There’s no denying the appeal and demand of online investment. From time to time, it has proven to be an effective way to generate passive income to ultimately safeguard one’s financial future.
However, this demand opens opportunities for Ponzi scheme operators to perform their unethical activities. With an appeal of high returns
In this article, we’ll walk through the danger of Ponzi schemes in South Africa’s financial market and the four busted investment scams that victimized South African investors.
Read on and learn how a Ponzi scheme operates and the best practices to avoid falling victim to such scams.
What Is a Ponzi Scheme
Named after the 1900’s biggest con artist, Charles Ponzi, a Ponzi scheme operates by marketing and selling non-existent investment products with little to no risk.
Ponzi schemes in South Africa become successful due to the power of word of mouth – thus its heavy reliance on recruitment.
It pays the earlier South African investors with the money taken from new investors. This ultimately creates an illusion of legitimate and profitable investment product.
This encourages and excites earlier investors; recruiting more as their recruitment will be rewarded. Subsequently, new investors will be lured into joining the scheme because of the investment returns of their recruiter.
When the flow of new investors dries up, investors will have difficulty accessing their returns/income. Inevitably, the Ponzi scheme will collapse.
Why Is the Ponzi Scheme Still Persistent Today?
Dated back to the 1920s, Ponzi schemes indeed have a long history in the financial markets. However, its long history doesn’t mean it’s a bygone risk by now.
The danger of Ponzi schemes persists to this date.
Why?
Simple: Because humans are naturally emotional and needy – the factors that feed Ponzi scheme operators.
People are often drawn to the promise of high returns with little risk. The allure of quick and easy money can cloud judgment, leading individuals to invest without thorough due diligence.
Additionally, Ponzi scheme operators have different sophisticated tactics to appear legitimate. They often have legit-looking websites, social media accounts, customer support to conceal their fraudulent activities.
In South Africa, Ponzi schemes are even more prevalent, given the country’s economic uncertainty. The South African public becomes victims of such investment scams because they are driven by the aspiration of improving their quality of life.
Ponzi vs. Pyramid Scheme
A Ponzi and Pyramid scheme follow the same principle: they target unsuspecting investors by promising a significant return on investment (ROI) in exchange for their money and recruiting contributions.
In a Ponzi scheme, investors believe they are investing in a legitimate business or investment opportunity. However, in fact, their investments were used to pay earlier investors.
On the flip side, a pyramid scheme relies on recruiting new participants, who pay a fee to join. Each new recruit must then recruit others to make money.
The key difference between the two is Ponzi schemes focus on investment and promise returns from supposed business profits. Pyramid schemes focus on recruitment and promise returns from new members’ fees.
How Does a Ponzi Scheme Work?
A Ponzi scheme operates mainly due to word of mouth.
In the scheme’s first phase, the mastermind will use fake business operations and aggressive marketing tactics to attract potential investors. Tactics may include social testimonials, success stories, and other schemes to create an illusion of legitimacy and profitability.
Once enough investors come in, the scheme’s next phase is commerce. This is when newly recruited investors enter the scheme. Their investments will then pay the earlier investors, solidifying the impression of investment profitability.
This phase follows this cycle: new investors come in, the operator pockets some money and pays earlier investors, earlier investors recruit more members, and the cycle repeats.
However, a drying up of new investors would push the scheme into inevitable collapse. Relying solely on new investments as the sole source of revenue, the operator will have no means of catching up with the growing payout demands.
Not All High-Yield Investments are Ponzi Scheme
All squares are rectangles, but not all rectangles are squares. The same goes for Ponzi schemes and high-yield investments.
Ponzi scheme companies claim to provide significant ROI from your investments – just like high-yield investments.
However, not every high-yield investment (like bonds) is considered a Ponzi scheme.
A legitimate high-yielding financial investment offers retailable investment products and follows a clear, systematic, and comprehensive strategy to ensure high ROI.
Additionally, such legitimate financial investment providers are authorized by a reputable regulatory and has transparent financial records for investors reference. The credibility that Ponzi schemes don’t have.
That’s always necessary to research the regulatory compliance of the investment and service provider you plan to invest in to ensure you’re dealing with a reliable service provider.
Busted Ponzi Scheme in South Africa
South Africa is currently on the brink as the country experiences further inflation increases. The South African public is on the move to find solutions that hedge this economic uncertainty to improve their quality of life and financial futures.
Unfortunately, this demand for financial stability has opened the door to Ponzi scheme operators, who prey on people’s desire for quick and secure returns.
Here’s a look at four major Ponzi schemes that preyed on South Africans, ultimately leading to massive financial losses and broken trust.
Berry Crypto Trading Platform
Berry crypto trading platform was a Ponzi scheme disguised as cryptocurrency exchange platforms. This fraud trading platform went by a few names, including:
- Blueberry
- Berry Trading App
- Fertile Soil Global (FS Global)
- Berry FS Global
- Berry Exchange
- Berry Max
Berry crypto trading platforms are strategically designed to mimic an actual interface of a trading platform, which includes chart, order books, and “Buy” button.
However, it’s been found that such buttons don’t actually trigger trade execution. Rather, they function to collect the members’ investments.
The investment is not executed in the market. Instead, it’s used to pay earlier investors. Inevitably, Berry crypto trading platform collapsed in May 2023.
Mirror Trading International (MTI)
Mirror Trading International (MTI) was one of the largest Ponzi schemes in South Africa. This investment scam strategically targeted investors with the rapid and profitable growth of Bitcoin.
It promised high returns using a trading bot, but it was later revealed that the returns were paid using new investors’ funds.
The scheme collapsed in December 2020, preceding the arrest of Johann Steynberg, MTI’s founder.
This year, MTI has been ordered to pay billions in restitution to victims
BHI Trust
The BHI Trust is known as the biggest heist in South Africa. Orchestrated by Craig Warriner, this investment scam robbed almost R3 billion from over 2,000 investors, mostly retired individuals from colored and Indian communities in Pretoria.
According to Warriner, he was “robbing Peter to pay Paul” – confirming the Ponzi scheme operation of BHI Trust.
Petron-Pay
Petron-Pay claimed to offer high returns through investments in crude oil.
At first glance, Petron-Pay seems to provide its members with attractive and profitable investment opportunities because of its investment in crude oil – the black gold.
Aside from that, the company guarantees a daily return on investment (ROI) of 0.2% to 2.5%, which is capped at 300% of the investment. That’s a solid and astonishing ROI!
But behind the fronted crude oil investment is its Ponzi scheme operation. Here are the three red flags of Petron-pay that makes investors pause:
- Untraceable CEO
- Multi-marketing level business model
- Public warning from the US Sec
How to Avoid the Ponzi Scheme?
Be Skeptical
Question any investment that seems too good to be true.
Ponzi schemes often promise high returns with little or no risk—an unrealistic claim, especially for volatile investments like forex or crypto trading.
Avoid Unsolicited Offers
Be cautious of unsolicited investment offers, whether through calls, emails, or social media. Scammers often target people directly, offering “exclusive” opportunities.
Check the Service Provider’s Regulatory Compliance
Verify that the investment provider is registered and compliant with relevant financial regulatory bodies, like the Financial Sector Conduct Authority in South Africa. Regulatory oversight helps ensure legitimacy.
Research the Investment
Understand what you’re investing in, including the strategy behind it, potential risks, and the market.
Legitimate investment opportunities should have clear, accessible explanations about their operations.
Avoid Promises of Big, Guaranteed Returns
High returns with guarantees—especially in markets like forex or other volatile sectors—should raise red flags.
Legitimate investments come with market-driven risks, and no credible provider would promise guaranteed profits.
How to Report a Ponzi Scheme in South Africa
If you suspect a Ponzi scheme in South Africa, you can report it to the South African Reserve Bank (SARB).
To do so, you must send the detailed incident review to SARB by email at [email protected]. Afterwards, complete the Ponzi Pyramid Schemes Report form, which is available below.
Once completed, you can mail the form to SARB’s postal office.
| Prudential Authority |
| South African Reserve Bank |
| P.O. Box 8432 |
| Pretoria 0001 |
Alternatively, you can fax the Ponzi Schemes Report form to +27 12 313 3758.
Aside from SARB, you can reach out to the following government agencies:
| Financial Sector Conduct Authority (FSCA) | Email: [email protected] Telephone: 0800 203 722 |
| South African Police Service (SAPS) | Telephone: 08600 10111 |
| National Consumer Commission (NCC) | Email: [email protected] Telephone: 012 428 7000 |
| Primedia Crime Line | SMS: 32211 |
When reporting, provide as much detailed information as possible, including any documents or evidence you have. This will help the authorities investigate and take appropriate action.
