Caritas (Romania)

Caritas was a Ponzi scheme in Romania which was active between April 1992 and August 1994. It attracted millions deponents from all over the country who invested more than a trillion lei (between one and five billions USD) before it finally went bankrupt on 14 August 1994, having a debt of 450 million USD.

The rise of Caritas

"Caritas" company, which organized the scheme, was founded by Ioan Stoica in April 1992 in Braşov as a limited liability company with just 100,000 lei ($500) in capital. Caritas moved to Cluj-Napoca two months later. The deposits were initially small (2,000-10,000 lei), but then, the minimum initial deposit was 20,000 lei, while the maximum was 160,000 lei. At the beginning, only residents of Cluj were allowed to make a deposit, but starting summer 1993, all Romanian citizens were allowed to participate. [Verdery, p.627]

It labeled itself a "mutual-aid game" (hence the name "Caritas", meaning charity in Latin) which had the purpose to help the impoverished Romanian during the transition to capitalism and promised eight times the money invested in six months. [Verdery, p.627]

Caritas prospered with the help of the connection it had with the nationalist Party of Romanian National Unity (PUNR) and the mayor of Cluj-Napoca, Gheorghe Funar, who welcomed this scheme and even helped it build a credibility by renting space right in the Cluj town hall, appearing with him in public and at the television and defending Caritas from attacks. [Verdery, p.654; 659] Funar also gave space in the local newspaper to publish a list of the 'winners' who would have to go and claim their money eightfold, a list which in its heyday filled 44 pages.Jane Perlez, [http://query.nytimes.com/gst/fullpage.html?res=9F0CE4D8163AF930A25752C1A965958260&sec=&spon=&pagewanted=all "Pyramid Scheme a Trap for Many Romanians"] , "New York Times", November 13, 1993]

ize

The size of the scheme is under debate. Estimates vary between two and eight million depositors. The number most commonly quoted in the Romanian newspapers is four million, while the international newspapers tended to estimate their number to two or three million. In Autumn 1993, the list of names to be paid in a certain day as published in a Transylvanian newspaper included 22,000 names, which suggests that there were 660,000 depositors at one time. [Verdery, p.629]

Dan Pascariu, a banker and the chairman of Bancorex estimated that between 35% and 50% of the Romanian households were involved in the scheme. Mugur Isărescu, the president of the National Bank of Romania estimated that it held at one time a third of Romania's banknotes. [Verdery, p.630]

An estimate of Romanian newspaper "România Liberă" gives the amount of money involved as 1.4 trillion lei or about 20% of the 1993 expenditures of the Romanian government of 6.6 trillion. [Verdery, p.630] The "New York Times" estimate said the scheme attracted between $1 billion and $5 billion.

Bankruptcy

The Romanian government banned pyramidal schemes only after Caritas went bankrupt. The government received warnings about the scheme from several sources, included the Romanian Intelligence Service, which wrote a report in early 1993 (leaked to the press) and from Daniel Dăianu, the chief-economist at the National Bank, who named it a fraud.

As president Ion Iliescu commented on the issue, the main reason why the government allowed the game to go on was the fear of being ousted by riots and protests, [Verdery, p.659] or being afraid that such a measure would make it more unpopular.

The first signs of the downfall were in autumn 1993, when several western newspapers ran articles on Caritas, predicting its falling. At the same time, more and more Romanian newspapers published stories on it. In a press conference in September 1993, president Iliescu predicted its demise, noting that anyone with an elementary education could predict that anything which gives eightfold returns in three months cannot last. [Verdery, p.633]

There were discussions in the parliament on banning of such schemes and the state-controlled Romanian Television ran a negative report on Caritas which indicated that it might have problems with the state. [Verdery, p.633]

After this, the operations stopped for two days, explained as a computer error and Stoica tried to show that everything is going fine by opening a large supermarket in Cluj-Napoca. Although Caritas opened new branches in more cities, it failed to gather enough money to continue its activity and it was not able to pay back the money for those who deposited them after July 5. [Verdery, p.633]

In February 1994, Stoica claimed Caritas was not dead, just reorganizing itself, but soon, it announced a temporary cessation of activities, blaming the government, who allegedly refused allowing him to open another branch. Stoica announced the termination of its activities on May 19 1994, saying his staff is trying to find a way to return the money to some of the depositors. [Verdery, p.633]

Stoica was sentenced in 1995 by the Cluj Courthouse to a total of seven years in prison for fraud, but he appealed and it was reduced to two years; then he went on to the Supreme Court of Justice and the sentence was finally reduced to one year and a half. He has been free since 14 June 1996. The trials between the deponents and the Caritas company still continue, as of 2004.

Notes

References

* Katherine Verdery, "Faith, Hope, and Caritas in the Land of the Pyramids: Romania, 1990 to 1994", "Comparative Studies in Society and History", Vol. 37, No. 4. (Oct., 1995), pp. 625-6