More clarity on Cambist

Apr 25 2013 11:30
Cape Town - Investor activist Daryl Ducasse has lashed back at Cambist, saying he did his homework on the investment offering before answering a Fin24 user query.

Cambist allows buyers to purchase active debt contracts (ADCs) from their current owners, at an agreed discount of 19.5%.

The buyers are entitled to recover the full amount outstanding on the ADCs, allowing them to make a profit or return of 19.5% per year on the ADCs. The buyers thus become the new debt contract owners.

The user wanted to know whether the investment promising a guaranteed return of 19.5% on investment is safe and legal.

Both Ducasse and Cambist responded to the user query. However, Cambist saw Ducasse’s response first before sending their own reply.

Cambist, who acknowledged the user query was in response to its current advertising campaign, accused Ducasse and attorneys Van Wyk & Preller of not doing basic research, hence their “quite general” response.

Ducasse said they spent sufficient time gathering what was needed to respond to the user query.

On his negative response to “is your capital secure?”, Ducasse said the reason for the simple response is set out in the core criterium – what represents security of capital? Fixed property, perhaps a mortgage bond you hold as security over someone else’s property, a share, a debenture.

“Not even movable property really represents true security, as movables depreciate substantially.

“So, cession of a debt instrument from someone who has defaulted on debt repayments to the point that a garnishee order is now in place does not represent real security – it represents a right to claim performance in the future, which
a.  necessitates legal action; and
b.  does not guarantee or assure eventual success – i e that you will get your money back.”

In its defence, Cambist said 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.

On Cambist’s statement that there were no non-payments or late payments of any debt instalments since the launch of the offering one year ago, Ducasse said they did not comment on debtor performance – “In fact, we have agreed that the offering provides cash flow which can only come from the repayments.”

He also questioned Cambist’s statement on the buyer of the debt contract receiving all cession documents, and thus becoming the new owner of the debt.

“This is not completely accurate,”said Ducasse.

“Just because the debt has been ceded does not mean I can perfect it.”

On it being a working debt repayment that is maintained by court enforced emolument attachment orders (EAOs), Ducasse said that should the person be unable to pay for whatever reason, sequestration potentially occurs.

“In this instance, not only is payment often not made, but you now stand in line with other creditors of the estate.”

Ducasse hit back at a statement by Cambist that a business trust acts as buffer for the investor.

 “... the 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,” Cambist said.

He said no financials of the trust are available – i e just as in banking, if there is a run on the bank, there is a problem.

“How does an investor know that the trust has sufficient funds to cover
a.    the capital invested;
b.    the cash flow required;
c.    the costs?

“What is the process of claiming performance from the trust? If the trust is not in a position to buy each and every contract, there is a liquidity problem.”

He said the statement by Cambist that the buyer’s aggregate position consequently remains unchanged remains unproven and untested.

On why the simple response to the user query, Ducasse said the following statement from Cambist serves as a confirmation of their response.

"Cambist stated: '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.'

“This statement is all that is needed for us to have replied simply – losing a job is not a remote scenario, it is a very real one. The admission that Cambist will be in trouble merely confirms our statements on whether your capital will be secure.

That you become the owner of the court enforced debt doesn’t give you a real right, Ducasse said.

“As set out above, just because you have taken cession of the debt does not mean you can perfect it. If you have a property, you can sell it. If you hold a bond, you can perfect it.

“Owning a potentially irrecoverable debt with the grading of debtor is not really appetising, notwithstanding natural disasters; in fact, if a meteor were to hit, I would prefer to have food, fuel, warmth and protection – not the instrument of debt.”

Ducasse also said the assertion that investors will not have capital growth unless they keep reinvesting their dividends or interest is accurate by Cambist’s own admission: “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.

“There is no other way to get capital growth other than to keep reinvesting,” said Ducasse.

Ducasse said they do not dispute the rate of return being offered.

However, the question is: “If every investor is chasing the ideal investment (security of capital, high returns, capital growth, and an exit mechanism all inclusive), and the trust has the requisite capital to cover all the contracts put to it, why have they not just bought all the contracts in order to get
1.    security of capital;
2.    a return of 19.5%;
3.    capital growth; and
4.    the comfort of knowing the debt will be fully repaid?".

Although Cambist claims that there is indeed an exit strategy for contract owners, Ducasse said he stands by his previous statement that there is no certainty on this.

Click here for Cambist’s response.

 - Fin24

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