Court gives clarity on Ponzi funds
THE Supreme Court of Appeal has clarified the powers of investigators appointed to investigate Ponzi schemes and facilitate the repayment of illegally obtained funds to duped investors.
The court was dealing with a KwaZulu-Natal case related to the Travel Ventures Institute (TVI) scheme, identified as a Ponzi scheme and shut down by the Reserve Bank.
Judge Nambitha Dambuza, with four judges concurring, said TVI – promoted as an international direct-selling company – had the structure of a pyramid scheme.
The court said the scheme had taken advantage of stokvels and had members including magistrates, politicians and other civil servants. An estimated R1.6 billion had been invested in the scheme in the country.
The case before the appeal court involved a Newcastle distributor who had opened bank accounts in the name of TVI.
The Reserve Bank had appointed a temporary inspector, Johannes Kruger, to investigate TVI and the distributor.
Kruger found that numerous investments of R2 700 or multiples thereof had been made into the bank accounts and that some of the investment funds had been used by the distributor to purchase certain assets.
He also found that the distributor had four properties in KZN and three vehicles.
The Reserve Bank, being satisfied that TVI had been illegally operating as a bank, appointed Kruger as a repayment administrator to manage and control the repayment of all the funds obtained by the distributor.
Kruger brought a high court application without notifying the distributor, seeking an order to recover and take possession of all the assets.
An interim order was granted in January 2013, but the distributor opposed the order being made final as he argued that it was an “abuse of the court process, there was no urgency and other parties related to the assets had not been joined in the application”.
He also claimed that some of the assets were not related to TVI.
The high court agreed with the points raised by the distributor and found that Kruger had been “high-handed”. The interim order was uplifted by the court in November 2013.
In its judgment, the appeal court said the high court’s ruling had been incorrect. It said while the issue was academic, as the estate of the distributor had been sequestrated and was now in the control of trustees, the issue of the powers of the repayment administrator should be resolved.
Judge Nambitha Dambuza said that even without the court order, Kruger had been within his rights to take control of the possessions and assets.
She said the Banks Act was clear on the functions of the administrator and it stated that the person must recover and take possession of the assets and facilitate the repayment of the money.
She added that there were often “catastrophic results” when unregistered institutions acted as banks and therefore the registrar of banks had powers not only to conduct investigations when unauthorised conduct was suspected, but also to intervene quickly to limit the damage.
She said Kruger had only approached the court because in his experience, people were seldom willing to hand over their assets for attachment. He had not notified the distributor about the court action because he feared that the assets would be dissipated.