FINMA advises clients to be cautious if they are promised unrealistic returns or rates of interest. Handsome yields may be paid out initially, only in most cases not for long.
According to the Commercial Register, Starcash, a company in Zug provided not only business and market research but also corporate and financial consulting. It attracted investors with promises of yields between twelve and forty per cent, offering to invest their money in unspecified projects. Bedazzled by the prospect of such mouth-watering returns, nearly 300 clients signed capital investment contracts with Starcash AG, placing in total about CHF
50 million. For the first year they received the promised returns. Then the payments stopped.
The public prosecutor in Zug contacted FINMA. As there were grounds to suspect that Starcash had been accepting public deposits without authorisation, FINMA appointed an investigating agent to look into the matter. It was soon evident that Starcash had misappropriated investors’ funds and that the money was mostly being used to finance a lavish lifestyle for the sole shareholder and his girlfriend.
FINMA wound up Starcash and banned the culprits from taking public deposits and from advertising this service in future. The ban was published on FINMA’s website.
The fraudulent mechanism applied by Starcash was inspired by the Ponzi scheme, a slightly different variant of the pyramid scheme. In the 1920s, Charles Ponzi attracted about 40,000 customers in the space of 45 days by promising them returns of 50 percent. If a client asked for money, Ponzi paid up, but a lot of trusting souls eager for gain chose to reinvest rather than collecting their winnings. This enabled Charles Ponzi to live the lie for months and to accumulate considerable wealth for his own purposes.
The consequences for investors
Not everyone has such a lucky escape as the clients who were defrauded by Starcash. The liquidation procedure turned up expensive cars, a villa, a yacht on Lake Zug and a number of holiday homes in Switzerland and elsewhere. FINMA managed to sell these luxury assets and restore a notable proportion of the money to investors.