MOGAIDISHU— Fear has gripped Somalis who invested in quick money schemes fashioned as forex trading companies as some announce closure amid what they term as ‘loss of money’.
Barely two months since the Central Bank of Somalia ordered commercial banks to close bank accounts held by forex trading companies, the after shocks of a directive not heeded seems to be making a dreaded windfall on thousands of individual traders who now face the risk of losing their investments.
One such company is Forex 252 which issued a stark notice to its clients a day ago. “We are very sorry to inform you this but it is necessary to do so. We lost all out money in our account,” read the red notice from the company’s manager Mohamed Tahlil Mohamed.
“We had $157,000 for our clients and together with ours, the total was $252,000 and we lost all,’ added Mohamed in a WhatsApp group message to his company’s investors.
Unable to meet his investors’ expectations and staring at many an angry investor, Mohamed announced his company was ‘shutting down forthwith’.
CENTRAL BANK ORDER
The Central Bank of Somalia ordered closure of accounts held in commercial banks December 25 by the forex companies but did not give any reasons.
“This is to inform you that the Board of Directors of the Somali Central Bank, in its 43rd session held on 28-10-2019, has issued resolution number 43/G, which directs all private commercial banks in the country to close the accounts of all Foreign Exchange (Forex) traders,” the statement signed by Deputy Governor Maryam Yusuf read in part.
But whether the commercial banks heeded the call is unclear as the business went on uninterrupted.
To sign up for the business, investors were required to deposit an investment fee of $1000 and a registration fee of $300. With that, one would sit back and wait to earn $400 every month as the so-called forex companies worked out their math.
Forex trading is a legit business and the largest market in the world. It should however be regulated by Central Banks or Capital Market Authorities to cushion traders from malpractices.
The story of Forex 252 is just one among others which could be facing similar fate as fears emerge that what has been going on a forex trade was actually a pyramid scheme, popularly known as Ponzi scheme in the U.S.
A Facebook user posted a warning Wednesday that the business was a classic case of a Ponzi scheme.
“The so call Forex in Somalia is/was an unsustainable business model and a classic Ponzi and Pyramid schemes. Vulnerable people are asked to pay a large joining fee and huge upfront investments with promise up to 70% in profit every month in return,” wrote one Khadar Afrah.
Afrah’s fears seem to have been corroborated by several accounts on Facebook. A ‘forex trader’ who spoke to HOL and currently involved in the business said he had to change companies last month after one he was with started rolling back its promises.
“We started experiencing delays from the fourth month and by fifth month we were told there is no returns because there was a loss. We got a half of what we were promised by the sixth month,” he recounted.
According to the trader who did not wish to be named, the forex company would promise clients 10% bonus for any client they brought on board.
Pyramid schemes have subjected unsuspecting people into investing a lot of money with quick returns but eventually collapse within a short time. In neighbouring Kenya such schemes subjected thousands into suffering in late 1990s and 2000 with some committing suicide as they had put all their life-time savings into the get-rich-quick scheme.
The U.S Ponzi scheme architect Bernard Madoff was sentence to 150 years in jail in 2009 by a federal court in U.S for mastermanding a $65 billion fraud that wrecked thousands of investors.