Clamp-down on get-rich quick schemes

By Staff Writer
By Nicolette Dirk
 
In a bid to educate people on Ponzi and pyramid schemes, the South African Reserve Bank (SARB) has launched a national campaign to raise awareness of illegal deposit-taking investments.
 
Ponzi schemes were recently in the spotlight with high profile cases like former Fidentia boss, J Arthur Brown. Brown was fined R150 000 and given a 36 month suspended prison sentence by the Western Cape High Court. 
 
Prior to this sentence, Brown was convicted after he admitted to misrepresentations he made regarding investments entrusted to him.
 
The aftermath of lost investments through Ponzi schemes has also led to tragedy. In May this year, pensioner, Bohuslav Kautsky (67), committed suicide outside a syndication company’s offices in Waterkloof Heights, Pretoria.

Kautsky had invested in the Sharemax Ponzi Scheme and his daughter, Iva, told Moneyweb that he had no way of surviving because of the financial losses due to the investment.
 
Can this campaign prevent Ponzi schemes?
 
With the Reserve Bank’s ‘Don’t say bye-bye to your money,’ members of the public are encouraged to exercise extra caution when choosing potential investment opportunities.   
 
Hlengani Mathebula, head of group strategy and communications of the Reserve Bank, said the campaign would educate people on how to recognise illegal deposit taking schemes and avoid them.
 
“You can never be too careful when it comes to protecting your hard-earned savings.  Get advice from an accredited and registered financial services provider before you invest your money.  

Accredited financial services providers are regulated and supervised by the SARB, the Financial Services Board or the National Credit Regulator. Do not just rely on advice from promoters or friends who may have benefitted from their ‘investment’,” said Mathebula. 
 
Financial planner, Louis van der Merwe from Wealthup said a good indicator that a scheme could be too risky is when it guarantees higher returns than you would get from money-market investments.
 
“When schemes offer such high returns they are usually making their money through high risk ventures like unsecured lending,” he said.
 
Mathebula said that in pyramid and Ponzi schemes, for everyone who makes money, others will inevitably lose their money. 
 
There are also some economic consequences to illegal deposit-taking schemes.  In some cases, people have raised loans with commercial banks and micro-lenders to invest in these schemes. 
 
“The money is then lost when those schemes collapse, but still they have to keep up the repayments to the  banks for loans taken.

Such schemes absorb the savings of the population, which would otherwise be invested in the country’s financial system,” said Mathebula. 
 
The value of people’s investments in these schemes varies enormously and can run into millions of rands.
The schemes also vary considerably in size depending on how long they have been in operation.

Small schemes involve between 20 and 1 000 people, while large schemes can have as many as 500 000 ‘investors’.  Mathebula said early detection of suspected schemes and consequent inspections may result in fewer people being affected.
  
What should you look out for?
 
Van der Merwe said a good indicator of a suspicious investment is a high return guarantee because such schemes usually take on risky ventures to get their capital.
 
If the scheme is not listed on the stock exchange, you should also be cautious.
 
Van der Merwe said a big mistake many unknowing victims make is investing 100% of their money into a Ponzi scheme hoping for a big return.
 
“When it comes to long-term investments, a good portfolio will have a variety of investments with only 6% invested in each,” said Van der Merwe.

Recent Articles

Featured Do you need credit to survive Easter?

Easter weekend is here and with it the expectation of celebration. While there is nothing wrong with this, it often means spending more money than you bargained for.

 

Read more

Young woman building a legacy brick by brick

When her dad passed away, Siyasanga Ngcongca, an internal auditing graduate, took over the family business. Ngcongca Construction, as her company is known, is a service provider to five insurance companies, handling building and commercial claims.

Read more

Can you evict paying residential tenants?

One of the most common reasons for wanting to evict a tenant is non-payment of rent. But there are many other situations that landlords may encounter. These can range from damaging property and breaching contract, to being reported as a continuous disturbance by neighbours.

Read more

How one entrepreneur designed her financial future

From as early as Cannon remembers, she recalls her grandmother seated behind a sewing machine. Through this influence she was sewing her own aprons and doll dresses by the time she was ten, and by the time she was 16, she started designing and make her own clothes.

Read more

Sign Up

To our weekly newsletter for advice you can bank on

Deals

Hartbeespoort Romantic Weekend Special

Price: R2,999
When: Weekends
Where: North West

Da Vinci Happy Hour

Price: Available on request
When: Weekdays
Where: Cape Town

Glenburn Spa Easter Package

Price: From R1,065
When: 18 -22 April
Where: Muldersdrift