Johannesburg - The central bank is investigating 18 suspected Ponzi schemes and finalised 20 investigations last year.
Some schemes “keep reinventing themselves by duplicating the same scheme under different names”, Hlengani Mathebula, the head of strategy and communication at the Reserve Bank, said yesterday.
Speaking at the launch of a public awareness campaign against these illicit schemes in Pretoria yesterday, he said investors were inspired by the desire to earn good returns in a very short time. Left unchecked, the schemes could spread and eventually affect the country’s financial stability.
The Financial Services Board (FSB) said Ponzi schemes that it had investigated or referred to the Reserve Bank each managed millions of rands in their accounts. “The problem is that by the time we are alerted, or any of the authorities are alerted, somebody has already lost their money,” said Tembisa Marele, the communications manager at the FSB.
Among the Ponzi schemes the FSB has investigated are Defencex and Zentech. Last week the FSB warned the public that there was a strong indication that entities trading under the Ledimar Group – which include Ledimar Financial Services, Ledimar Stock Trading and Ledimar Investment Holdings – could be operating as a pyramid scheme.
Marele said the FSB’s scope to investigate suspected Ponzi schemes was limited to companies that were authorised financial service providers.
“When a company is unregulated, we can’t do anything. We refer them to the Reserve Bank to investigate. But once we find any wrongdoing in the companies that we investigate, we shut them down immediately,” Marele said.
Mathebula said: “An informed public is the first line of defence. Promises of unrealistic returns should raise alarms.”
He advised people who were approached with an attractive opportunity to check the credibility of the scheme. They should check that the institution was registered before investing any money.
Institutions that are allowed to take deposits from the public are registered as banks with the Reserve Bank.
The Reserve Bank conducts regular campaigns to educate the public about the dangers of illegal deposit-taking. This year the FSB and the National Consumer Commission (NCC) are supporting the campaign.
The chief director for legal at the NCC, Oatlhotse Thupayatlase, said that by the time the authorities received complaints about a scheme, most of the money was gone.
Mathebula recalled a scheme that took more than R800 million from 200 000 people. By the time action was taken, the victims were “possibly looking at something like 20c in the rand”.
Ponzi schemes claim to invest in property developments, foreign exchange transactions, shares and venture capital. They promise much higher returns than a conventional bank deposit, in a short period.
Pyramids require active participation from members who are expected to bring in recruits after they have paid a joining fee. They then benefit from contributions paid by the people who fall for the concept.
Neither arrangement generates profit. Cash flow depends on attracting a stream of new investors. When there is no easy market available, funds start running down. Early investors usually benefit, while those who come later do not.
Unlike a registered institution, these schemes offer no recourse for people who are cheated of their funds. - Business Report