Durban - Two Durban businessmen who persuaded investors to plough thousands into a microlending business have been arrested for allegedly running a Ponzi scheme.
Gary Anthony Croxford, 60, of Glenashley, and Jacobus Basson, 41, of uMhlanga Rocks, have been charged with 32 counts of fraud, alternatively theft, amounting to R8.8 million and money laundering.
They appeared in Durban’s Commercial Crime Court on Thursday and were released on a warning on condition their passports remain with the investigating officer and they do not interfere with witnesses.
Both denied wrongdoing in their affidavits to convince the court it was in the interest of justice to release them.
The men are charged with misrepresenting eight complainants between 2008 and 2012, that they were making “safe capital” investments in a microlending business Streetwise Mutual Assistance (SMA).
Croxford was the managing member and Basson was a member and the operational manager.
The firm was providing short-term (one-month) unsecured loans not exceeding R2 000 to low-income earners.
The State alleges they misrepresented that the company was doing well, had a contract with Chris Hani Baragwanath Academic Hospital in Soweto to provide short-term loans to their staff and there was no risk to the capital investments.
However, the company was doing poorly and could only sustain interest payments by taking from new investors. The company also did not have a contract with the hospital.
It is alleged that about R3.5m was transferred into the bank accounts of other firms in which Croxford and Basson were allegedly shareholders.
Investors were told their investments would attract interest of 24 percent a year with 2 percent payable monthly or, in some cases, 36 percent interest a year with 3 percent a month.
The investors initially received their interest payments, but in April last year, one of the complainants was notified by Croxford that there was a court application to liquidate SMA.
During a meeting the next day, the man was allegedly told there was “no hope” of recovering the money because it was “all gone”.
SMA was provisionally liquidated on May 31, 2013 and the order was made final in July last year. The provisional liquidator told investors there were no funds to repay them.
In their affidavits to support their release from custody, they said the investors had been aware their money would be used to lend to low-income earners as microloans.
They said the interest rate on the loans was sufficient to pay the investors’ monthly returns and the money had been loaned in the “normal course of business”.
They said the recovery of capital and interest from the low-income earners would have to be dealt with by the provisional liquidator.
The case was adjourned to September.