Warning: Ponzi scams still going strong

Cape Town - The Financial Services Board (FSB) still sees many Ponzi schemes, according to Caroline da Silva, deputy executive officer of the FSB.
Da Silva explained to Fin24 that this does not necessarily mean there is an increase in Ponzi schemes in the country, but could be an indication that the public is more alert about possible Ponzi schemes thanks to regular messages by the FSB about these kinds of scams.
A Ponzi scheme is defined as a fraudulent scam, which generates returns for “investors” who invested at an early stage by paying them from new investors' money and not by actually investing in anything that can generate real returns. It usually promises high returns with little risk to investors.
Da Silva said the operators of a Ponzi scheme sometimes apply for a simple financial services provider licence and then use that to create the impression of running a legitimate investment business.
Her advice to consumers is to check whether the person they deal with has a financial services provider (FSP) licence, and also exactly what the licence is for.
She said the FSB is usually contacted once investors do not get their money back from such an investment scheme.
"We can work with agencies to access bank details and freeze accounts, but often by that stage the money is gone," she explained.
Because investors fall for scamsters' promises that they will make money, they often choose to believe the scamsters' assertions that the media or the FSB is to blame for the implosion of the scheme, and not that it collapsed because it was a Ponzi scheme.

Key individual
Another trend Da Silva has noticed is that it is becoming more common for those who use real FSP licences to try and make a Ponzi scheme look legitimate by "renting" a key individual (KI) who does not do or have proper oversight of the business.
The FSB defines a KI as a person responsible for managing and overseeing advice or intermediary service, either alone or with others.

Where an FSP licence is used to front an illegitimate business such as a Ponzi scheme, the KI does not have real operational oversight and is fed fraudulent information which they rely on due to their lack of real involvement with what is happening in the business. The FSB now takes action also against such a KI who failed in his or her oversight responsibility.
For Da Silva, the question is whether the FSB should require that one cannot be a KI if you are not fully mandated by the business or a full-time employee of the business. This is a matter the FSB will engage on.
"Where a KI oversees five or more different financial service provider licences that are not part of the same group, you have to question his or her oversight capacity," said Da Silva.
She wants the FSB to become more proactive in future. This includes the matter of the public being misled by those claiming to have a relevant licence.
"The FSB must ask how we could have picked up a Ponzi scheme earlier," she said.
She believes the answer lies in obtaining and analysing more and more data and information.
"We want to be able to scan advertising and social media for marketing all the time - especially to be alerted by high returns with no risk being promised to investors," she explained.
"If high returns at no risk are promised, be suspicious. Get information on what they are investing your money in and how you can verify that, because they might be using false documents to convince you that they are really investing in something when they are not."

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