Durban - There is a frenzy in Ladysmith where people are flocking to join an investment scheme that promises to pay out double their investments on cash deposits within just two weeks.
But chief economist Professor Bonke Dumisa warns that such promises are unsustainable and are often fronts for Ponzi schemes that dupe the poor out of their disposable income.
The investment scheme called Bitcoin Wallet is owned and operated by Sphelele "Sgumza" Mbatha -- a local man claimed to be a paramedic for 11 years.
It has been reported that potential investors had been sleeping outside the scheme's offices and in bushes nearby to be the first in line.
It is said to pay 100% returns on money deposits, starting from R100, in exactly 15 working days. Deposits are reportedly taken and re-invested in cryptocurrency and after some time cashed in by simply selling it back to the market at a higher price.
Last week Thursday investors and potential investors were left stunned after Mbatha told people he had to relocate his office because the Alfred Duma local municipality allegedly instructed him to do so. The municipality vehemently denied this.
Municipal spokesperson Siyabonga Maphalala told African News Agency that the council had called Mbatha into a meeting to inform him of various complaints made by other businesses within the precinct, including the violation of by-laws.
"We did not even give him a letter instructing him to vacate the premises or close down. We did not do that. We merely gave him a chance to find new premises from which to operate at his convenience."
Mbatha who could not be contacted after the relocation said through an advisory on his company website that he was working online to eliminate long queues.
Police spokesperson Captain Nqobile Gwala said a case of fraud was under investigation by Ladysmith police. No further cases were opened since the issue was highlighted in the media. She could not confirm if it related to Bitcoin wallet.
"Police are again calling on people not to invest their money in ponzi schemes because it opens them up to becoming victims of fraud. By investing in these schemes they may end up losing all their hard-earned money. They must rather invest in authorised companies and banks," Gwala said.
A video has been circulating on social media showing a Ladysmith woman placing several R200 notes, running into a few thousand rands, on top of a car and saying that it was money she earned from Bitcoin Wallet.
Professor Dumisa said Ponzi schemes were illegal in South Africa and breached provisions of the national credit act.
"Anything in South Africa where returns are meant to be more than twice the repo rate plus 20 they begin skating on thin ice. They disguise themselves as investment schemes. In isiZulu they normally call it iBhanoyi which means aeroplane," he said.
Dumisa said research done by an entity within the Department of Trade and Industry and national credit regulator have proved that only less than 20 per cent of the investors gets their money back.
"In short, the schemes do not benefit the economy. They destroy it. The manipulators or creators of the scheme do not bank the money in the formal banking sector. If they did the South African Reserve bank will freeze those amounts once the account is red-flagged," Dumisa said.