Anatomy of a Ponzi scheme

CHOICE LIFESTYLE: BOOM TO BUST CYCLE INEVITABLE

R597m deposited into two company accounts. None remains. Moneyweb

In a report issued last month, business rescue practitioner Herman Bester made the chilling observation that all income or dividends paid to Choice Lifestyle Change members “were paid from their own money and that the activities of the company were in fact illegal”.

He found R597 million had been deposited into two company bank accounts. Almost none remains.

The company promised monthly returns of up to 16%. The source of these returns was fake. Bester says: “No income from any business activities was found.”

Bank accounts

By scrutinising the scheme’s bank accounts, Bester has provided a rare insight into a Ponzi scheme’s life cycle. At the start, the schemes promise, and pay, extremely high returns. Often investors are encouraged to reinvest these earnings so the money stays in the scheme. Dividends come from the investors’ own funds.

News about the scheme spreads, drawing in more investors – and large amounts of new deposits, allowing those running the scheme to pay earlier investors and put aside a large share for themselves.

Between July 2015 and March 2017, Bester records that Maarten Stapelberg, who ran Choice Lifestyle, paid himself just under R1.5 million from the Standard Bank account. A further R750 000 was withdrawn in cash and over R1 million was spent on expenses. Money from the FNB account was transferred to Stapelberg’s personal Absa account, from which over R7 million was paid out to associates and family members, savings accounts, withdrawn, or used for a variety of purchases.

Balancing act

For most of this time, the monthly inflow from investors exceeded ‘dividend’ payments. Excess money was moved into a Standard Bank Capital account.

However, as the scheme grew it wasn’t attracting enough new members to keep paying out those that joined before them.

By August 2017, the FNB account had closed and all transactions were through the Standard Bank account. [From September to October 2017] Bester noted “the tide had turned”. The amount due to be paid out exceeded new investments by nearly R30 million. Choice Lifestyle offered an increased interest rate for investments.

Then it started making excuses about why investors weren’t being paid. Stapelberg was found dead on December 16, 2017.