Romanians storm city as scam ruins millions

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ARMED with knives and clubs, a Romanian mob last week stormed the town hall in Cluj, the largest city in the province of Transylvania. Policemen drove them out. But few expect tensions to subside in Cluj, the centre of eastern Europe's most spectacular financial scandal since the fall of communism.

At stake are the livelihoods of more than 3 million people, or about one in five Romanian adults, plus their families. In a country where poverty and hardship are more extreme than almost anywhere in Europe, these people entrusted their savings to a 'mutual aid society' called Caritas. It promised to multiply their money eightfold every three months.

Between June 1992 and the end of 1993, the scheme sucked up the equivalent of pounds 650m, or half the Romanian government's annual budget. At first, thousands of people pocketed a fortune. But now, Caritas is going bust; it has no more money to pay out. The crash is being dubbed 'the Black Sea Bubble', after the South Sea Bubble, the wave of disastrous speculation that swept across Britain in 1720.

Ruined investors are threatening to ransack Cluj if they do not get their money back. The miners of the Jiu Valley, who have twice rampaged through Bucharest since the fall of the Ceausescu dictatorship in December 1989, say those blood-stained excursions will seem like a pacifists' tea party compared with the revenge they will exact on Cluj. 'I'll beat the hell out of those guys and smash their offices if they don't pay my money back,' said Ion Gane, a Gypsy from neighbouring Moldova.

Like hundreds of thousands of others who were enticed into this Transylvanian Eldorado, he will probably be disappointed. According to a National Bank report that was leaked late last year, Caritas has only 11 per cent of the funds that it claims to possess.

Caritas, which has no connection with the Catholic charity of the same name, is more than a fraudulent get-rich-quick scheme. It may well be linked to arms-trafficking in the former Yugoslavia, and to money-laundering operations of the Mafia and various expanding eastern European criminal networks. Above all, its chief organiser, Ion Stoica, has a close working relationship with Gheorghe Funar, the ultra-nationalist mayor of Cluj.

Since his election in February 1992, Mr Funar has cracked down on the city's Hungarian community, who account for about one-quarter of Cluj's 445,000 people. When Caritas moved its operations from Brasov to Cluj in June 1992, Mr Funar gave it premises at the city hall for a token rent. In return, money from Caritas has helped to pay for some of Mr Funar's Ceausescu-style nationalist projects. These include the construction of a gigantic monument to the Romanian hero Avram Iancu, intended to dwarf a statue of one of Hungary's most famous kings, Matthias Corvinus.

It appears that Mr Funar's aim is to rid Cluj, and Transylvania as a whole, of its Hungarian character. Hungary, as a defeated power allied to Germany, was stripped of the area after the First World War, and tensions between the Romanian authorities and local Hungarians are a prime source of instability in eastern Europe.

When Caritas set up shop in Cluj, it began to publish the names of its 'winners' in a local newspaper, Mesagerul Transilvan, that is well-known for its Romanian nationalist propaganda. The paper's circulation shot up from less than 3,000 a day to about 250,000. Thanks to Caritas, Mr Funar gained access to a far larger audience for his anti-Hungarian message.

Caritas is not the only dubious venture to have sprung up in Romania since 1989. Many others, with names such as 'The Enchanted Pocket' and 'Grandma's Pocket', have promised and failed to deliver riches over the past four years. Only Caritas really took off.

Thousands of would-be millionaires flocked to Cluj to hand over their money to Caritas. Peasants sold their cattle and land to grab a share of the lolly. Bus companies laid on special services to Cluj, and the city's hotels soon had Romania's highest occupancy rate. Such was Mr Stoica's initial success that he became known as 'Papa' (the Pope), and investors organised a thanksgiving Mass in his honour.

Mr Stoica asked people to deposit 20,000 to 160,000 lei (pounds 12 to pounds 100) with Caritas and charged a 10 per cent commission on the return from the investment. He asserted that Caritas was placing 80 per cent of people's money in a guaranteed account, while the other 20 per cent was invested according to a formula known only to himself.

The Romanian government appears to have had no direct involvement with Caritas, but it took no action to shut down the organisation. President Ion Iliescu said last year that the scheme was polluting the social environment, but added: 'There will be a national uproar if we try to stop Caritas.'

Now that the bubble has burst, the repercussions are likely to be enormous. The future looks bleak for Mr Iliescu's government, which lacks a parliamentary majority and depends on the support of Mr Funar's Party of Romanian National Unity and other extremist groups. It is hard to see how the authorities can compensate destitute investors. Romanians, fed for too long on a diet of false promises, are looking to take revenge.

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