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Don’t Fall Victim to a Ponzi Scheme in 2021!

2021 could well be a bumper year for Ponzi schemes (and their equally evil cousins, pyramid schemes). They flourish in all countries and at all times, but with our pandemic-related economic woes and general disruption we will no doubt provide the scamsters with particularly fertile ground this year.

And these schemes just never go away. As soon as one collapses or is shut down, it is immediately replaced by a new one – or more (like the Hydra’s heads, cut off one and two grow back).

Who is at risk?

Everyone! It’s not just pensioners and retrenched employees desperate to recoup their 2020 investment losses. Past schemes have counted some of South Africa’s wealthiest and most savvy citizens as victims, the problem being of course that the con artists who originate them are highly skilled at picking their targets and at creating cover stories to make everything seem legitimate. Perhaps most importantly, they are skilled at the social engineering side of it, building trust and credibility in their target markets with endorsements and “success” stories.

2020’s R9.45bn parting shot at us

There’s often big money involved too. Witness 2020’s parting shot at us in the form of the late-December provisional liquidation of Mirror Trading International (MTI), alleged by its detractors to be a scam (an allegation hotly denied by MTI) and reportedly involving some R9.45bn worth of Bitcoin and some 280,000 investors from all over the world, lured by promised returns of up to 10% per month. At time of writing MTI denies that it runs a Ponzi scheme or indeed that anything is amiss, plus its website is still up, but a flood of media speculation to the contrary no doubt has investors panicking.

See also the recent press reports of the Asset Forfeiture Unit’s seizure of R106m worth of assets (11 chunks of land, 5 aircraft and a motor vehicle) linked to a suspected pyramid scheme.

During the lockdown, another alleged scheme took R42m in deposits from over 230,000 unsuspecting investors.

Stand by for more…and protect yourself and others by knowing the warning signs.

Red flags to watch for

See Sanlam’s Infographic below for a summary of how to spot a Ponzi scheme.

 

As the infographic suggests, let your watchword be: “If it sounds too good to be true, it probably is”.

Another possible indicator of a fraud is a promoter with no physical address – and if you are given a physical address, make sure it is real!

If your proposed investment is presented as being a part of a legitimate multi-level marketing (MLM) scheme, it may or may not be genuine – tread very carefully and read “Understanding pyramid schemes and multi-level marketing” here for some pointers.

Warn others (including your staff and the “early birds”)

Please think of passing on this warning, and if you are an employer alert all your staff. These criminals often target workplaces because of the trust factor between fellow employees and colleagues.

Tell everyone not to fall into the trap of thinking that they can be winners by “getting in early”. Statistically, 88% of “investors” lose everything. And, as a number of South African court cases have shown, even the 12% “early bird winners” must, if sued by a liquidator or trustee, cough up not only their “profits” but also their initial stakes.

That’s because a liquidator (“trustee” in the case of a person or a trust) can recover any monies paid out by a liquidated scheme during the 6-month period prior to liquidation, unless the recipient can prove that the disposition was made “in the ordinary course of business” and without intention to prefer one creditor above another.  That’s likely to be impossible to prove with an illegal scheme. Even after 6 months the investor is still at risk, although the onus of proof then shifts to the liquidator.

In other words, even the “early birds” stand to lose everything.

So the bottom line is this – if you are approached by anyone with a “too good to be true” deal, don’t part with a cent until you are 100% sure it is legitimate!

NOTE FOR ATTORNEYS: At date of writing the judgment in the Mirror Trading International provisional liquidation application is not available on SAFLII but there have been many media reports on the matter – see for example here, here, here, here, here and here.

See also Threat Awareness Wiki for more on MTI and on alleged South African scams generally here.

As regards the AFU asset seizure in November 2020, read “FSCA welcomes AFU attaching Coinit assets worth R106 million” on the FSCA website and “Land, aircraft and vehicle seized as unit attaches R106m linked to suspected Ponzi scheme” on TimesLive. The company in question was liquidated – see references in De Beer N.O and Others v Dundee N.O and Others (5148/2020P) [2020] ZAKZPHC 70 (19 November 2020) on   SAFLII.

The R42m report, from August 2020, is “Covid-19 pyramid scheme exposed in South Africa” on BusinessTech.

As regards the setting aside of dispositions on liquidation, the judgment in Griffiths v Janse van Rensburg NO (20269/2014) [2015] ZASCA 158, available on SAFLII, has a wide-ranging analysis of previous case law on the subject as well as on the possible applicability of the enrichment remedy condictio ob turpem vel iniustam causam (see also the dissenting judgment in this regard).

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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