Hungarian Worm Scam Mires Hundreds In Debt

BUDAPEST, Hungary - Ferenc Kovacs, 31, an iron-factory worker and father of two, climbed onto a stool in his attic, put his neck in a noose and kicked the stool away.

Death was the price he figured he must pay to escape the burden of something that had haunted him for months: earthworms.

In the same town of Baracs, a machine operator, 38, hanged himself from a tree behind his house. "It's better this way," he said in a note that told his two sons goodbye. Nearby were the family earthworms.

Thirty miles north, near the city of Szekesfehervar, a young man under psychiatric care put himself in the path of an oncoming train. Earthworms, his father says.

Fifty miles northwest of there, in the town of Acs, Erzebet Asboth, a grandmother, found the body of her husband, Lajos, hanging in the attic of their home. Earthworms, she has no doubt.

Thousands of Hungarian families are being crushed by mounting debts from an earthworm scam that spread like wildfire through the country in 1989. Its embers still burn hot.

At least a dozen Hungarians, perhaps many more, have seen suicide as the only answer. Proneness to suicide is a Hungarian trait; its per-capita suicide rates are among the highest in the world.

The worm scam occasionally pops up elsewhere, even in the United States, but Eastern Europe seems to be getting more than its share. The reasons are manifold.

One is economic desperation. Prices have soared while the average monthly paycheck is still only about $200. Ordinary people have been easy targets for con artists with get-rich-quick schemes.

At the same time, laws have been in flux, prosecution lax, loopholes abundant; such is the transition from communism to democracy.

SCHEMERS ALSO PROFIT

While the frenzy of entrepreneurial activity that came with free-market economics has produced legitimate millionaires, it also has filled the pockets of many devious schemers.

The earthworm scheme has elements common to other major Eastern European frauds. One is the apparent blessing of people in high government places.

For the average Hungarian, it worked this way. You get a bank loan worth a year or two of your family income. You buy a load of earthworms, about 200,000 of them.

You put them in a pile of cheap manure. They reproduce quickly. You can then sell a load of earthworms to the next family, recouping your investment, then sell a load again, and that's pure profit. More loads sold, more profit.

Why would any family want a load of expensive earthworms? Because, the story went, earthworms can turn manure into gold. Into the earthworm's mouth goes manure, and the earthworm's excrement is valuable soil. The story went that the earthworm soil could be sold abroad, to florists and farmers, for U.S. dollars or German marks. This was money with heft, unlike the lowly Hungarian forint.

It was hogwash. The fact is, you take a dollar's worth of manure or other organic material, put a bunch of worms in it, work it, and you might get soil worth a dollar and a penny.

Says Dr. Roland Meyer, a soils specialist at the University of California Davis, "The only people who make any money are the people who sell the worms."

It is not clear how the scam started in Hungary, but much can be learned by looking at a company called Flora and Fauna, which began operating in the city of Vacs in 1989.

That company sold more than 5,000 families a load of earthworms. With each load came a contract, saying the company would buy back all soil produced by the worms.

When your worms doubled, you could sell a load yourself; 10 percent of the money went to Flora and Fauna, and the buying family also would sign a contract with that company. If they later sold a load of worms, the company would get 10 percent of that sale, and so on down the pyramid.

Many other companies like Flora and Fauna sprang up. Banks gave thousands of earthworm loans.

The borrowing family never saw the loan money; it went straight to the worm sellers.

10,000 WORM LOANS

Hungary's largest bank, OTP, gave more than 10,000 worm loans.

Says Bela Csizmas, managing director of OTP: "We didn't give loans based on whether the soil could be sold. We based it on other things, like collateral, income, and whether a person could find others to guarantee the loan."

Many borrowers had friends or family members sign the contracts as guarantors.

Bankers themselves got into the worm business, several offering special deals to borrowers who bought worms from them.

By late 1989, it was becoming clear to many families that something was not right. Flora and Fauna and the other worm-selling companies were not honoring their obligations to buy back the earthworm soil. Letters to the companies brought no answers.

Still, the scam persisted, for several reasons. One was that people had seen other people making money from worm sales; how could it not be profitable if your neighbors were profiting from it?

Another was the evident support it had from the banks and from people in the agricultural ministry and Hungary's respected University of Agricultural Science, some of whom participated in worm-growing seminars around the country.

The agriculture ministry never officially endorsed the worm plan, says a spokesman for its successor institution, the Ministry for Land Use. But even as late as 1991, when thousands of families realized they had been defrauded, the deputy state secretary for agriculture, Karoly Neszmelyi, appeared at seminars promoting the worm business.

Ferenc Safian, 53, a worker for the Ikarus bus company, sued Flora and Fauna in 1990 for not buying his soil as promised. It was his son who got the family involved in the worm business and who later let a train kill him.

"We had never been rich, but we had never been involved in a debt we knew we couldn't pay," says Safian, who now leads a group of people hurt by the worm scam trying to recover some of their losses.

Authorities began investigating Flora and Fauna in 1990. Its owner, Geza Deesy, 48, is now charged, along with his wife and several others, with embezzling hundreds of thousands of dollars from his own company and forging documents to cover it up. He is a free while awaiting trial.

The company, which went out of business in 1991, has been seized, but its assets are negligible. Safian, who filed the suit against Flora and Fauna, was awarded about $9,000 - several times his yearly income - in damages last year, but he probably will never get it.