FSCA investigates alleged financial scams involving Banxso and AfriMarkets

The FSCA is investigating alleged financial scams by Banxso and AfriMarkets, accused of using deep-fake ads to lure vulnerable investors.

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30 Oct 2024, 2:29 pm

The FSCA is investigating alleged financial scams by Banxso and AfriMarkets, accused of using deep-fake ads to lure vulnerable investors. With around 90 million rand frozen and licenses provisionally withdrawn, FSCA's Gerhard van Deventer emphasizes public education and ethical sales practices, stressing accountability for deceptive financial schemes.

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By BizNews Reporter

The Financial Services Conduct Authority (FSCA) is intensifying its investigation into alleged financial misconduct by two companies, Banxso and AfriMarkets, over deceptive practices aimed at vulnerable investors. Gerhard van Deventer, Divisional Executive for Enforcement at the FSCA, outlined the agency's ongoing efforts to crack down on suspicious financial operations during an interview on BizNews Briefing with Alec Hogg.

The interview sheds light on the deceptive tactics allegedly used by the companies, including using "deep fake" advertisements that feature well-known public figures like Elon Musk, Johann Rupert, and Nicky Oppenheimer. These ads, often promising unrealistically high returns, are designed to lure investors into schemes without sufficient transparency or disclosures. Van Deventer stressed the importance of public awareness to avoid falling prey to such traps. "If it's too good to be true, it's because it's too good to be true," he warned.

The investigation initially began with Immediate Matrix, a media company allegedly involved in running these misleading ads, which led prospective clients to Banxso. Van Deventer highlighted that the FSCA, concerned with the potential financial harm to the public, quickly launched a probe into Banxso and froze around 90 million rand in the company's accounts with assistance from the Financial Intelligence Centre. "We approached the National Prosecuting Authority (NPA) and the Asset Forfeiture Unit for a preservation order on these funds," he said, adding that although the order is under appeal, it remains in effect, and the investigation is ongoing.

In addition to freezing assets, the FSCA provisionally withdrew Banxso's financial license, a severe step taken to protect investors while the investigation proceeds. "When you hold an FSCA license, it comes with the responsibility of creating comfort for the public, and we guard that trust closely," he explained.

The FSCA has also noticed emerging links between Banxso and a new company, AfriMarkets, which appears to follow a similar business model. One concern is that AfriMarkets shares its chief operating officer with Banxso, raising the question of whether it could be a "clone" or "copycat" of Banxso. Although Van Deventer was cautious not to make premature allegations, he confirmed that AfriMarkets is licensed separately with the FSCA and that the agency is actively monitoring its operations for possible irregularities. "It's too early to say definitively if AfriMarkets is involved in any wrongdoing," Van Deventer noted. "However, we are watching closely."

The anonymous whistleblower referenced by Hogg during the interview alleged that prominent South African cricketer Hashim Amla's name was being used to attract unsuspecting investors to these companies. While Amla may not be aware of this misuse, such practices highlight the dangers of financial schemes that target vulnerable populations through high-pressure sales tactics and deceptive advertising.

In his interview, Van Deventer emphasized the legal standards for ethical sales and financial advice within the industry, which prioritize "suitability" for clients. He highlighted that encouraging high-risk investments for unsuitable clients—such as retirees or individuals with modest income—is a significant concern for the FSCA. "The line is very clear," he stated. "Advice must always be in the best interest of the client, provided with due care, diligence, and suitability." Cold calling and hard-sell tactics, he clarified, fall far short of the FSCA's expectations for licensed financial service providers.

This regulatory concern stems from the fact that many investors drawn into high-risk contracts for difference (CFDs) and other speculative products often lack the financial literacy needed to assess the risks. "Those who have the large portfolios to handle these risks aren't likely to fall for deep fake ads; it's generally less financially literate people who do," Van Deventer explained. CFDs, which are derivative instruments often tied to volatile assets such as cryptocurrencies or forex markets, come with inherent risks due to rapid price movements. This type of investment, he argued, is only suitable for individuals with extensive investment experience and should constitute a minimal portion of their portfolios.

Van Deventer also described a disturbing practice often observed in such scams. Once victims lose their initial investment, they may be pressured into committing more money to "trade out" of their losses, often resulting in further financial harm. "Cold calling with a high-pressure pitch, particularly to individuals already facing losses, is utterly unacceptable and will result in the loss of an FSCA license," he asserted. He condemned the tactics of such companies, stressing that the FSCA will not tolerate behavior that exploits vulnerable clients.

In his concluding remarks, Van Deventer called on the public to exercise caution when presented with financial opportunities that appear "too good to be true." He emphasized the FSCA's commitment to educating consumers, describing the organization's substantial investment in public outreach, including warnings and consumer education campaigns. "We must protect those who can least afford to lose, and that's why these cases are prioritized at the FSCA," he said.

As the FSCA's investigation continues, affected clients and other stakeholders are advised to stay updated on regulatory actions and to verify the legitimacy of financial service providers through official FSCA channels. Van Deventer reaffirmed the agency's determination to enforce accountability and protect public trust in South Africa's financial markets.

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