Financial Entrepreneurs: …capability and legalized ponzi scheme  

It all happened within a period of one year in Ghana when seven banks namely UT, Capital, BEIGE, Sovereign, Construction, UniBank, and Royal Bank collapsed.

Our attention has been on trying to figure out how it all happened. Why did it happen? We need to include: who made it happen and where it happened? In a recent research study by Peprah (2018) on the finding the prediction, ranking and relationship among the elements of fraud diamond theory from respondents of Chartered Accountants in Ghana, the results showed that ranking from the highest to the least on prediction and relationship was Capability/Opportunity , Capability/Rationalization, Pressure/Rationalization, Opportunity/Rationalization, Capability/Pressure and Pressure/Opportunity. The strength of determination to these occurrences are Capability/Opportunity 37.33%, Capability/Rationalization 32.94%, Pressure/Rationalization 26.83%, Opportunity/Rationalization 21.44%, Capability/Pressure 4.49% and Pressure/Opportunity 7.08%.

In light of these results and Ghana’s financial environment instability, this article will discuss the role of financial entrepreneurs’ capability and legalized Ponzi scheme. For this article financial entrepreneur represents the owners and directors in the Ghanaian financial institution. Entrepreneurs are financial innovators, risk takers, return seekers, employers and change-makers (Peprah & Abandoh-Sam, 2017).

In 1939, Sutherland studied white-collar crime, and in 1953 Cressey followed up with the fraud triangle theory to help detect fraud. The elements of the fraud triangle are Opportunity, Pressure, and Rationalization. Up until 2004 when the various economic recessions in 1950 and 2000 happened, Wolfe and Hermanson’s attention was drawn on an additional element to fraud called Capability, which made them come out with the fraud diamond theory. Their finding of fraud occurrence as a result of capability was exhibited in the 2007-2009 financial crisis and the collapse of multinational firms. In simple definitions: Capability is the knowledge, skill, confidence, and position the entrepreneur has to commit fraud. Pressure is from relatives, relations, lifestyle, greed, lack of financial discipline and corporate manipulation by supervisors to alter figures, policies, and procedures. Opportunity is the internal control weakness or the lack of structure and governance. Rationalization is the ability to give a justification for why things should happen as they have done or situational justification after the occurrence which may sound either ethical or unethical but not legal.

Most founders or financial entrepreneurs of local financial institutions in Ghana must be scrutinized on the fraud diamond theory to know their primary intention of establishing a financial institution.

Ponzi scheme is the name derived from the Italian immigrant in the USA called Charles Ponzi, who was involved in a risky investment scheme in 1920. He was famous for his neatly clear-cut appearance, business acumen, financial knowledge, confidence, detailed, orator and love for risk and giving high returns (CAPABILITY).  Same can be mentioned about Bernie Madoff who caused the biggest Wall Street Fraud in 2008. Charles Ponzi was an excellent solicitor of investments and promising and giving higher returns. In 1920 he was imprisoned for defrauding his investors by the amount of $20million.  I will like to ask this question: Are we not seeing these practices in many of Ghana’s financial entrepreneurs? Let’s compare the business model of these financial entrepreneurs to Charles Ponzi. We will understand the impact of capability. It is time for the financial institution regulators to pay critical attention to the capabilities of all financial entrepreneurs in the industry.

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In an article written by Dr. Wayo Mahama in 2016 about the Ponzi scheme and financial literacy in Ghana, asserted that   some of the red flags to watch out for a Ponzi scheme in Ghana are: promise of high returns above the market going rate, word of mouth marketing, the auditors and relationship to the financial entrepreneur, constant returns, delay or difficulty in receiving payments. Based on the current situation in the financial sector, I will like to include the Rate of Growth, Asset Acquisition and surrounding themselves with highly experienced professionals.

A significant feature of all the owners and directors of these collapsed firms and some current embattling financial institutions is the rate of growth. We witnessed them opening more branches, subsidiaries firms and venturing into unrelated business areas. Furthermore, they were acquiring assets without considering the cash flows that these assets will be generated. In reality, their assets were a liability in disguise because they took more funds from the core business. Finally, these financial entrepreneurs become ‘celebrities/honorable’ and then associate or surround themselves with highly qualified professionals. This is to cover-up that they are receiving sound financial, legal and other professional advice but for their unknown motives which attracts investors to do business with the financial institution.

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The critical issue I would like to address with the article is the role of the Bank of Ghana (BOG) Act to save the financial sector by bailing out these institutions. The governor of the BOG has mentioned that they will be extending the financial bailout to the saving and loan institutions. This made me think, if I am a “Ponzi schemer,” I can now run down my financial institution or not capitalize it and misuse depositors’ funds with the hope that the BOG will help me with a bailout.

The bailout can be in the form of liquidity support or nationalized the bank with BOG (Government of Ghana) as the new owner. Is the bailout to make up for the supervisory failure? Which is more expensive to the nation? Bailout or the cost of supervisory function of industry regulators? Why cannot this be called a legalized Ponzi scheme which is a cost to the citizenry? I will recommend that the financial regulators intensify their supervisory roles. Furthermore, BOG downgrades these challenging financial institutions from giving them commercial licenses firms and restructure their management and ownership to improve their financial operations and peruse their debtors to recover their loans. Punishment alone for these financial entrepreneurs are not enough but to learn from their capabilities so that reoccurrence can be prevented.


Cressey, D. R. (1953). Other people’s money. Montclair, NJ: Patterson Smith, 1-300.

Mahama, W. (2016). Ponzi schemes and financial literacy in Ghana. Retrieved from:

Peprah, W.K. & Abandoh-Sam, J. A. (2017). Entrepreneurship Is an Attitude: A Case Study of Students of Valley View University. The International Journal of Business & Management, 5(10), 47-50.

Peprah, W.K. (2018). Predictive relationships among the elements of the fraud diamond theory: The perspective of accountants. International Journal of Academic Research in Accounting, Finance and Management Science. Accepted for publication in October 2018 edition.

Wolfe, D., & Hermanson, D. R. (2004). The fraud diamond considering four elements of fraud. The CPA Journal, 74(12), 38-42.

The writer is a Ph.D. in Commerce candidate (majoring in Accounting and Finance)

Adventist University of the Philippines Putting Kahoy, Silang, Cavite, Philippines


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