JOHANNESBURG – An astonishing number of people believe there is nothing wrong with Defencex, a scheme that pays members 2% a day. Since I reported on Defencex last week Thursday, my inbox has been flooded by worried and angry members. They are furious that the Western Cape High Court has frozen their scheme. Defencex was working, and gave hope to the poor, they say. So why stop it?
One member describes how Defencex helped him escape poverty: “Defencex helped me. I’m unemployed. I started depositing only R500 a month. I managed to buy enough points where I ended up earning R210 a day. Defencex really helped me. I never slept with an empty stomach since I knew this scheme.”
Another member wrote: “My name is Vusi Zwane and I’m a member of Defencex. Defencex is not a pyramid scheme. Since I joined them, I never experienced any problems and they have been loyal in keeping their promises. Not at once did they default and not pay my R2 a day.”
Meshack De Ivory says: “People are happy about Defencex so please let them benefit as they do now. What you guys are doing is very, very wrong. I think you should ask people how they feel about Defencex before you stop it. I myself have managed to do lot of things with the money. We are begging you guys in the name of our Lord Jesus Christ to leave Defencex alone.”
Members have rallied in support of Defencex founder Chris Walker, who they see as some kind of champion of the poor. One wrote: “Chris is a blessing in South Africa. He’s taking care of the poor, without discriminating against anybody, unlike people in high positions who are corrupt, abusing government funds and promoting nepotism.”
These are just samples of many similar e-mails. The response to Thursday’s article indicates Defencex is a truly massive scheme with thousands of members. Defencex is a trading name for close corporation Net Income Solutions.
Some have borrowed money to invest in the scheme. Muronga Thiathu wrote: “Remember that people have joined the scheme using funds that they have loaned from banks and even mashonisa [loan sharks]. There are also some people like me who have taken almost R350 000 from the bank. How will I be able to pay it back?”
It is important to note that Defencex website does not explain how it generates such good returns. There is also big emphasis on recruiting new members. These are two telltale signs of a pyramid scheme. What’s more, Chris Walker has a previous involvement with an alleged pyramid scheme dating back to 2002.
A pyramid scheme uses money from new investors to pay returns to people who are already invested. Pyramid schemes are appealing because they do actually make some participants rich. People see the success that the scheme brings to others and want a piece for themselves. It is very tempting to take part when you can see the new car your neighbor just bought with his pyramid scheme earnings.
Pyramid schemes work well until they run out of new investors. Then they collapse, leaving most investors with nothing. Some schemes can grow for years before they collapse. But the bigger they grow, and more successful they become, the more money people will lose in the end.
That is why pyramid schemes are illegal; they are not real businesses, and they cause even greater distress for people hoping for a solution to financial problems.
Many Defencex investors have asked whether they will get their money back. If the fears of a pyramid scheme are true – and there is little reason to believe they are not – then the chances are close to zero.
The South African Reserve Bank recently asked auditors PWC to investigate Defencex. The final PWC report should give an indication of what Chris Walker was doing with investors’ money and how much of it is left.
If Defencex is shut down, there are more schemes to take its place. One member, Ntokozo Shange, wrote on Defencex’s Facebook page: “Well people we are all hoping for the best outcome. But if we do not have any positive news I’ll share a company just like Defencex that I’ve been with for seven months now. R2.30 for 60 days.” Gugu Madlala replied: “Please share. I don’t want to put my eggs in one bucket. I also have some that are very good too.”