Does the term 'Ponzi scheme' apply to the Bramer/BAI liquidation? Opinion, in the absence of detail from regulators, seems divided.

By invoking s27(3) Financial Services Act 2007, the Financial Services Commission of Mauritius has suspended Bramer Asset Management's licenses to act as collective investment scheme manager; unrestricted investment advisor; and distributor of financial products. Under s48(1) it has appointed two PricewaterhouseCoopers men as administrators in relation to the firm's business activities "in the best interest of investors." The regulator has also revoked Bramer Banking Corporation's banking licence under s17 Banking Act 2004. That company is a subsidiary of British American Investment Co (Mauritius) Ltd. The government says that it will create a new bank to take the old business over. The finance minister, Vishnu Lutchmeenaraidoo, also said that the State Bank of Mauritius will take over Bramer’s 30,000 deposit accounts and that he was looking for an insurance company to take over the policies of of BAI Co, an insurance company also owned by British American Investment.

According to Mauritius' premier, Anerood Jugnauth, evidence exists of links to a $690 million (25 billion rupee) Ponzi scheme and the financial group risked depositors’ funds. Press reports say that these allegations of fraud have dealt a body-blow to Mauritius' status as an offshore centre. According to the African Development Bank, one-tenth of the jurisdiction's national income of $11.9 billion comes from finance. Bramer's stock, while not totally collapsing, fell by 40% in the first 3 months of the year before the stock exchange halted trading in it.

Many are questioning the premier's 'Ponzi' slur against the group, however. Lutchmeenaraidoo has said that BAI's 'One-Time Endowment Policy' offering claimed to provide higher returns that those of competitors and that the firm sold it to high-net-worth customers very aggressively, but a true Ponzi scheme offers a ridiculously higher return than its legitimate competitors. Charles Ponzi himself (pictured, 1882–1949) promised investors outrageous returns of 50% in 45 days, or 100% in 90 days. He coaxed millions of dollars out of investors and paid their 'returns on profit' with other investors' money. Such a scheme ends when one of three things happens: the perpetrator absconds, ideally to another jurisdiction, the number of new investors is not enough to pay the existing investors, or too many investors grow angry and demand their due all at once. The third thing happened to Ponzi. His scam began to unravel in August 1920, when the Boston Post interested itself in his activities and triggered off a run on his company. The Bramer/BAI business, according to some, does not fit that profile.

According to one account, the financial products that the group was selling had secured regulatory approval. The rates of return were apparently public knowledge and not secretly offered. Bramer Bank had liquidity problems but this is not the sure sign of a pyramid-selling scam. Some say that Bramer was still a profitable bank at the moment of takeover, even though the Mauritian Government had, for some reason, decided to make a withdrawal of 1.6 billion rupees in February, thereby squeezing liquidity further.

One commentator noted: "In recent years, in an attempt to drain a persistent liquidity surplus from our banking sector, the BoM has raised both the fortnight average and the minimum daily cash reserve ratio. Therefore while the banking system in Mauritius was flushed with liquidity, Bramer bank had been facing a liquidity deficit on a continuous basis." This raises questions about why the regulator did not interve earlier if a real Ponzi scheme had been in place. There are also questions about why it did not give the bank more time to 'recapitalise'. All will presumably be revealed in the fullness of time.