Guiding consumers since 2009

How not to be fooled by investment scams

By Staff Writer

This year is not even over yet and already many investors have been swindled out of their hard earned cash after finding that their money has been invested in Pyramid and Ponzi schemes.


This week it was reported that several investors, including an 85 year old woman may have lost their life savings in what is thought to be South Africa’s biggest Ponzi scheme. The editor of the Weekend Argus’ Personal Finance section, Bruce Cameron, said he believed the scheme may see losses of close to R2 billion.


It’s unclear whether investors of the Relative Value Arbitrage Fund (RVAF) are set to get to get their money back. According to Moneyweb an investor of RVAF, lawyer Morne Strydom of Mostert & Bosman brought an application to sequestrate the fund. The website reported that Strydom has a personal investment in the fund to the value of R233, 000.


Investigations into the funds workings may have come too late for investors. Financial services board inspectors visited the fund’s controller and trustee Herman Pretorius last week but he shot and killed his business associate, Julian Williams, shortly thereafter before turning the gun on himself. The remaining trustee of the fund said in an affidavit that  he was only involved in an administrative capacity and that he “has no knowledge of where the trust funds are invested”, according to Moneyweb.


The news comes just after the South African Reserve Bank (SARB) confirmed it is investigating Travel Ventures International (TVI) this week. The SARB’s Hlengani Mathebula, group head: strategy and communications at SARB told Justmoney: “The Bank can confirm that there is an ongoing investigation into TVI and numerous small schemes operating under this banner. The investigations are in various stages of progress and the Bank is not in a position to comment on the details thereof.”


The SARB advises that investors should steer clear of investments that ‘sound too good to be true’ as they are probably Pyramid or Ponzi schemes. The Bank says that fifteen such illegal deposit-taking schemes were investigated in 2011 and that every day con artists think of new and clever ways to get innocent victims to invest their hard-earned money.


The SARB says that individuals are their own best form of protection. “It is your responsibility to make sure that you never give your money to any company or person that is not registered as a deposit-taking institution in terms of the Banks Act,” says the Bank on its website. “Remember, banks offer a return of about 4-5 percent over a year, so if you are being offered 50-100 percent in a few months you can be sure that this is an illegal deposit taking scheme,” adds the SARB.


If you suspect that someone may be asking people to invest money in a Pyramid or Ponzi scheme you can report them by calling Primedia Crimeline on 32211 or tipping off the SARB on 0800 677 772 or by emailing them at sarb-banksup@resbank.co.za.


What is a Ponzi scheme?


A Ponzi scheme is a fraudulent investment scheme whereby investors are paid out purported returns from funds contributed by new investors. Ponzi scheme fraudsters often lure investors in by promising higher investment returns with little or no risk attached. These ‘funds’ tend to collapse when the orchestrator finds it difficult to recruit new investors to pay out older investors.


Other notorious Ponzi scheme orchestrators:


Last year the US Securities and Exchange Commission filed a federal case against father and son Allen and Wendell Jacobson from Fountain Green, Utah claiming they were running a $220 million Ponzi operation targeting members of the LDS Church.

James Davis Risher pleaded guilty in a US Federal Court for his role in operating a $21 million Ponzi scheme from 2007 to 2010m, which targeted amateur investors and the elderly.

In 2009, investors lost billions of Rands in a Ponzi scheme masterminded by South African businessman Barry Tannenbaum.

In the same year, Stanford International Bank and Texas financier Allen Stanford were accused of swindling investors out of more than $7 billion through a Ponzi scheme. Allen Stanford was arrested by the FBI and sentenced to 110 years on 14 June 2012.

In 2008 the former non-executive chairman of the Nasdaq stock market, Bernard Madoff, admitted that his investments were “all one big lie”. He was arrested and charged with a single count of securities fraud. Investors are said to have been cheated out of around $65 billion.


 

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