspora, particularly in the US) by storm. So many people got involved, including leading government officials, wealthy individuals, business people, local celebrities and — the largest group of members — church people.

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Alas, the ‘licky licky’ (Jamaican parlance for greedy) mentality inherent in so many Jamaicans prevailed over common sense and many others started begging to become members. After a short while, Smitty was lauded as one of the world’s ‘top foreign currency traders’, and he gave handsomely to charity. He and his wife, Tracey, were founders of Olint Foundation, a charity focused on Jamaican children with special needs. (Donation? $1 million.)

He threw lavish parties at his mansion, spending up to $100,000 easily in one night. Reports were that Smitty and his company had at its peak over 6,000 investors with assets under management of $220 million. These were paltry when compared with Bernie Madoff and Sir Allen Stanford, but very significant for that region.

But questions from regulators and government ministers began to make life uneasy for him. Why, for instance, was Smitty unable to produce financial statements of his company’s performance to investors at any given moment? How was he able to guarantee 10 per cent? Where was the money coming from to pay these profligate monthly returns?
Despite attempts to ask Smitty to be transparent with his activities, it fell on deaf ears.

Patterns of receipts and payments showed that the firm was collecting money from members (circa $220 million) to meet redemption requests ($156 million) and that there was no evidence of trading profits in the company’s bank accounts to meet these redemptions. As such, warnings started to circulate about the possibility of fraud, and that people should steer clear of Olint. The government also stated expressly that it was not going to be reimbursing money lost in risky schemes as it wasn’t backed by any type of deposit insurance.

BUT THE FINANCIAL authorities were met with a backlash from rich and poor alike. The poor slated them for not wanting poor people to have the money to feed their kids, school them and have a decent home and environment to bring them up. The wealthier investors claimed that by shutting or investigating the day-to-day activities of Smitty it would affect growth in the economy, now that large amounts of foreign currency in circulation were indeed creating a more ‘competitive’ and ‘wealthier’ environment.

By 2006, the Financial Services Commission of Jamaica raided Smitty’s offices and slapped a ‘cease and desist’ order on him, preventing him from further trading as he and his company were unregulated. At this point, Smitty had been on talk shows, in the print and local media defending himself and Olint, its legitimacy and the fact that, should investors require their money at a moment’s notice, all they needed to do was to go through the usual channels and they would get their money back without question.

Upon closure of his Kingston offices, Smitty and his family moved to the Turks and Caicos Islands, from where he directed operations. Soon, however, the TCI authorities raided his offices and put him under arrest. He posted bail, but his assets and funds that had been held in the US were frozen. He had left an angry Jamaican community (and others across the Caribbean) without explanation for his actions and, most crucially, without the return of their monies.

Olint’s liquidator found that $14 million was available in liquid assets against 376 people claiming circa $67 million. Where was (and is) the rest of the $220 million? In all this, Smitty’s notoriety made him one of the principal subjects of an IMF working paper on Ponzi schemes in the Caribbean, a read that shook every bone within me.
It’s hard to imagine what lies in store for him and his family.

The cool, easy-going Smitty I knew years ago seemed to have started with such great promise. It is now likely that he faces a lengthy spell behind bars, the same fate shelled out to Madoff earlier this year. He is currently in jail in TCI.

Asked some months ago when investors would get their money back, he replied —  perhaps rather uncharacteristically — that people needed to pray that this missing money would find its way back to Jamaican shores. His mother (whom I knew not) also expressed the same sentiment to a very concerned investor. Now it seems that praying is all that is left.

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