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24% return: Too good to be true?

Francois Hougaard ends Cambist association.

JOHANNESBURG – Bok scrumhalf, Francois Hougaard, recently appeared in advertisements in the Star and Sunday Times claiming he was earning 24% on his active capital through a product called Cambist.   

This aggressive advertising on behalf of Cambist is backed up with TV ads which are screened during rugby tests. Cambist is not a legal entity. It is a platform, developed, maintained and managed by One Law (Pty) Ltd.

While many pensioners are grinding their teeth having to accept less than 4.5% in the money market, this offer seems too good to be true.

But Cambist founder Cornế Aldum insists it is true and real. Some of his clients have up to R2m invested in the scheme.

The Cambist client buys an unknown person’s debt at a discount of 24% to market value. It says financial owners are willing to sell contracts at a discounted price for immediate cash in-flows.

When the debt is successfully collected, the investor’s return works out at 24%. Most clients buy a number of debt contracts off the Cambist website. Cambist is not registered with the FSB or the National Credit Regulator because on the one hand it is not a financial institution and on the other it is not a lender in its own right.

The first alarm bell is that the debtor might default, but marketing manager Magda van der Merwe says this is unusual. According to recent actuarial calculations, only 1.53% of the debt contracts subject to garnishee orders ever default. She says if that happens, a business trust will buy non-performing contracts back and sell performing contracts from its reserves to the Cambist buyer. The Cambist buyer’s aggregate position consequently remains unchanged.

She says: “These are performing debts. In each case we meet the debtor face to face, even if the original debt is to some retailer or bank and not ourselves. We request the debtor to sign a Section 58 acknowledgement of debt. By signing this document, the debtors give the creditor’s attorneys  permission to go ahead with an emoluments attachment order (EAO). The attorneys on our panel collect the monthly repayments from the debtor via the EAO. An EAO is a formal court order that allows the attorney to collect the instalment due from the debtor’s employer. The attorney then makes payment of the monthly instalments in terms of the EAO to the Cambist buyer, who is the new financial owner.

“Only once the debt is performing do we put it up for sale. The buyer becomes the new financial owner after 48 hours.”

Reuben Aldum, nephew of the founder and main shareholder, said Cambist obtains the debt from the original creditor (mostly banks and retailers) at a discount of 20%-50%. Their profit is in the difference between the discount they obtain and the investor’s 24%.

The average debt is R7 000-R10 000 and the smallest is R3 000. All fees for collection etc, are paid by the debtor. The buyer can buy a portfolio of several debt contracts. He pays his money and Cambist does the administration. The instalments are paid monthly to the Cambist buyer. To ensure that he does receive 24%, he needs to top up his portfolio as the payments come in and reduce his investment. The 24% return is based on the active capital on his debt contract and would not be achieved if one simply let the whole portfolio liquidate itself. Still, even in that event, Cambist says If you do not top up, you will still receive 24% on active capital, but 14-16% effective on the original amount.

Cambist has a sophisticated IT platform which enables the investor to log into and monitor his investment all the time. Each account is enabled by a one-time pin. If the Cambist buyer needs cash, he can sell some of his contracts, subject to a willing buyer being available. It will pay its client within five days, after the contract is sold. This is how Cambist describes its activities:

“The Cambist buyer directly pays the financial institution: the purchase price is not channelled through One Law and One Law never becomes entitled to any part thereof. One Law is paid its agreed remuneration by the financial institution from the discounted amount that it receives from the Cambist buyer. The financial institution then falls out of the picture.

“The Cambist platform exists in cyber space. The Cambist buyer is enabled to electronically enter the Cambist website, determine which contracts are offered for sale by financial institutions, decide which ones he or she wishes to acquire, pays for them and takes ownership of them.

“Cambist is not an investment platform, in other words a person cannot ‘invest’ in Cambist. Cambist simply provides a platform where the owners of paying debt contracts can sell it onwards to willing buyers.”

I visited the large and crowded B-grade offices of Cambist in Silverton, Pretoria. Some 370 people work here but only a minority in Cambist. There’s an associated law firm, and a debt collection firm, One Law, in the same building.

The scope of operations underlines that debt today is a major industry. This operation collects on average R44m per month, says Van der Merwe.

Van der Merwe says sympathy often lies with the debtor but she says the debtor is not in a worse situation than he was with his first creditor. In fact Cambist helps them to rehabilitate themselves.  She says “affordable monthly instalments are negotiated in consultation with debtor (by Onelaw) and debtors who have settled their debt in full that was sold on the Cambist platform, will have their judgement rescinded free of charge.”

Van der Merwe adds: “Let’s face it, if  people don’t pay their debts, no one could borrow, so it’s vital for the economy.”

On the face of it, the scheme looks like a high-risk, high-reward one. The risk is that Cambist’s administration might not be as foolproof as it seems, though I have no grounds for saying this.

One wonders why the originators are prepared to discount by more than 24% if the risk of default is so small.

Cambist is not a legal entity. It is an IT platform. What redress does an unhappy client have?  The client is not a saver or investor. He is a debt buyer, which could leave him very lonely in the event of contingency.

The company responds: “Cambist is a product of One Law and a buyer’s redress is against One Law, furthermore, on buying a debt contract, the rights under the contract purchased are formally ceded to such buyer, making him the new financial owner. This means that the buyer can take his contract and have his rights in terms thereof enforced by any attorney of his choice.

I was told initially that all the banks deal with Cambist and for me that was a big endorsement. But when I asked for contacts in the banks, I was told that they are very sensitive about the matter and would object to such a query.  

Contracts of various financial owners are sold on the Cambist platform and their identities are confidential.”

Clark Gardner, CEO of Summit Finance, and an expert on this part of the law commented:

“My real concern is that if things go wrong such as irregularities with the underlying debts which could include:

  • Prescription used as a defence
  • The ultra in duplum or S103 of the National Consumer Act breached
  • Reckless lending breached

or with the underlying judgement or Emolument Attachment Order which could include:

  • Excessive legal fees breaching tariffs or rule 83 of the law society
  • Irregularities in the process such as a S129 not proven to have being received by the consumer

“And this is challenged making the judgement invalid or obtain a mass rescission then the investor will lose everything. This is possible and I believe related parties in this group has had this done before in the case H Kleynhans and others vs Onecor (original name of Bridge loans) where their legal process where found wanting and all judgements and EOAs using this method were found null and void.

“They may mention that they buy back any defaulting orders, however, why is the entity guaranteeing such debt a trust and not the same entity as the revenue earning business. It will be very simple for the trust to declare bankruptcy resulting in the investor losing this guarantee but One Law, Cambist and lenders keeping their super profits.

“I also believe that Cambist is advising or facilitating investments and should therefore be FAIS compliant. One cannot advise or recommend investment products without being a registered financial services provider.

“My other concerns would include who is the judgement creditor, how is this ceded to the investor, what fees are the lawyers obtaining the order being paid, why are they being paid first and many others. The response regarding the return that must remain ‘topped up’ with a resulting effective rate being lower etc… are all signs of this investment needing a deeper understanding and more certainty on the guarantees.”

Since publication Francois Hougaard’s agent has issued the following statement:

Dear Mr Carte

Re: Your Moneyweb article “24% Returns: Too good to be true?

Prosport International are the appointed agents for Francois Hougaard, who is mentioned in the lead paragraphs of your article about the Cambist product, date 9 September 2012.

We would like to point out that while Mr Hougaard had initially signed up to endorse the Cambist product, he has subsequently withdrawn his endorsement upon a full explanation of the workings of the product. On 14 August 2012, he posted the following statement to his Facebook page, which is the forum where most people queried his association with the Cambist product.

The statement read as follows:

I recently agreed to endorse Cambist, a financial investment product. I have since come to realize that I am not qualified to endorse such financial investment products, and Cambist and I have accordingly agreed to end our agreement. I have given up all financial incentives I stood to receive from my endorsement. I encourage everyone who wishes to make a financial investment first to make sure they understand the nature and implications of the investment and the risks attached to it before doing so. I stress that my withdrawal is not an indictment of the Cambist product as an investment.

One Law (PTY) LTD, purveyors of the Cambist product, withdrew all advertising featuring his endorsement and agreed to terminate the link.

We would appreciate it if you would amend or append your article to indicate that Mr Hougaard has withdrawn his endorsement and is no longer associated with the Cambist product in any way.

Regards

Trevor Crighton

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