Thousands caught in Polish financial scam

Thousands of Poles, many of them elderly, have fallen victim to a huge fraud which has left them facing financial ruin.

The affair is one of the biggest financial scandals to hit Poland since the fall of communism in 1989. The extent of wrongdoing is still unclear, but it seems to have some elements of a pyramid scheme, meaning the financial institution used funds from new clients to pay off older clients rather than investing them.

Prosecutors say investors lost about 163 million zlotys (£38 million) a number that has been mounting as more and more victims come forward. Any law suits could take care years to go through the courts, with no guarantee of their outcome.

The affair has raised questions about the effectiveness of Poland's justice system and government because authorities failed to act against the scheme despite red flags from regulators and the criminal record of its young owner. Scrutiny has also focused on the prime minister due to business dealings his son had with those running the scheme.

"People are desperate," said Pawel Borowski, a lawyer preparing a class-action suit. "In most cases the clients lost life savings or sold family properties to make investments."

Financial institution, Amber Gold, promised guaranteed returns of 10 to 14% a year for what it claimed were investments in gold. Many of its clients were older Poles who grew up under communism and lacked the knowledge to question how a financial firm could guarantee such a high return on a commodity whose value fluctuates on the international market. The promised returns compared well to the 3 to 5% interest offered by banks on savings accounts - earnings essentially wiped out by the country's 4% inflation rate.

"These were people with a low level of financial education," said Piotr Bujak, the chief economist for Poland at Nordea Markets. "They think it's still like in the old times, where everything was guaranteed by the state. They underestimated the risk."

Amber Gold launched in 2009, opening branches in city centres alongside respected banks, with white leather sofas and other sleek touches that conveyed sophistication and respectability. It bombarded Poles with convincing advertisements. Some early investors got out with their expected gains, adding to the fund's credibility.

The company, based in Gdansk, capitalised on gold's allure while playing on people's anxieties in unpredictable financial times. "We are dealing with a loss of confidence in the entire financial system and an urgent need for safe investments," one ad said. "The environment for gold is perfect."

Amber Gold drew in 50,000 investors over its three years of operation, though the company's founder, Marcin Plichta, said there were only about 7,000 at the time of liquidation.

Soon after Amber Gold began operations, the Polish Financial Supervision Authority put it on a "black list" of institutions that operate like banks without authorisation. There are 17 other such black-listed institutions in operation, but the regulators lack the authority to shut them down. This has sparked a debate in the government and news media about whether courts should be more aggressive in intervening.

According to prosecutors, the company did use some of its money to invest in at least one legitimate business: It was the main investor in budget airline OLT Express. It was this investment that brought Amber Gold down - when the airline filed for bankruptcy, Amber Gold entered liquidation and its scheme of investments unravelled. Its bank accounts were blocked and it was unable to return the money of thousands of its customers.

Plichta was charged this month with six counts of criminal misconduct.

Public discontent is also centring on the justice system because Plichta, 28, has past convictions for fraud, and many Poles are asking why authorities - aware of his criminal record - did not stop him sooner.

The country's top prosecutor, Andrzej Seremet, admitted that prosecutors were negligent in failing to heed multiple warnings since 2009 about Amber Gold from the financial supervisory body. He announced personnel changes in the office he blamed for mistakes.