SEC and Menzgold – A fresh perspective

by Sam A. Obuobi Twitter @SamAObuobi

I got to know about Menzgold barely a year ago when Nana Appiah Mensah, NAM1
bought his aeroplane. I sought more information about the mode of their gold business
but clawed at straw. I kind of had some gut feeling that if I were building up some novelty
market, perhaps I’d be more cautious in my expenditures and not sprawl my interests
that wide. My gut feeling took me to the time of SEEL Ghana Ltd in the mid-90’s when a
leading telecoms, commodities and media house company crashed for similar reasons.
That’s how I wrapped up then on Menzgold - until I recently learned that the Securities
and Exchange Commission, SEC, sanctioned Menzgold to halt its operations. Menzgold
immediately could not honor its obligations to its clients.

I do not intend to say that Menzgold operated a ponzi scheme for that’s the “elephant in
the room”. What is correctly reported is that it exported gold legally, was in the top
league of gold exporters, and in the early five months of 2018 exported about $60million
worth of it. (said by Mr. Opare Hammond of the Precious Minerals Marketing Company,
PMMC). The modus operandi of Menzgold seemed to be like a “combo service” trading
house. Customers bought gold which they invested in the trading house for monthly
returns that were obviously higher than obtainable from the traditional banking sector or
from Treasury bills, or even from the stock market. Essentially, the monies that the
customers paid were used to fund the purchase of gold from the mines. The gold is
exported through the PMMC and proceeds were used to pay the huge dividends.
Menzgold paid dividends timeously until the day their operations were halted by the
SEC.

I have questions for the SEC. What is the difference between the operations of the stock
market and what Menzgold did. Over the 4-5 years in which Menzgold operated, did the
SEC undertake a research into their modus operandi? What is the difference between
the operations of the Stock Market and that of Menzgold. The Stock market operates on
confidence and sentiments; and any regulated bank whose operations are truncated
cannot fully honor depositor obligations.

The stock market operates as a virtual market that is regulated to some extent.
Customers place in their monies, and bet that the values of companies would fall or rise
based on sentiments, valuations and technicals that are not certain. To say that the
markets are predictable are a mirage. Sometimes the shares are bullish in which there
exist euphoria to buy more shares; and other times the market bears down or even
crash out. Then there are the derivatives market which are about futures or options.
These are traded by hedgers, speculators, margin traders and arbitrageurs. Think about
that.

Our SEC regulates the stock market, so why can’t the SEC regulate Menzold’s modus
operandi, if it’s hedged by gold. It is not the duty of the SEC to engineer business
strategies, but the SEC should be smart enough to be innovative in its reach to help
business and the financial sector to grow, in new realms, new paradigms and in a ways
that allow the investor or client to understand the risks that they take - the higher the
returns, the higher the risks. That’s the disclaimer on the stock market right? You could
enter the stock market with 10K today and end up with zero the following day right? The
disclaimer is that you are aware of your risks and rewards. The decision to enter the
market is left with the investor.

In my opinion, Menzgold is the only company since independence to build a domestic

consumer gold market which seemed to use sophisticated hedging instruments. Their
actions grew the market considerably in a way that $200 million confidence money was
invested in an otherwise non-existent consumer gold market. If I were the boss at SEC, I
would have set up a whole department within R&D to research the innovation, and
helped Menzgold to refine and align itself in a way that meets the standards of stocks
trading and hedging by gold - And in a way that Menzgold would be regulated as
providing a new type of product on trading and investment based on hedging by gold.
Why can’t we be that original? Why do we always have to refer to what’s already written
in textbooks from Wall Street and LSE (London School of Economics)? Why do we
continue to prove how dumb we are as Africans without any originality of any sort. Why
can’t we be innovative for once.

This brings to mind gold as an investment: All over the world and even from biblical
times, people have bought gold as a way of diversifying risk. It is the most proven safe
haven of all precious metals having hedging properties that have empirically held true for
centuries, and over so many countries.

So there’s an obvious confluence in using gold in futures, derivatives and investment. I

believe that that’s what Menzgold sought to do. My inkling though is that NAM1 and his
aids were probably not that orthodox and conversant, and without Harvard or LSE
degrees, nor were they burnt in Wall Street sophistication; but somewhat had an
operable concept that worked for them for 4-5 years.

Unlike the UK, there is gold everywhere in Ghana. Let us design a model, that will
develop our gold consumer market, to keep our gold in our country. The model should
enable a new culture in which individuals buy and own gold as investment in Ghana.
Soon we’ll see the market grow in a way that its capital and volume can support our
local gold vaults to keep our Gold in Ghana. The SEC must take cue.

Therefore, this is my thought. Our state regulators must shirk their neo-colonialist
mindset which says that “we only mine gold for export”. The SEC must sit-up and set-up
mechanisms that effectively coalesce the strength of the Stock market, and distributive
gold ownership by citizens. The result will be to keep our gold in Ghana; and a new
vibrant financial and investment sector in gold hedging and futures, that will be even less
virtual than the stock markets they continue to hail.