Going one up on fraudsters who promise unrealistic high returns, Kazatsugi Nami invented his own currency to pay them. And people believed him.
When, on 4 February 2009, Kazatsugi Nami was approached by police as he sipped a beer with his breakfast at a central Tokyo restaurant, he knew the game was up. They were after him and 21 executives of his failed bedding supplier, Ladies & Gentleman (L&G), on suspicion of defrauding 37,000 investors out of more than 120 billion yen (approx $1.4b), though some believe the true figure might be almost twice that. The story that unfolded that day had begun decades before.
Serial swindler
Nami, a college dropout, hit upon his first fraudulent scheme in the 1970s, using a pyramid selling plan to peddle a device that he claimed would reduce emissions from car engines. Of course, it didn't work, and his company went out of business.
His next scam was to launch a company selling a 'magic stone' that was claimed to turn tap water into pure natural water -- a scheme that soon got his collar felt.
Against that background, Nami came up with yet another audacious offering, touting investments in L&G. He had set up L&G in 1987, selling bedding and health food, and by 2001 it was seen by many as a well established and reliable company. But Nami's new investment offer had 'scam' written all over it. For every million yen of invested with the company, he promised an annual return of 36%, and despite his dodgy history and the unbelievable nature of his offer, people lapped it up. Most of those taken in were pensioners and elderly housewives.
Heavenly money
There was, clearly, no way L&G could earn enough to keep up such payments, so Nami had to think of something. And in 2004 he came up with his most absurd idea yet, when he invented his own money. Dubbed "Enten", a play on the Japanese words for "yen" and "paradise", investors were given a sum of enten equivalent to the amount of real money they had invested in L&G.
The enten was paid in an electronic form, via investors' mobile phones, and could be used to buy L&G products. And the preposterous icing on the cake was Nami's further promise to replenish the full amount every year, so if you had a million yen in enten and spent it all one year (though quite how many bed sheets and herbal tea bags people might actually want is open to question), you'd get another million credited to your account the next year. He dubbed it "money that never diminishes".
Nami had gone from promises of 36% a year, to free money for life, but even that wasn't enough to make the authorities to step in. It wasn't until 2007, when L&G stopped paying cash to investors altogether, started offering dividends only in enten, and refused to let any of them leave the scheme, that any action was taken. But it was far too late, and by September that year L&G was bankrupt with debts of around 42 billion yen, and all its staff were laid off. And, of course, all those billions of electronic enten were worthless.
A visionary
Being interviewed shortly before his expected arrest, Nai protested his innocence. When asked if he had any regrets over the losses suffered by his gullible investors, he replied "I'm the poorest victim. Nobody lost more than I did. You should be aware that high returns come with a high risk."
Even as he was being led away, Nami was still claiming that it would all come good because he had a business plan, and that his defunct enten would be a success, telling reporters, "Because of the financial crisis, countries will adopt the enten in three years' time. I will start shining and become world famous. I will certainly move the world."
The lessons?
Perhaps the most surprising lesson for observers, even for those who have heard of all sorts of scams, is the actual extent of the gullibility of people. We all know that many are too trusting and will fall for smooth talkers again and again, but it really does stretch the imagination to picture people who can listen to promises of infinitely replenished free money and believe it.
The lessons for investors are the obvious ones, but it seems they really do need to be repeated -- they're the ones about the absence of free lunches, and about things that look too good to be true. Oh, and never invest with a nutter who thinks he's going to start shining and move the world.
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