Investors need protection

Investors need protection

"People should be extra-careful in investing in agribusiness,
otherwise they might be cheated. But here in my company,
everything is transparent. Our business propositions are clear,
investors can easily calculate the costs, foresee what will be
the price of farm produce after the harvest and count their
potential profits."

That was how Ramli Araby, president of PT Qurnia Subur Alam
Raya (QSAR), described the idea behind his successful
agribusiness venture in Sukabumi, West Java, in an interview with
with a leading newspaper in April that profiled him as a paragon
of the agribusiness investor.

However, about four months later, a front-page story in the
same newspaper screamed of QSAR's collapse, and of thousands of
investors being involved in a stampede to foreclose on its assets
in a desperate attempt to recoup their capital as its president
disappeared.

This is another story of how moneyed people, legislators,
journalists, senior officials and military officers, who were
supposed to be rational, fell victim of their own greed and get-
rich-quick mentality.

It also told of how, in the absence of legal safeguards,
combined with an ignorant government, one person could so easily
mislead and cheat thousands of uninitiated small investors to
raise equity capital as much as Rp 500 billion (US$55.5 million),
without having to abide by any rules of accountability.

There is nothing entirely new in the tricks deployed by Araby
in his scam. Similar business shenanigans, promising unbelievably
high profits of up to 8 percent per month, have often occurred
but in other guises, such as the speculative pyramid-selling of
rotated savings and multi-level marketing.

Araby rightly chose agribusiness as the vehicle for his
business scam when he started implementing his scheme in 1998
during the height of the economic crisis, as agro-based ventures
were then, and still are, very promising.

Most banks and many manufacturing companies had collapsed
under mountains of debt and thousands of laid-off employees, who
had just received severance pay, did not have many alternatives
by way of income-generating investment.

Thus arrived Araby with attractive offers of quick,
extraordinarily high profits through the cultivation of cash
crops such as chilis, tomatoes and other vegetables that could
produce a harvest within three months to four months. Certainly,
like most other scams, the QSAR agribusiness started well because
the company needed well-managed crops to showcase and had to turn
out many satisfied customers or investors to promote the
lucrative investment venture via word-of-mouth recommendation to
relatives, friends and officials.

As the business grew and investors increased, the company
received sufficient funds to step up its promotion via booklets
and even gained enough popularity and influence to host visits by
dignitaries, including Vice President Hamzah Haz and several
leaders of the House of Representatives, to provide an official
imprimatur for the business.

There was nothing amiss, nor was any deception intended from
such high-level official visits. They could have simply been an
indication of appreciation for a businessman who appeared to be
successful in developing the very kind of business Indonesia
badly needed to generate jobs and expand exports.

But this was the point at which the scam took off, as
investors, convinced by the top officials' seal of endorsement,
increased their stakes sharply and new funds streamed in steadily
in large sums, while the management remained fully controlled by
only one man: the founder. Araby was not even legally required to
issue a balance sheet, let alone have QSAR's financial reports
independently audited.

Most of the new funds no longer went into agribusiness but
into other ventures, as well as the pockets of the founder and
his most trusted aides, while a small portion of the new money
went to paying profits to old investors in an attempt to maintain
their trust and to cover up the scam.

Certainly, this unscrupulous practice could not have taken
place for too long without damaging the trust of investors,
cracking the foundations of the pyramid and eventually setting
off a massive rush among investors to withdraw their capital.
This was similar to a run on a bank that had lost the trust of
its depositors.

This is, we think, what took place from earlier this year, and
which culminated with the disappearance of Araby and the
foreclosure on QSAR assets by angry investors.

But the government seemed, as it is wont to be, late in moving
to contain the damage. No official measures were taken to
immediately seal off QSAR's assets and block Araby's accounts.

Minister of Agriculture Bungaran Saragih only stated after a
Cabinet meeting on Monday that the government would investigate
the case.

Hopefully, this case will prompt the government to issue
regulations immediately to supplement capital market and banking
legislation regarding the raising of equity capital from the
public.