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.