Ponzi prince? Myles Ndlovu has been charged with fraud for allegedly scamming investors out of millions of rand
In August 2015, Angel Mkhize* had resigned from her job and withdrawn her R750 000 pension fund. She was looking for somewhere to invest her cash. She watched an interview on SABC with a young up-and-coming entrepreneur who claimed to have pioneered a new type of software that “automated” forex trading.
“Unlike stocks, currencies can’t be manipulated,” said Myles Ndlovu. “What we’ve done is develop a system which is a forex trading robot. This automates everything.” He claimed that his innovation allowed investors to protect their capital while making tidy profits.
Mkhize checked whether Ndlovu’s company, Profit Trading, was registered with the Financial Services Board. Discovering that it was, she decided to take the leap and invested all of her savings with Ndlovu.
She was told to expect annual returns of between 7% and 14%. She would need to give 21 days’ notice and then could withdraw her capital and interest at any time.
“It was about a year ago that I asked for my interest,” said Mkhize.
After the company was not forthcoming with the requested payment, “I called them and they said: ‘No, there’s been delays.’ I said: ‘What kind of delays?’ They said: ‘The bank is dealing with high volumes of clients.’ ”
After a few months of this treatment, Mkhize decided to exit the scheme. “I told them I want all of my capital and my profits,” she said.
The company promised her it would pay out by December 1 but seven months later, she says she hasn’t received a cent.
Meanwhile, she can no longer pay for the medication required for her hypertension. “My medical aid has been cancelled and I can’t pay for my chronic illness. There are debts I need to pay. I need the money now, now, now.”
Ndlovu was arrested at a swanky Sandton hotel last month. He recently appeared in Johannesburg’s commercial crimes court for allegedly swindling investors out of an estimated R5‑million between 2010 and 2015, although some believe the amount to be much higher.
The Financial Services Board confirmed to the Mail & Guardian that Profit Trading’s licence had been withdrawn for “no longer meeting the fit and proper requirements”.
A few years after lending him legitimacy by introducing his product to the public, media houses are now sharing the story of his deception and fall from grace.
For Mkhize it’s too late: there’s a long, costly battle ahead before she sees her money again, if ever.
Mkhize is one of thousands of South Africans who are caught up in a plague of financial scams sweeping the country.
Trevor Hattingh, the spokesperson for the National Consumer Commission, said: “The primary objective of these schemes is to take money from someone and not guarantee any value or any return.”
Some are sold as get-rich-quick schemes, offering returns of more than 20% interest a year. Others —like Profit Trading is alleged to be — are classic Ponzi schemes, which take money from one investor to pay out another. They work by paying out the early investors with great sums of cash, thereby earning the trust of the public, but eventually bottom out as their popularity dwindles, leaving members unpaid.
The Reserve Bank has a mandate to investigate schemes that conduct “illegal deposit-taking”. Between January 2012 and December 2016, the Reserve Bank’s banking supervision department investigated 63 cases of illegal deposit-taking schemes. Last year, eight new schemes were investigated and six investigations were finalised, according to the department’s annual report.
More than 5 000 suspected financial scam schemes have been reported to the Reserve Bank over the past five years. But many others fall between the cracks.
Ponzi schemes often “don’t have directors and are not registered companies”, said Hattingh.
“The Consumer Protection Act, which the National Consumer Commission enforces, regulates legitimate businesses. The pyramid schemes are never even registered as legitimate.” For that reason many of these schemes are difficult to prosecute — and it’s difficult to take legal recourse if things go belly-up.
“An apparent willingness of the general public to participate in these schemes makes it relatively easy for perpetrators to start up new schemes as soon as an older scheme is investigated, closed or reported,” the Reserve Bank’s Jabulani Sikhakhane told the M&G.
But it’s important to know that any participation in these schemes is illegal (see “There are different ways to get duped”). So, it’s worth identifying how to spot an unlawful get-rich-quick programme.
The Reserve Bank launched a three-year awareness campaign about these issues in September. The bank’s governor, Lesetja Kganyago, said the campaign, titled Easy Come, Easy Go, draws on the adage that “if a deal sounds too good to be true, it probably is”.
The Reserve Bank recommends that consumers follow a three-step process when evaluating potential investment opportunities:
- Stop for a moment and ask yourself some basic questions such as, has someone offered you “guaranteed” profits for little or no financial risk? If it sounds too good to be true, it probably is.
- Check to see whether you are being targeted and avoid becoming a victim. For instance, one of the biggest telltale signs of a scam is that the offer is completely unsolicited.
- Report it. Spread the word and help others to stay vigilant. If you’re a victim of such a scheme, open a case with the police.
Hattingh warned that several Ponzi schemes masquerade as stokvels. Stokvels are made up of social groups pooling their money, whereas Ponzi schemes are often run by “nameless, faceless individuals on the internet who are difficult to track down”.
To legitimise their offering, some schemes rely heavily on peer testimonials. Visit the South Africa MMM website, one of the largest alleged Ponzi schemes in the country, and you’ll find 50 videos recorded by happy users on its landing page.
“They put out these videos to further manipulate people,” said Hattingh. “But they’re playing with people’s minds because the individual that this appeals to doesn’t think to ask: Where’s the head office; where’s my documentation; where is the company registered?”
* Not her real name
There are different ways to get duped
According to the Consumer Protection Act, it’s illegal to join, enter, participate in or promote any of the following schemes. If you fall prey to a scheme and want to press charges, you will need to open a case with the police.
Multiplication scheme: When a person offers, promises or guarantees to any participant an effective annual interest rate that is at least 20% above the repo rate determined by the South African Reserve Bank as at the date of investment or the commencement of participation.
Pyramid scheme: Where participants in the scheme receive compensation derived primarily from recruiting others as participants, rather than from the sale of any goods or services. But do not confuse this with a network marketing scheme, which simply involves growing your wealth by amassing a network of users willing to buy a product (think Amway and Forever Living products, among others).
Chain letter scheme: Where a new member makes a payment or donation and then moves up the “ranks” of the scheme, receiving payments or donations as they progress up the hierarchy, and are eventually removed from the list when reaching a certain point.
These definitions have been slightly simplified. To read the full definitions, see section 43 of the Consumer Protection Act of 2008. The Banks Act prohibits illegal so-called banking activities or illegal deposit-taking. Any entity that participates in this is liable for investigation by the South African Reserve Bank. To find out more about this, visit easycomeeasygo.co.za