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Cape Town - Whether Defencex boss Chris Walker will show up on March 26 to defend his alleged Ponzi scheme remains to be seen.
Analysts are in two minds on the actions of the sole owner of Net Income Solutions, trading as Defencex; one predicts he will abscond, while another believes it unlikely that he will stay away.
Defencex is the latest scheme to hit the headlines, after the Western Cape High Court ordered its bank account to be frozen on February 28 because of deposit-taking activities.
The scheme, described as a new revenue sharing plan, was launched on April 21 2012 via cycle4dollars, and promised investors R2 a day for 75 days on positions of R100.
Scheme members could earn 10% commission on all the positions they purchased through direct referrals, and 5% commission on all the positions their second-level team members purchased.
They could cash out once they had a minimum balance of R200.
Members of the scheme invested up to R500m in Defencex. The Standard Bank account contained R320m at the time it was frozen.
The South African Reserve Bank has asked auditors PwC to investigate Defencex.
“The very fact that Walker hosted an event at Wits (University) is evidence of an above-average ego – a smart one at that too,” said investor activist Daryl Ducasse of Merkurius Capital Solutions.
Walker made a brief appearance on March 9 at an Emotional Freedom Techniques "Feel Good" day held at the University.
“This person appears to be revelling in the public nature of the circumstances, and will use every element in his favour to persuade the average person to be sympathetic.”
Meanwhile Ducasse questioned the legal system, saying he feels the punitive measures that are in place are inadequate to deter promoters of dubious schemes from taking their chances, and that “this needs to be reviewed”.
He also doesn’t think the legal system is adequately equipped to deal speedily with matters like this. “The legal battles seem to go on endlessly, with no clear and predictable direction or outcome. Appeals and counter claims clog the judicial system.
"Smart lawyers and advocates take advantage of the periods between matters being set down to dilute the seriousness, evidence, and extent of the ‘crime’, to the extent that high profile cases fade into obscurity, and investors have all but given up hope of ever seeing any return at all on their investment.”
Cases in point are Tigon and Fidentia, although the latter seems to have more direction than the former, said Ducasse.
Gavin Came, chairperson of the Financial Intermediary Association of South Africa, said it is a matter of wait and see. “The legal system has for now stopped members from being exploited further, and we’ll only know the extent of exploitation on Tuesday.
“Walker has two options: to abscond or defend and convince the court he is not a bank; the former is more likely,” said Came.
“Walker has been taking deposits from the public in breach of the banking laws. If he can convince the court that he is not a bank, the scheme could be in business again, which is unlikely.”
Ducasse, however, doesn’t believe that Walker would want to risk a fine or warrant of arrest for contempt of court, “so it would not be in his interest to not show up”.
Although Dawie de Villiers, CEO of Sanlam Employment Benefits, believes that all signs point towards Defencex being a Ponzi scheme, he did not want to speculate on the court outcome.
"The signs that these schemes are not legitimate are very clear and similar among all of them: the returns promised are too good to be true, the schemes are not regulated/registered and it seems that points of passion, such as religion, are being used to convince people to trust the operators."
Meanwhile, the website www.defencex.com no longer redirects to cycle4dollars.com. The website is fully devoted to The Tapping Solution, a documentary film that explores Emotional Freedom Techniques (EFT).
Although cycle4dollars looks different to the website redirected from Defencex, it still seems to “belong” to Walker and gives a little insight into the “network marketer”.
The About US page now features the Cycle Assist Team, “a registered company and a reseller of self improvement products” and states that www.cycle4dollars.com was launched in June 2009 by Chris Walker.
The website states: “Chris has been involved in the network marketing industry since 1999.
“He wanted to offer a business opportunity to South Africans with the following criteria:
• The products must educate people about network marketing and the internet.
• The compensation plan must be simple to understand and easy to do.
• The opportunity must be affordable with no monthly fees.
• Commissions must be paid on time.
• Members must be able to communicate with the company without delay.
“People jump from opportunity to opportunity far too quickly. I feel the reason for this is that they do not get results fast enough, so they are tempted by the next thing that comes along,” said Walker, according to the website.
It also states that Walker in 2007 started an organisation called Live to Race (which links to a video on YouTube), a project whose aim is to bring some joy to the lives of children with life-threatening diseases.
When Fin24’s sister publication Wheels24 asked Cape Town's Killarney Race Track about Live to Race, a spokesperson said they had never heard of Chris Walker.
Fin24 tracked down the real owner of Live to Race, Joe Struwig. He told Fin24 that he did have contact once with Walker about him taking over the idea. He never personally met Walker, and since that first conversation has not seen or heard from him again.
Walker was on his way out to Australia at that time.
According to Struwig, he has been managing Live to Race for the last five years. “It is a non-profit organisation linked to 11 national charities, including Little Fighters Cancer Trust, Reach for a Dream, the Anna Foundation, The Homestead and the Elim Children's Home."
How to spot a Ponzi scheme
Meanwhile, analysts say spotting a Ponzi or pyramid scheme is relatively easy.
“The word network marketing should already spell danger,”said business consultant Bertie du Plessis.
“Not everything that’s network marketing is criminal, but it is a big red light.”
De Villiers gives a checklist for members of the public to arm themselves against fraudsters.
1. Insist on proof that the investment vehicle is registered with the Financial Services Board (FSB). If it isn’t, and you lose your money, you have no recourse avenues open.
2. Compare the interest rates on offer to the global and local landscape (e g interest rates and economic growth rates).
If the national interest rates are at 5% or 6%, and someone is offering you a guaranteed return of 30%, it is likely to be a fraudulent scheme. Having realistic expectations of investment returns is the cornerstone of any investment strategy.
3. Be wary of consistent returns. By their very nature, financial markets are fluid instruments fluctuating daily.
If a scheme offers consistent guaranteed returns without being underwritten by an insurer or bank, it is most likely not invested in secure financial instruments and should, therefore, be scrutinised with great caution.
4. Look closely at the track record of the institution and individual offering the investment opportunity - which means not just taking their word for it.
Contact the FSB, contact the editor of the personal finance section of the newspaper, or ask reputable brokers for their opinion. In an economic downturn, your best bets are well established investment houses with solid track records and healthy cash reserves.
Don’t be fooled by professional-looking documentation or reporting.
5. Practise steps 1 to 4 above, no matter who told you about the scheme. Unfortunately, many unsuspecting investors are introduced to Ponzi schemes through intermediaries - friends and family - and this provides them with a comfort factor.
This does not mean they are safe. It is possible that those family and friends will equally become victims.
6. Don’t be lulled if the scheme has paid out regularly to those family or friends. This is a classic characteristic of Ponzi schemes. To appear legitimate, they pay out as promised for a period of time to allow word of mouth to market the scheme on their behalf.
Then when there are enough investors, they pull the plug and make off with the money.
7. Trust your instincts. Common sense and gut feel can be great defences against falling for Ponzi schemes. Ask yourself why you have been given an opportunity to make fabulous returns on your investment.
Why have you been so lucky to get this unbelievable opportunity to multiply your wealth? What’s so special about you?
8. Be extremely wary of “opportunities” to invest your money in franchises or investments that require you to bring in subsequent investors to increase your profit or recoup your initial investment.
No legitimate investment house employs this strategy – in short, it is a very big clue that something dodgy is brewing.
Before investing, you must be sure that you are entrusting your funds to a person, people or an institution that has shown it can consistently deliver returns over an extended period of time.
Long-standing institutions with proven track records are often the wisest choice, said De Villiers.
- Fin24
Analysts are in two minds on the actions of the sole owner of Net Income Solutions, trading as Defencex; one predicts he will abscond, while another believes it unlikely that he will stay away.
Defencex is the latest scheme to hit the headlines, after the Western Cape High Court ordered its bank account to be frozen on February 28 because of deposit-taking activities.
The scheme, described as a new revenue sharing plan, was launched on April 21 2012 via cycle4dollars, and promised investors R2 a day for 75 days on positions of R100.
Scheme members could earn 10% commission on all the positions they purchased through direct referrals, and 5% commission on all the positions their second-level team members purchased.
They could cash out once they had a minimum balance of R200.
Members of the scheme invested up to R500m in Defencex. The Standard Bank account contained R320m at the time it was frozen.
The South African Reserve Bank has asked auditors PwC to investigate Defencex.
“The very fact that Walker hosted an event at Wits (University) is evidence of an above-average ego – a smart one at that too,” said investor activist Daryl Ducasse of Merkurius Capital Solutions.
Walker made a brief appearance on March 9 at an Emotional Freedom Techniques "Feel Good" day held at the University.
“This person appears to be revelling in the public nature of the circumstances, and will use every element in his favour to persuade the average person to be sympathetic.”
Meanwhile Ducasse questioned the legal system, saying he feels the punitive measures that are in place are inadequate to deter promoters of dubious schemes from taking their chances, and that “this needs to be reviewed”.
He also doesn’t think the legal system is adequately equipped to deal speedily with matters like this. “The legal battles seem to go on endlessly, with no clear and predictable direction or outcome. Appeals and counter claims clog the judicial system.
"Smart lawyers and advocates take advantage of the periods between matters being set down to dilute the seriousness, evidence, and extent of the ‘crime’, to the extent that high profile cases fade into obscurity, and investors have all but given up hope of ever seeing any return at all on their investment.”
Cases in point are Tigon and Fidentia, although the latter seems to have more direction than the former, said Ducasse.
Gavin Came, chairperson of the Financial Intermediary Association of South Africa, said it is a matter of wait and see. “The legal system has for now stopped members from being exploited further, and we’ll only know the extent of exploitation on Tuesday.
“Walker has two options: to abscond or defend and convince the court he is not a bank; the former is more likely,” said Came.
“Walker has been taking deposits from the public in breach of the banking laws. If he can convince the court that he is not a bank, the scheme could be in business again, which is unlikely.”
Ducasse, however, doesn’t believe that Walker would want to risk a fine or warrant of arrest for contempt of court, “so it would not be in his interest to not show up”.
Although Dawie de Villiers, CEO of Sanlam Employment Benefits, believes that all signs point towards Defencex being a Ponzi scheme, he did not want to speculate on the court outcome.
"The signs that these schemes are not legitimate are very clear and similar among all of them: the returns promised are too good to be true, the schemes are not regulated/registered and it seems that points of passion, such as religion, are being used to convince people to trust the operators."
Meanwhile, the website www.defencex.com no longer redirects to cycle4dollars.com. The website is fully devoted to The Tapping Solution, a documentary film that explores Emotional Freedom Techniques (EFT).
Although cycle4dollars looks different to the website redirected from Defencex, it still seems to “belong” to Walker and gives a little insight into the “network marketer”.
The About US page now features the Cycle Assist Team, “a registered company and a reseller of self improvement products” and states that www.cycle4dollars.com was launched in June 2009 by Chris Walker.
The website states: “Chris has been involved in the network marketing industry since 1999.
“He wanted to offer a business opportunity to South Africans with the following criteria:
• The products must educate people about network marketing and the internet.
• The compensation plan must be simple to understand and easy to do.
• The opportunity must be affordable with no monthly fees.
• Commissions must be paid on time.
• Members must be able to communicate with the company without delay.
“People jump from opportunity to opportunity far too quickly. I feel the reason for this is that they do not get results fast enough, so they are tempted by the next thing that comes along,” said Walker, according to the website.
It also states that Walker in 2007 started an organisation called Live to Race (which links to a video on YouTube), a project whose aim is to bring some joy to the lives of children with life-threatening diseases.
When Fin24’s sister publication Wheels24 asked Cape Town's Killarney Race Track about Live to Race, a spokesperson said they had never heard of Chris Walker.
Fin24 tracked down the real owner of Live to Race, Joe Struwig. He told Fin24 that he did have contact once with Walker about him taking over the idea. He never personally met Walker, and since that first conversation has not seen or heard from him again.
Walker was on his way out to Australia at that time.
According to Struwig, he has been managing Live to Race for the last five years. “It is a non-profit organisation linked to 11 national charities, including Little Fighters Cancer Trust, Reach for a Dream, the Anna Foundation, The Homestead and the Elim Children's Home."
How to spot a Ponzi scheme
Meanwhile, analysts say spotting a Ponzi or pyramid scheme is relatively easy.
“The word network marketing should already spell danger,”said business consultant Bertie du Plessis.
“Not everything that’s network marketing is criminal, but it is a big red light.”
De Villiers gives a checklist for members of the public to arm themselves against fraudsters.
1. Insist on proof that the investment vehicle is registered with the Financial Services Board (FSB). If it isn’t, and you lose your money, you have no recourse avenues open.
2. Compare the interest rates on offer to the global and local landscape (e g interest rates and economic growth rates).
If the national interest rates are at 5% or 6%, and someone is offering you a guaranteed return of 30%, it is likely to be a fraudulent scheme. Having realistic expectations of investment returns is the cornerstone of any investment strategy.
3. Be wary of consistent returns. By their very nature, financial markets are fluid instruments fluctuating daily.
If a scheme offers consistent guaranteed returns without being underwritten by an insurer or bank, it is most likely not invested in secure financial instruments and should, therefore, be scrutinised with great caution.
4. Look closely at the track record of the institution and individual offering the investment opportunity - which means not just taking their word for it.
Contact the FSB, contact the editor of the personal finance section of the newspaper, or ask reputable brokers for their opinion. In an economic downturn, your best bets are well established investment houses with solid track records and healthy cash reserves.
Don’t be fooled by professional-looking documentation or reporting.
5. Practise steps 1 to 4 above, no matter who told you about the scheme. Unfortunately, many unsuspecting investors are introduced to Ponzi schemes through intermediaries - friends and family - and this provides them with a comfort factor.
This does not mean they are safe. It is possible that those family and friends will equally become victims.
6. Don’t be lulled if the scheme has paid out regularly to those family or friends. This is a classic characteristic of Ponzi schemes. To appear legitimate, they pay out as promised for a period of time to allow word of mouth to market the scheme on their behalf.
Then when there are enough investors, they pull the plug and make off with the money.
7. Trust your instincts. Common sense and gut feel can be great defences against falling for Ponzi schemes. Ask yourself why you have been given an opportunity to make fabulous returns on your investment.
Why have you been so lucky to get this unbelievable opportunity to multiply your wealth? What’s so special about you?
8. Be extremely wary of “opportunities” to invest your money in franchises or investments that require you to bring in subsequent investors to increase your profit or recoup your initial investment.
No legitimate investment house employs this strategy – in short, it is a very big clue that something dodgy is brewing.
Before investing, you must be sure that you are entrusting your funds to a person, people or an institution that has shown it can consistently deliver returns over an extended period of time.
Long-standing institutions with proven track records are often the wisest choice, said De Villiers.
- Fin24
