DefenceX is a Ponzi scheme and must repay its investors.
Together with Zantech Trading, Net Income Solutions (known as DefenceX) has been found guilty of contravening the Banks Act by operating as an illegal deposit-taking scheme, the South African Reserve Bank (Sarb) announced this week.
DefenceX may be the largest Ponzi scheme ever seen in South Africa, with some 200 000 members. At the time its account was frozen, it held approximately R320 million, but a total of R816 million had in fact flowed into its account, investigators found.
After months of illegal deposit-taking, the Reserve Bank conducted inspections in to the activities of Zantech Trading and Net Income Solutions, better known as DefenceX.
Sarb appointed EY as temporary inspectors to investigate Zantech Trading in May 2013, some months after Moneyweb’s Julius Cobbett had first raised eyebrows on the scheme’s activities. The advisory firm’s final inspection report concluded what Cobbett had earlier suggested, that Zantech was a Ponzi scheme offering unsustainable returns.
The scheme continued to flourish months after it had been brought to the Reserve Bank’s attention.
“Sarb has directed the company to repay the money it had unlawfully obtained and appointed EY as the repayment administrator to facilitate the management and control of the repayment process,” the Bank said in a statement on Wednesday.
According to the solvency report from EY, Zantech Trading is insolvent and the Sarb has initiated the legal process for its liquidation. Further enquiries on Zantech Trading can be directed to EY on 011 772 5104.
PwC was appointed to investigate DefenceX in February 2013 by Sarb. The audit firm concluded that it was an illegal deposit-taking scheme, confirming the Western Cape High Court’s final judgement in June 2013, which also granted the order preventing DefenceX from disposing of any of its assets pending the finalisation of the inspection.
PwC was subsequently appointed as the repayment administrator to facilitate the management and control of the repayment process.
“As part of this process, further investigations will be conducted to determine the exact amount of money that was unlawfully obtained, where this money and/or assets obtained with it are being kept, the identities of all investors and the verification of investor claims,” the bank said in a statement.
Further enquiries on DefenceX can be directed to PwC on 012 429 0033.
“SARB encourages the public to seek advice from accredited financial service providers that are regulated and supervised before investing its money,” the statement concluded.
The SARB is currently investigating a company by the name of SuraPure, which was placed under business rescue this week after its bank account was frozen by FNB. The company, a micro-retailer selling bottled water and flavoured water, also offers high returns to its investors.
The SARB did not respond to telephone calls or SMSes for further comment.
EY and PwC could not be reached for comment before publishing.