Personal-Finance

The story of a scam

2016-12-12 15:22

‘I never thought it would happen to me. I thought I was fairly financially astute. How wrong I was,” Gillian says about her experience of being fleeced of hundreds of thousands of rands in a Ponzi scheme.

As with most schemes, it all started with a referral from a family member.

“My mother one day started telling me how a good family friend of ours was making a lot of money off an investment.”

Both Gillian and her mother had money invested in unit trusts with Allan Gray, but the returns the friend was getting were so much better. Too good to be true – as it turned out.

The family friend in question had become friendly with his neighbour, who claimed to be a futures trader.

“Our friend had given this trader almost R1 million and had been receiving monthly payouts of around 19% a year on the investment – that was just in interest, not the capital. We all thought, ‘What a find!’ and invited him to our home.

“He sat in my lounge in my humble apartment and met my kids. He was informed that I was giving him some of my life savings, he understood what this R150 000 meant to me,” says Gillian, who adds that her mother had told so many of her friends about this great “futures trader” that collectively they had invested around R2.5 million.

It took time to receive any investment documentation, and Gillian and the other investors were told to leave the investment to grow.

They were also told that if they needed any of the money soon, he could not guarantee where the market would be and they could incur losses.

This is fairly normal for any market-related investment as markets can fall over the short term, but it did not tie in with his story of providing a 19% per annum income return as initially suggested.

Although Gillian did receive some money from time to time, she started to feel uneasy. Then, after two years of no returns, they started to suspect something was seriously wrong.

“The rands began to drop and we realised we could not get hold of this guy.

"He never returned our calls, or he would eventually return the calls, but ‘be in a meeting’ so couldn’t talk. Then we emailed him giving notice that we wanted our money back.”

From time to time he would give them a small cash payment.

“We would cling to this gesture of goodwill because we did not want to fully acknowledge that we had given our precious savings without any proof, or find out that this man was not who he said he was. We went blindly on trust.

“It was such a wonderful feeling to trust, but so awful to be betrayed.”

Gillian also had to acknowledge the role of their good family friend. He was at the top of the scheme and had been the bait with his initial payouts, which had duped the rest of them because they trusted him.

“Once we realised the brutal truth, our money was gone. Then began the frantic attempts to recover it, throwing good money after bad, paying lawyers to investigate, which all cost more than it was worth.”

Only at this stage did Gillian do the research she should have done at the outset.

She contacted the Financial Services Board (FSB) and discovered the trader was not registered.

All she had was his ID number, which was of no use. The bank they had deposited the money into was not interested that their client had committed fraud.

“The fraud division would not even return my calls.”

Eventually Gillian realised she had to write the money off.

She was at least in a position where she was still relatively young and still earning an income, but the same was not true for other people in the group.

“Some had invested all their life savings. What kind of heartless person could do this?”

Her last act was to report the man to the police. It appeared a hopeless task.

“I had already phoned all the related crime divisions for white-collar crimes in the country, no one knew the correct process or procedure to lay a charge against this criminal,” says Gillian.

She then went to her local police station.

At the police station, no one seemed to understand the crime that had taken place.

“I must have stood in the police station for an hour trying to explain my situation. Eventually, they gave up on me and I went home.”

Fortunately, in a conversation with a community leader, Gillian was given the name of a senior officer at the police station who advised her to get the whole group of investors together to lay a charge under one case number.

He told her that the larger the sum defrauded, the more likely it would be viewed as a fraud case and investigated at a higher level.

Gillian heard nothing for about 18 months. Then, out of the blue, she received a call from an advocate who told her the man had been prosecuted and had reached a settlement.

The agreement was that, if the complainants were willing to accept the terms, they would each receive R100 000, followed by monthly amounts until the debts were repaid. If the payments failed at any stage, the offender would be sentenced to 10 years’ imprisonment.

So far he has kept to his agreement.

“What a journey this was. My message to anyone who is scammed is: Do not just give up, report the matter, justice may take its time, but it does work.”

Gillian has been extraordinarily lucky – partly owing to her tenacity. Very few victims ever follow through or ever see their money again.

HOW TO SPOT A CON

. They are not widely advertised on mass media platforms. They rely mostly on word of mouth by usually using a few people as “bait”.

The early investors receive “too-good-to-be-true” returns and then convince other people to join.

. The returns promised are always well above what you would expect from a normal investment, but when the investment returns do not materialise, there is always some clause in the documents that says “these are projected and not guaranteed”, even though it was sold as guaranteed or low-risk investments.

. They are not registered with the Financial Services Board or the SA Reserve Bank, and are not authorised financial services providers. Promoters or brokers are not registered with the Financial Services Board as qualified brokers.

. The initiators are not accountable to anybody and can disappear at any time.

. The schemes do not have a corporate organisational structure (CEO, directors).

. They do not provide any real proof of investment of your money (such as an investment certificate) – sometimes they will issue you 
with a piece of paper with a logo, but it means very little.

. They may offer a guarantee to get your money back if you are not happy with the investment. This guarantee is nothing but words on a piece of paper. Anyone can promise you a “guarantee” – it means absolutely nothing unless there is a bank underwriting it.

THE DIFFERENCE BETWEEN A PYRAMID SCHEME AND A PONZI SCHEME

In both a pyramid scheme and a Ponzi scheme investors receive returns from money invested by new investors.

The difference is that with a Ponzi scheme, such as Gillian’s case, the investors believe that there is an underlying investment or business generating the income.

In the case of a pyramid scheme, investors are aware that money is coming directly from new investors.


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June 18 2017