Investors may lose millions in suspect scheme

2017-06-13 12:47

The Financial Services Board has confirmed that Profit Trading, which continues to operate, never placed any trades, writes Maya Fisher-French 

Since publishing a reader’s complaint about forex trading platform Profit Trading two weeks ago, City Press has been receiving complaints from other angry investors. Profit Trading, founded by Myles Ndlovu, claims in marketing material to use a “forex robot” to trade foreign currency on behalf of investors.

The same story is repeated by each investor. They invested money with the promise of a high return which was payable after three months. Since 2014, individuals have invested large amounts of money and in some cases initially received returns which encouraged them to invest further, or convince family members to invest.

By September 2016, the payments started to dry up with excuses about backlogs and technical issues.

Some clients, like Mr P, who wrote to us to say that he invested R50 000 in October 2016 and never again saw his money, received no returns at all. “I kept making calls to these people and none of them responded to my query.

In May this year, we decided to pay a visit to the Sandton branch and we found the offices closed without notice. I have lost my money and my co-worker lost R30 000.”

Another investor, Mr M, convinced his mother to invest her early retirement package in Profit Trading. “I told her about Profit Trading because I was afraid she would spend all her money. She really didn’t want to do it but I had to convince her until she agreed,” wrote Mr M, whose mother never received a cent from Profit Trading after investing her entire nest egg. “My mother is now not well. She has been admitted to hospital because of this. There is now no peace between me and my mother. Every time she calls me, I become very sad.”

Mr MK wrote that he had invested the funds for his child’s tertiary education with Profit Trading. “I don’t know what I can do now as my son is supposed to start tertiary education next year.”

As part of a joint investigation by City Press and Moneyweb, in interviews with former senior employees we were told that an amount of around R52 million was invested by 3 000 investors and that the total value in the accounts reflects an amount of R107 million.

Staff maintain that Ndlovu was the only person who managed the books and that he created a very complex structure to hide the evidence of what they suspect to be a Ponzi scheme. They claim he never shared the information with the rest of the staff or the founders of the various branches that sold Profit Trading software.

In a response to questions from City Press, Ndlovu maintains that this is a campaign against him by bitter ex-employees “who have opened their own companies by trying to steal our clients and business model. There are no specifics here. It’s all hidden because the sources are our ex-staff members who go around speculating malicious articles on WhatsApp even to our clients (sic),” he wrote in an email to City Press.

Ndlovu also confirmed that he continues to sell his training and trading technology as this does not require a financial services provider (FSP) licence. There are reports that he is operating out of offices in East London and Richards Bay.

In response to why investors had not received their money, he wrote “there are lots of dynamics in trading when it comes to withdrawals and open trades with regards to risk management and there is communication with our clients and our offices are open for support”. He also maintained that actual trades took place and that “we are the market makers for over-the-counter forex trading. Our trading happens offshore.”

In a complaint to the press ombudsman about our first story he denied that his Sandton offices are closed or that they use a trading robot.

How Profit Trading used its FSP licence to legitimise its business

Many investors raise concerns that Profit Trading managed to obtain a financial services provider licence and that this was used to legitimise the business and in its marketing. 

Profit Trading was issued a licence in 2014. This licence was a category one licence and could not be used for the trading of forex instruments on behalf of investors. 

The company, however, used this licence to legitimise the unlicensed business. 

The Financial Services Board’s (FSB’s) Caroline da Silvia says that this case specifically led to amendments under the FSB General Code of Conduct to clarify that a provider may not imply that it is authorised in respect of a business that it is not authorised to operate. 

It also makes it an offence to use a licence in any marketing material for unauthorised business activities. 

The FSB is also clamping down on the “renting of key individuals” concept where someone with the right credentials applies for the licence but has no oversight of the actual business. 

The FSB investigation was greatly delayed by a reluctance of investors to speak to the regulator. 

“Unfortunately, it is only when people start losing money that they start coming forward,” says Da Silvia, but by then it is too late and the chance of recovering the money is greatly reduced. 

A yearlong investigation into Profit Trading by the Financial Services Board (FSB) resulted in the licence being withdrawn and a case opened with the commercial crimes unit. In an interview with City Press, Caroline da Silva, deputy executive officer for financial advisory and intermediary services at the FSB, said after a protracted and thorough investigation, it was clear that no trades were ever placed. “He didn’t trade, he created false reports to show they were trading when they were not,” Da Silva told City Press.

The FSB first received a complaint about the business in September 2014. However, upon following it up the individual retracted the complaint. In July 2015 the FSB received another complaint, allowing it to launch an investigation. “We interviewed Ndlovu, who was uncooperative. As a result, we issued a warrant for search and seizure,” said Da Silva, who described a complicated and thorough investigation process which included the use of forensic technology experts to analyse Profit Trading computers, as well as the investigation of numerous bank accounts. By January 2016 they had enough evidence to suggest that fraud had been committed and the licence was suspended in February 2016 and permanently withdrawn by September 2016. As the FSB has no criminal authority, they had to hand the investigation over to the commercial crimes unit.

“It now sits in the hands of the police,” said Da Silva. At the time of going to print, City Press had not received a response from the spokesperson for the commercial crimes unit.

Ndlovu declined to comment further, stating: “My legal team has advised me not to further respond to your false allegations.”

He also claims that he is appealing the suspension of his FSP licence, although the FSB confirmed that no appeal had been lodged.

Beware of forex trading platforms

The Financial Services Board (FSB) is becoming increasingly concerned about the rise in forex platforms being advertised to South Africans, and Caroline da Silva, deputy executive officer for financial advisory and intermediary services at the FSB, says the board will investigate these further. 

These platforms are unregulated and based offshore, creating the perfect opportunity for more scams.

They use concepts that most people do not understand when it comes to forex trading. People are easily fooled into believing they are a legitimate business which can make them a lot of money. 

This week the FSB issued a warning against Financika, which provides a forex trading platform and advisory services, stating that the company is not authorised to render financial services in South Africa and does not represent an authorised financial services provider. 

The company’s head office is based in the Republic of Vanuatu which is a small island in the Pacific Ocean. It is completely unregulated with no chance of recourse if you lose your money. Although they use a Cape Town telephone number this is re-directed to an overseas call. City Press called the company regarding the investor warning and was told to send an email. We never received a reply. 

A reader wrote to City Press claiming that he had lost more than R200 000 in just three weeks through a similar forex trading platform. 

“They are professional scammers, with the first trades you will make profit, on their advice of course, and they encourage you to deposit more money with guaranteed profits. Once your account reaches more than $30 000 [R386 000] they ask you to open a position that they know will go against you and will liquidate your account. When the margins are very thin they ask you to deposit additional funds to rescue your account. 

“That is how they defraud your money in a legitimate way. Judging by the comments so far, their modus operandi is the same: deposit more money until your account gets liquidated. You don’t get out of this scam alive, you lose all your life savings.” 

This is an excellent description of how many of these rogue forex platforms operate. Charles Savage, CEO of South African-based alternative investment broker GT247, says the lure of huge overnight profits always brings Ponzi schemes to the fore. 

“The fronting of these schemes as ‘forex trading businesses’ seems to be the flavour of the day so clients need to be supervigilant. It is an old business practice just finding new life in ‘forex’.” 

Savage says it is important to know that it is illegal to use a credit card to fund an offshore investment account of any kind and, as such, no South African should be doing this. Secondly, any institution not registered and therefore regulated by the FSB should also raise a consumer’s due diligence requirements. 

“It is not to say that there are not reputable intuitions offshore that are not locally regulated. However, are those firms then regulated anywhere else? Online searches and verification checks with the company’s regulators should be a bare minimum before opening any offshore account,” says Savage.

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