Pyramid Scheme Fever Scorches Albanian Society


What makes a 64-year-old disabled pensioner take her last $1,000 and invest it in a risky venture promising unrealistically huge returns?

What makes a retired kindergarten teacher and her out-of-work husband sell their home of more than 20 years and place the proceeds in four pyramid schemes?

“A kind of societal fever took hold here,” says World Bank representative Carlos Elbirt. “People who you never imagined would trust these types of schemes were trusting these types of schemes.”

Hundreds of thousands of Albanians, in fact, trusted. Some were well aware of the gamble they took when they forked over life savings in order to--supposedly--double or triple their money; others, new to the world of capitalism and free-market free falls, entered blithely into a tragic tangle of naivete, greed and desperation.


A pyramid scheme creates the illusion of financial success by paying off early investors with funds provided by later investors. The scheme eventually collapses when no more investors can be found. When the schemes began to collapse in Albania last month and the money vanished, Europe’s second-poorest country (ahead of Bosnia-Herzegovina) erupted into violent riots that left one person dead, scores injured and city halls, courts and police stations in flames.

High-risk, get-rich-quick pyramid schemes have popped up in Poland, Romania, the former Yugoslav federation and the former Soviet Union, where transition economies, lax regulation and vulnerable populations have created fertile ground for abuse.

But only in Albania did the schemes reach such mammoth proportions and operate with the tacit blessing--some say complicity--of the government.

Suddenly Albania, a country that seemed to be emerging successfully from decades of brutal Communist rule and numbing isolation, was plunged into a crisis that has undermined both its wobbly economy and chances for the government’s survival, exposed a false sense of prosperity and led to profound questioning of the nominally democratic system that Albania adopted after the belated fall of Stalinism in 1991.


The right-wing government of President Sali Berisha, a gruffly flamboyant autocrat who until recently enjoyed enthusiastic U.S. backing, has not coped well with the disaster, offering promises of partial reimbursement to some investors--and calling out the army to stop demonstrations while arresting and intimidating opponents who were quick to capitalize on the unrest.

For more than a year, Western finance officials, including the World Bank and the International Monetary Fund, and then Albania’s own Central Bank governor, had warned the government that the investment schemes were dangerous and would fail. But Berisha, tied up in an election year and basking in Western political support, ignored the warnings.


Western officials now charge that Berisha was guilty of willful ignorance at the least, while his opponents accuse him of corruption, deceit and manipulation. Some of the companies in question may have helped finance the campaigns of Berisha’s Democratic Party of Albania, opponents charge.

The vast majority of Albanians appear to blame the government for their misfortune--and not the characters who ran the scams. No one knows the full extent of the involvement and losses in the collapsing pyramids, but Western officials estimate that 800,000 Albanian adults--a fourth of the population--may be trapped, with at least $1 billion at risk.

“I don’t care about politics, but I blame the president for all this,” said Drita, a 48-year-old retired kindergarten teacher. “He should have let people know what was going on. We don’t know anything about capitalism. I’d never heard the term ‘pyramid scheme’ before.”

Drita and her husband, Skender, a driver during Communist times who has not had a steady job since, sold their home for $25,000 in September. They gave the money to four companies in hopes of doubling it to buy new apartments for themselves and their two adult sons.

“We thought the water in the sea would turn to yogurt,” Drita said, using an old Albanian expression--maybe it seemed unrealistic, but there was always a chance.


Drita and Skender, who did not want their last name used for fear the government would somehow punish them for talking to a Western reporter, now live in a small, sparsely furnished apartment. They thought they would be able to pay the $250 monthly rent with interest from their investments. But there is no money. They will beg the landlord to be patient, but they fear they will soon be out on the street.

“This is a catastrophe,” said Skender nervously as his wife wept. “We left dictatorship and now we are in a kind of wildness. We were poor during communism, but at least our lives were more stable.”

By no means were the only victims the poor and unsophisticated. Doctors, university professors, politicians and journalists all joined, as well as the other stalwarts of the Albanian economy: drug runners, money launderers, overseas guest workers. The pyramids began several years ago, but the phenomenon rose to a frenzy last fall, when people stood in lines 300 and 400 long to give up their money to promises of interest exceeding 100% in less than three months.

The allure of easy wealth was simply too tempting in a country where jobs are hard to find and the term “work ethic” is an undeveloped concept--and where the trappings of capitalism, of new cars and nice houses and washing machines, are seen by Albanians watching ubiquitous Italian television programming. Tirana, the capital, is dotted with gaming halls and gambling arcades with names such as American Poker, even though the average wage is about $60 a month.

Gjergj Peci, who was sent to prison in the 1980s as an anti-Communist dissident, worked several jobs but never made enough money to let him live the life he wanted. Add to that a new wife and a young son, and Peci figured he’d join the thousands of Albanians he’d watched profit from pyramid schemes.

He sold his apartment for $30,000 and “invested” two-thirds of it.

“In a way, I knew it was risky, but this is all one big game of money here,” said Peci, who earns $6 a page translating books into Albanian and whose wife is a statistician at a government bank. “There were no alternatives for making money, no other possibilities.”



Timi Shqurti, 24, who quit school and has been working as a bus driver in Germany for the past five years, took out a $10,000 loan and sent it to his family to invest in one of the schemes.

“Everyone was doing it,” said Shqurti’s 19-year-old brother, Genti, an art student at the University of Tirana. Now the money is gone and no one knows how Timi will pay back the loan.

“In my personal opinion,” said Genti, shaking his head at a sidewalk cafe where other swindled students chain-smoked, sipped early morning brandy and told of their losses, “Albanians don’t want to work hard. This seemed like the best way to get money without working. . . . I blame everybody: the government which didn’t intervene, the companies who cheated people and us Albanians for being so stupid to take the risk.”

Athina Dauti, 64, a retired factory worker, invested her savings, $1,000, in Vefa Holdings, one of the companies in question that is still afloat. She said she just wanted a little profit to be able to replace the rotten floorboards in her apartment and to buy medicine for herself and her husband, who together must make do on a monthly pension totaling $80.

Dauti, the rims of her eyes reddened and her gnarled hands trembling, was one of dozens of people gathered outside Vefa’s fortress-like building in Tirana last week demanding to know when they would see their money.

Vefa is one of the largest and best-connected of the investment companies. Banners proclaiming “Vefa: Security, Confidence and Welfare” are draped across Tirana streets. One is a few yards from Berisha’s formal residence.

Vefa claims a wide range of lavish holdings, such as a shipping line and distilleries. Its founder, Vehbi Alimucaj, holds a diplomatic passport, according to Western officials. Alimucaj, who has denied that his company is a pyramid scheme, declined to be interviewed.

The Berisha government shut down two firms, froze an estimated $300 million in assets and arrested their leaders, including Rrapush Xhaferri, a former warehouse manager based in the southern city of Lushnje.

Investors in Xhaferri’s company demonstrated last month to demand he be released, because he represented rare prosperity: In the heady days of his pyramid scheme, he fielded a soccer team with Argentine and Brazilian talent and sponsored a million-dollar beauty pageant in a forsaken corner of Albania. The demonstrators were convinced that, once released, Xhaferri would again make money appear.

The first pyramid to go belly up belonged to a woman who had previously worked as a shoemaker; the founder of another company left the country with $13 million--holding, like Alimucaj, a diplomatic passport.

Thus far, the government, which finally moved last month to outlaw the schemes, has said it will only repay some of the investors in the two firms whose assets have been frozen, starting Wednesday. Even if more money were available, a massive payout would send inflation soaring, economists warn.

Ominously, Western diplomatic sources predicted that it is only a matter of time before Vefa, which already has lowered interest payments to its clients, and the rest of the pyramids collapse and Albania explodes further.

“I don’t think we’ve seen the half of it,” said one Western diplomat.

Berisha, whose party controls parliament thanks to national elections in May that observers have criticized as fraudulent, expressed “sorrow” at the plight of his people but said his government is not to blame nor had it profited.

Critics say the government used the pyramid prosperity to lull the population into complacency over lack of political liberties, but Berisha insisted the scams were a “disease of liberty” that happened “because of the respect we have for free initiative.”