Warning signs of Ponzi schemes: Part 2

22 Mar

Author: Malcolm Rees

Publications: MoneyWeb

Date Published: 22 March 2013

Lessons from Defencex: avoid schemes affiliated with religion, huge returns and friends’ advice.

JOHANNESBURG – The apparent collapse of the 2%-a-day scheme, Defencex, has left a very large, mostly poor, investor base out in the cold.

The Defencex bank account, held in the name of Net Income Solutions, contained R320m at the time it was frozen.

Although it remains unclear how much in total has been collected through the scheme, the sheer size of the account suggests a very large operation which has managed to attract thousands of members .

……… Ponzi schemes are often disguised as legitimate investment operations such as with the massive Bernard Madoff scheme in America or the tragic Herman Pretorius case locally. In an effort to help potential investors identify when they might be falling victim to such schemes Moneyweb asked experts to describe some of the typical red-flags that would be suggestive of a prohibited business practice.

……… Many of the more sophisticated Ponzi schemes are not as bold as to offer returns at levels in excess of 30% per annum. Instead such scheme, as with the Herman Pretorius case, may offer investors high but not extreme levels of profit. These sophisticated operations blend genuine investment or activities with a Ponzi type structure and can stay in operation for extended periods of time, says de Villiers.


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