Tag Archives: Fidentia

Investors need to wise up to Ponzi schemes

18 Aug

Author: DAWIE DE VILLIERS

Publications: Citizens Alert ZA

Date Published : 17 August 2014

Investors need to wise up to Ponzi schemes – Sharemax and directors schemed to defraud public, says Fais ombud

With many South Africans – and retirees, in particular – struggling to make ends meet, they become easy pickings for fraudsters operating get-rich-quick investment scams, also known as Ponzi schemes.

In their search for high returns on investments, South Africans seem to repeatedly entrust their hard-earned savings to operations which, at best, have short-term track records and, at worst, knowingly sell promises that they are unable to deliver on.

Investors buy into these promises without fully understanding how these operators achieve their alleged returns.

Over the past five years, the following schemes – which have had traumatic consequences for unsuspecting investors – come to mind: Fidentia, Leaderguard, Sharemax, King Group, and the Herman Pretorius saga.

There is a golden thread running through this list: each one promised a return far superior to that of the financial market, at a very low risk. In hindsight, such promises were too good to be true. But why do we continue to move from one such scandal to the next?

Spotting a Ponzi or pyramid scheme is relatively easy. Here is a checklist to arm yourself against fraudsters:

1. Insist on proof that the investment vehicle is registered with the Financial Services Board (FSB).

If it isn’t, and your money gets lost, you have no avenues of recourse open.

2. Compare the interest rates on offer with the global and local investment landscape (for example, interest rates and economic growth rates).

If the national interest rates are at 5 or 6 percent, and someone is offering you a guaranteed return of 30 percent, it is likely to be a fraudulent scheme. Having realistic expectations of investment returns is the cornerstone of any sensible investment strategy.

3. Be wary of consistent returns.

By their very nature, financial markets are fluid instruments fluctuating daily.

If a scheme offers consistent, guaranteed returns and it is not underwritten by an insurer or bank, it is most likely not invested in secure financial instruments and should, therefore, be closely scrutinised.

4. Look carefully at the track record of the institution and individual offering the investment opportunity.

And this means not just taking their word for it. Contact the FSB, contact the editor of the personal finance section of the newspaper, and ask reputable brokers for their opinion. In an economic downturn, your best bets are very well-established investment houses with solid track records and healthy cash reserves.

Don’t be fooled by professional-looking documentation or reporting.

5. Practise steps 1 to 4 above, no matter who you hear about the scheme through.

Unfortunately, many unsuspecting investors are introduced to Ponzi schemes through intermediaries, such as friends and family, and this provides them with a comfort factor. This does not mean they are safe. It is possible that those family and friends will equally become victims.

6. Don’t be comforted if the scheme has paid out regularly to those family or friends.

This is a classic characteristic of a Ponzi scheme. In order to appear legitimate, they pay out, as promised, for a period of time to allow word-of-mouth to market the scheme on their behalf. Then, when there are enough investors, they pull the plug and make off with the money.

7. Trust your instincts. Common sense and gut feel can be great defences against falling for Ponzi schemes.

Ask yourself why you have been given an opportunity to make fabulous returns on your investment. Why have you been so lucky to get this unbelievable opportunity to multiply your wealth? What’s so special about you?

8. Be extremely wary of “opportunities” to invest your money in franchises or investments that require you to bring in subsequent investors to increase your profit or recoup your initial investment.

No legitimate investment house employs this strategy – in short, it is a very big clue that something dodgy is brewing.

Whatever your reason for investing, it is vital to have a goal, a timeline and reasonable expectations.

By investing in regulated investment products – such as unit trusts or mutual funds – you are investing in products that have an enormous amount of governance.

Before investing, you must be sure that you are trusting your funds to a person, people or an institution that has shown that it can consistently deliver returns over an extended period of time.

Long-standing institutions with proven track records are often the wisest choice.

Please contact an accredited financial adviser to discuss these collective investment schemes.

* De Villiers is chief executive officer, Sanlam Structured Solutions.

Background

Named after Charles Ponzi, an Italian immigrant to the US who convinced New Yorkers to invest in coupons yielding fabulous returns in the aftermath of World War I, most Ponzi schemes have the following modus operandi: investors are wooed by fantastic returns, with the older investors in the scheme getting paid from the proceeds of the newer investors. But the scheme only lasts as long as it attracts new investors.

South Africans in search of high returns have also been caught out. Names that spring to mind include Barry Tannenbaum – who fleeced billions from wealthy individuals in 2009 – Masterbond, Ovation, Fidentia and, most recently, Herman Pretorius.

Ponzi scheme alert: How to know when it really is too good to be true

27 Sep

Author: Dawie de Villiers, CEO, Sanlam Employee Benefits

Publications:  Sanlam

Date Publiched: 27 September 2013

The extended economic downturn and interest rates hovering around the 5 or 6% mark make investment returns all too elusive right now. With many South Africans, in particular retirees, struggling to make ends meet, it is fertile ground for fraudulent investment schemes – known popularly as Ponzi schemes – to flourish.

The SA Reserve Bank recently launched a national campaign to increase awareness of pyramid or Ponzi schemes. The campaign encourages people to be careful when looking at potential investment opportunities.

South Africans seem to repeatedly entrust their hard-earned savings to operations which, at best, have short-term track records and, at worst, knowingly sell promises that they are unable to deliver on. Investors buy into these promises without fully understanding how these operators achieve their alleged returns.

Over the past six years the following schemes – which have had traumatic consequences for unsuspecting investors – come to mind: Fidentia, Leaderguard, Sharemax, King Group, the Herman Pretorius saga, and Defencex. There is a golden thread running through this list; each one promised a return far superior to that of the financial market, at a very low risk. In hindsight, such promises were too good to be true. But why do we continue to move from one such scandal to the next?

Spotting a Ponzi or pyramid scheme is actually relatively easy – here is a checklist ………

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How to spot a ponzi scheme

10 Dec

Author: Dawie De Villiers

Publications:  Sake24

Date Publiched: 10 December 2012

Cape Town – With the global economic slowdown and interest rates at around 5% to 6% investment returns are looking bleak.

With many South Africans, particularly retired persons struggling financially, fraudulent investment schemes, or “Ponzi” schemes have become more widespread, says Dawie de Villiers of Sanlam.

Investors often buy into such schemes without full understanding how such schemes and their operators achieve the promised returns.

These schemes often assure investors of a return far greater to that of the financial market, at low risk.

In the past few years, Sharemax, Fidentia, Leaderguard and those of Herman Pretorius are some of the schemes many unsuspecting investors have been caught out by.

There are however ways for investors to prevent falling ….

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Your pension choice a worry for govt

2 Sep

Author: Bruce Cameron

Publications: iOL

Date Published: 2 September 2012

Questions about FSB’s scam control

The Financial Services Board (FSB) could soon find itself being grilled by Parliament for not being more effective in curtailing scams that recur with alarming regularity, with losses of billions of rands of the savings of consumers, including retirement fund members and pensioners, who fall prey to the schemes.

And National Treasury concedes that the FSB is not doing enough to protect you.

The latest scam to hit the headlines was the high-drama collapse of a Ponzi scheme masquerading as a hedge fund, the Relative Value Arbitrage Fund (RVAF).

The scamster, Herman Pretorius, shot his business associate, Julian Williams, during an altercation, before turning the gun on himself following a belated FSB raid more than a year after the scam was first reported to it.

The roughly 3 000 investors in RVAF, most of whom are from the Western Cape, invested about R2 billion in the scheme. Once again, many are pensioners, who now face destitution because their money went into a high-return, extremely high-risk, unregulated “investment”.

Personal Finance asked the FSB to investigate the scheme in May last year, and the FSB merely accepted replies given to it as fact, allowing what amounted to a gigantic Ponzi scheme to continue operating under its nose. (A Ponzi scheme uses the capital of the most recent investors to pay out high returns to earlier investors, who, in turn, spread the word about the “fantastic” returns.)

After the bubble burst, the FSB attempted to justify its laxness by making a claim to the effect that Pretorius was virtually exempt from FSB action because the product he was flogging was not subject to regulatory oversight.

Cope MP Nick Koornhof raised the issue at parliament’s finance committee meeting this week, asking how the FSB will be transformed in line with government’s twin-peak policy where all market conduct of financial institutions will be placed under the control of the FSB.

“How long must we wait for it? There have been so many tragedies since Fidentia. How long must we wait for real action, for the FSB to have all the teeth it needs?” he asked.

Koornhof told Personal Finance that he will raise the issue again next week with the committee and ask for a special meeting to call the FSB to account.

His concerns were echoed by Ismail Momoniat, deputy director-general of the National Treasury, who told the committee he believed the FSB has sufficient legislative teeth. The problem, he said, is how the teeth are used.

He candidly admitted that the FSB should have picked up on some of the attacks on retirement funds and other scams.

However, Momoniat says, ways have to be found of dealing with campaigns to vilify the FSB and others by parties such as Arthur Brown, who faces criminal charges relating to the implosion of Fidentia, and Simon Nash, who is facing criminal charges arising from the alleged illegal removal of pension fund surpluses in the 1990s.

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