CityPress - - Business -

ne of the ma­jor prob­lems in South Africa re­volves around the reg­u­la­tion – or lack thereof – of pyra­mid schemes. The Con­sumer Pro­tec­tion Act (CPA), which came into ef­fect in 2010, placed a ban on pyra­mid schemes, mul­ti­pli­ca­tion schemes and chain letters that in­volve the pay­ment of money.

How­ever, these schemes con­tinue to ex­ist and, con­trary to pop­u­lar belief, they do not fall un­der the ju­ris­dic­tion of the Fi­nan­cial Ser­vices Board (FSB), but that of the Re­serve Bank.

Caro­line da Silva, deputy ex­ec­u­tive of­fi­cer for fi­nan­cial ad­vi­sory and in­ter­me­di­ary ser­vices at the FSB, ex­plains that the board in­ves­ti­gates al­le­ga­tions of un­reg­is­tered fi­nan­cial ser­vices busi­nesses, which some­times turn out to be pyra­mid schemes.

“Such mat­ters are then re­ferred to the rel­e­vant reg­u­la­tors with [the proper] ju­ris­dic­tion. That in­cludes cases where the schemes are con­ducted by au­tho­rised fi­nan­cial ser­vices providers.

“In the lat­ter case, the FSB will take the nec­es­sary ac­tion in the form of a with­drawal of the li­cences and is­sue a media re­lease,” she says.

In many in­stances, the FSB’s in­ves­ti­ga­tions are prompted by al­le­ga­tions that the clients’ in­vest­ments are traded in forex or in listed se­cu­ri­ties and, more re­cently, Ponzi schemes pur­port­ing to be stokvels.

In the most re­cent case, the FSB is­sued a public warn­ing re­gard­ing Ntinga Health and Fi­nan­cial Ser­vices, trad­ing as AQNO Trad­ing and In­vest­ments.

Ac­cord­ing to the FSB, the com­pany op­er­at­ing from St Ge­orge’s Mall in Cape Town ap­peared to be run­ning a Ponzi scheme. As part of an in­spec­tion, FSB in­spec­tors ex­e­cuted a search and seizure war­rant at the com­pany’s head of­fice on July 22 .

“The pre­lim­i­nary view of the FSB, based on the in­ves­ti­ga­tion to date and the ev­i­dence re­cov­ered dur­ing the search and seizure op­er­a­tion, is that Ntinga is op­er­at­ing a Ponzi scheme,” says Tem­bisa Marele, com­mu­ni­ca­tions spe­cial­ist at the FSB.

Among other things, the in­spec­tors could not find any ev­i­dence that in­vestors’ funds had been placed in in­vest­ment prod­ucts. Ntinga promised guar­an­teed in­vest­ment re­turns of 96% per an­num, which should have been a red flag for po­ten­tial in­vestors.

The FSB has pro­vi­sion­ally with­drawn Ntinga’s Cat­e­gory I fi­nan­cial ser­vices provider li­cence (li­cence num­ber 32188) that en­ti­tled it to ad­vise clients on such prod­ucts as long- and short-term in­sur­ance, pen­sion fund ben­e­fits and par­tic­i­pa­tory in­ter­ests in col­lec­tive in­vest­ment schemes.

Ac­cord­ing to the FSB, the key in­di­vid­ual at Ntinga is Armstrong Luthando Maz­izi. He is also a sig­na­tory to the Ntinga bank ac­counts with Gcin­isiko Mantshe.

Marele says the FSB has handed over the mat­ter to the SA Re­serve Bank and other rel­e­vant author­i­ties. The FSB and other law en­force­ment agen­cies are work­ing to­gether to en­sure that the peo­ple re­spon­si­ble for the pos­si­ble un­law­ful con­duct are brought to book.

How­ever, this is just one of many pyra­mid or Ponzi schemes op­er­at­ing in South Africa and more peo­ple are per­suaded to part with their money daily in the hopes of dou­bling or tripling their funds.

This is what you need to watch out for to avoid be­ing caught by any of these schemes.

Ponzi schemes

These schemes are named af­ter Charles Ponzi, who first made them in­fa­mous as far back as 1920.

Op­er­ated by smooth-talk­ing con artists who ap­pear to be le­git­i­mate and might even have a le­git­i­mate busi­ness to front their scheme, these busi­nesses will typ­i­cally in­vite you to in­vest in a scheme or busi­ness.

One of the more fa­mous Ponzi schemes in re­cent history was that of Bernie Mad­off, who was a le­git­i­mate stock­bro­ker and in­vest­ment ad­viser. His clients, or “vic­tims”, in­cluded Hol­ly­wood lu­mi­nar­ies Steven Spiel­berg, Kevin Ba­con and talk show host Larry King. While they might al­ready be rich by most peo­ple’s stan­dards, few have the power to re­sist the prom­ise of easy money. One of the signs of a Ponzi scheme is that the op­er­a­tor prom­ises you un­re­al­is­ti­cally large re­turns on your in­vest­ment in a short pe­riod of time.

In a Ponzi scheme, the in­vestor does not play an ac­tive part, but merely con­trib­utes seed cap­i­tal or money. For ex­am­ple, in South Africa, Barry Tan­nen­baum con­vinced many of South Africa’s elite to in­vest in Aids drugs. The fact that he was the grand­son of the founder of phar­ma­ceu­ti­cal com­pany Ad­cock In­gram prob­a­bly helped his cred­i­bil­ity, but the scary truth is that no one both­ered to check the va­lid­ity of his claims or his “in­vest­ment”.

The re­sult was that wealthy South Africans in­vested more than R12.5 bil­lion in his Ponzi scheme be­fore it was un­cov­ered.

Pyra­mid schemes

A pyra­mid scheme is one in which you are re­quired to be an ac­tive par­tic­i­pant. In this case, you re­ceive money or com­pen­sa­tion af­ter you re­cruit new par­tic­i­pants to the scheme.

Each new par­tic­i­pant must make an up­front pay­ment to par­tic­i­pate in the scheme and the re­cruit­ment process has to con­tinue for you to make money, with the peo­ple at the top of the pyra­mid reap­ing the most profit. The warn­ing signs of a pyra­mid scheme in­clude:

new par­tic­i­pant has to pay in a fee or lump sum to par­tic­i­pate in the scheme.

earn money pri­mar­ily from re­cruit­ing new par­tic­i­pants rather than selling goods.

em­pha­sis is on par­tic­i­pant re­cruit­ment or build­ing your “team”.

en­ter the scheme at the low­est level, or the bot­tom of the pyra­mid, and only move higher up the scale as you re­cruit new par­tic­i­pants.

peo­ple at the top of the pyra­mid earn the high­est “com­mis­sions”. Of­ten, these schemes peter out and you will find that the key in­di­vid­u­als or peo­ple run­ning the scheme sim­ply re­launch it un­der a dif­fer­ent name.

The main dif­fer­ence be­tween these two schemes is that in Ponzi schemes you do not play an ac­tive role, while in a pyra­mid scheme you have to ac­tively re­cruit oth­ers to join the scheme.

A Ponzi scheme also re­lies on a con­tin­u­ous stream of new mem­bers since old mem­bers are paid their promised re­turns from new mem­bers’ con­tri­bu­tions.

It is usu­ally when the peo­ple man­ag­ing the

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