A Fin24 user is questioning the safety and legality of an investment promising a guaranteed 19.5% return. He writes:
Lately I have been hearing and seeing adverts for Cambist, claiming a guaranteed 19.5% return per annum on your investment.
I jumped on their website and it comes down to you buying debt contracts. It is owned by a company called OneLaw.
How safe is this sort of investment, and is it legal?Fin24 received a joint response from investor activist Daryl Ducasse of Merkurius Capital and attorneys Van Wyk & Preller:
Our response to the user's question concerning the safely and legality of the investment in question is as follows:
• "Safe" is a relative term: by this we mean relative to the risk appetite and profile of a prospective investor, and their desired rate of return;
- If the question relates to a broad indicative adjective, our answer is “No”;
- Safe is, at the very best, a fixed deposit with a stable, credible financial institution, or a government bond.
• The opportunity appears to be legal.
However, here is a broader response:
• In an ideal world, we believe that every investor should consciously establish one or more objectives relating to investment;
• In order for that investor to achieve those objectives, he or she needs a clearly defined strategy;
• We believe that underpinning this strategy, the following investment characteristics should be present in each opportunity being considered:
- Security of capital;
- A regular cash flow (paid by way of dividends or interest);
- Capital growth; and
- A predetermined exit mechanism.
• Assisting in the delivery of the strategy as a means of achieving the objectives, the investor needs to employ tactics that are consistent with the endeavours at hand:
- Seek professional opinion;
- Educate and inform yourself;
- Understand what you are really investing in;
- Establish that you have a real right – we cannot stress this enough;
- Stick to your plan – your strategy – in spite of enticing offers, emotions and fears;
- Ensure your game plan is simple and trust in it;
- Don’t be too egotistical or afraid to be wrong – it’s actually not an ideal world.
• So, let’s deal with a mini matrix for a moment based on the offering:
- In the offering, is your capital secure – No;
- Are you going to have a regular cash flow – Yes;
- Do you have a real right – No;
- Will you have capital growth – Not unless you keep reinvesting your dividends or interest;
- Is there a pre-determined exit strategy – Unclear.
- If an interested investor has a strong balance sheet, existing cash flow, no dependence on the funds he or she is considering to invest in this opportunity, the funds to be invested are less than 5% of an overall portfolio, AND the investor is okay with facing a potential loss of all the funds to be invested, then it appears to be legal, opportunistic and short-term play.
Overview: the capital markets crisis came to the world as a result of predatory institutions bundling and selling (bad) debt – subprime mortgages to be specific.
These mortgages were given over properties that were overvalued, at rates exceeding or close to 100% of that overvaluation, and to people who were really not in a position to repay the debts.
But that was just one element among the greater collusion that eventually unravelled.
Selling debtors' books is nothing new, but taking session of debtors’ contracts who are not meeting their payments is financial suicide.
These are individuals who are clearly not making ends meet, so there is also a socioeconomic (im)morality or principle here that I personally would not want to be a part of.
In addition, there is no assurance that the debtor will remain in the employ of the employee that is the subject of the garnishee order.
The Fin24 user responded to the current Cambist advertising campaign.
The response from Ducasse and Van Wyk & Preller is quite general, and clearly shows they didn’t spend the effort to do basic research, such as visit the Cambist
website or read through the Cambist FAQs.
So, let’s deal with their mini matrix based on facts regarding the Cambist offering: In the offering, is your capital secure?
Ducasse and VW&P simply respond “No”. What is the basis for this blunt response? OneLaw (Pty) Ltd (which developed the Cambist product) has a 12-year track record of working with integrity as a debt collection platform with prominent attorneys.
Since the launch of Cambist one year ago, there were no non-payments or late payments of any debt instalments.
The buyer of the debt contract receives all cession documents, and thus becomes the new owner of the debt. It is a working debt repayment that is maintained by court enforced emolument attachment orders (EAOs).
According to the most recent actuarial calculations, the failure rate of EAOs payment is 1.53%.
In order to ensure that a buyer on the Cambist platform is not affected by this eventuality, a business trust acquires contracts in its own name and if an EAO does not perform, the trust buys the non-performing contract from the original owner and sells a performing contract from its reserves to him or her.
The buyer’s aggregate position consequently remains unchanged.
So, although OneLaw is not a financial giant, the company has an established track record of working with competence and integrity within the financial sector. In terms of the Cambist product, the buyer’s risk is properly hedged and managed.
Yes, like big listed banks and financial institutions currently offering unsecured loans, the debt is secured against the debtor’s salary. So, in the remote scenario that half of South Africa loses their jobs, yes, Cambist will be in trouble, but so will every bank and institution relying on the repayment of debt. Are you going to have a regular cash flow?
Agreed yes.Do you have a real right?
We disagree with Ducasse and VW&P’s no. Of course the investor has a real right. You are the owner of that court enforced debt.
Even if the Cambist control centre gets hit by a meteor tomorrow, you are still the owner of that debt and can employ any other attorney or agency to collect that debt on your behalf. Cambist just makes that process much easier. Will you have capital growth?
Not unless you keep reinvesting your dividends or interest, says Ducasse.
Cambist says if you continuously reutilise your returns and capital to buy new contracts, you will earn returns on your return as well as capital growth, which is the optimal scenario.
If you simply let a single contract run its course, then you will only enjoy a return of 19.5% per annum on your active capital. Is there a pre-determined exit strategy?
There is indeed an exit strategy where contract owners who need swift cash flow can put their contracts up for sale on the Cambist online platform. It is like any asset and is bought relatively quickly again by other Cambist users.
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