Five investors in Ponzi scheme fail in bid to get investments back

Five “participants or victims” in an illegal Ponzi scheme unsuccessfully attempted to have their investments returned to them from funds in three bank accounts of the alleged orchestrator of the scheme.

These funds were declared forfeited to the state in terms of the Prevention of Organised Crime Act (Poca). The applicants applied to the High Court in Durban for a variation to the forfeiture order to allow them to get their investments back.

The applicants claimed they were unaware the Crypto Mzansi Group scheme, which solicited investments largely through social media platforms, was illegal despite the promised abnormally large returns on these investments.

This included a 3 000% return on a so-called long-term investment of nine months that promised to transform an investment of R10 000 to R300 000.

However, in dismissing their application, acting Judge Garth Davis said the applicants got involved in a scheme promising quite astronomical rates of interest, and “the common cause facts do not suggest that they were unaware that the scheme was illegal”.

“Forfeiture is not founded on the basis of a conviction or even of a charge being preferred in a criminal trial, it suffices that the funds were an instrumentality of the crime.

“There are no considerations in this matter that warrant a variation of the order.

“On the papers the order of forfeiture in the circumstances was neither disproportionate nor arbitrary,” he said.

“A clear crime has been committed.”

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The applications

The three applications by the five “participants or victims” were consolidated and heard together.

Shaun and Remanah Gadiah, Kevin Ramlall and Sarika Ramnarain, and Evashni Singh all cited the National Director of Public Prosecutions in their application for a variation order to the forfeiture order granted on 17 March 2023 for R4 547 820.47 in three bank accounts belonging to Mfundo Manci, the sole director of the Crypto Mzansi Group.

It was ordered that these funds be transferred to the Criminal Asset Recovery Account held with the South African Reserve Bank.

Manci, with the assistance of Prenisha Perumal, operated the scheme in the greater Durban area.

Davis said millions of rands that were invested were lost, and dockets were opened at the Phoenix Police Station.

“Manci fled and remains to this day a fugitive from justice,” he said.

He added that although the circumstances under which the applicants “invested” with Manci differ, all three counsels made many common submissions about why their property, being money they invested, should have been excluded from the forfeiture order.

These were that:

• The property is of lawful origin and reflects the personal savings and money of the applicants and/or money legally obtained;
• They are not criminals, and there are no charges pending against them;
• Their statements in their founding papers, which were made as complainants, were used by the NPA (National Prosecuting Authority) in support of the application to preserve the property (money);
• They are the victims of the crime committed by Manci and not akin to co-perpetrators;
• The Poca was not designed to benefit the NPA unjustifiably, and by not returning the money to the complainants, the NPA will benefit unjustifiably; and
• The applicants had no reasonable grounds to suspect they were investing, and thereby participating, in an illegal multiplication scheme run by Manci.

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Suspects, investors or co-perpetrators?

The NPA acknowledged it used the affidavits made by the applicants and 10 other complainants when opening their various criminal cases at the South African Police Service (SAPS) in the original preservation order and that the preservation application at no stage referred to the applicants as suspects or complainants but as investors.

It said the founding affidavit to the application alleged that the investors, by depositing money in the scheme, contravened the Consumer Protection Act (CPA) and that participation in such a scheme is punishable by law.

The NPA added that at the commencement of the applications, it gave notice to the investors that they were not being regarded as innocent or bona fide investors “but akin to co-perpetrators” and argued that, in law, it is of no consequence that the investors have never been charged by the state for their complicity in the scheme.

The NPA further argued that multiplication or Ponzi schemes of this ilk are unlawful, and the applicants, in all likelihood, knew or ought to have known that this was an illegal multiplication scheme, considering the return on investment promised.

“A 1 000% return on investment was promised and that kind of return is impossible to attain lawfully. At the very least the applicants ought to have reasonably known that the scheme was prohibited by … the CPA.”

A further issued raised by the NPA was that all the applicants failed to show, as required, that the amounts invested were in fact acquired legally.

Acting Judge Davis said the commonality in the submissions of the three sets of applicants is that they acted bona fide and subjectively believed that the investment was above board and lawful.

The other commonality in their papers is that they unfortunately at no stage engage with the interest rates on offer, he said.

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How the applicants invested

Husband and wife Shaun and Remanah Gadiah said they invested R1 100 in August 2020 and received R12 000 in December 2020. Now convinced, they met Manci in early 2021 and invested R130 000 into the scheme.

Husband and wife Kevin Ramlall and Sarika Ramnarain said they were introduced to Manci’s business by their friend Perumal and, through two transactions on 15 March 2021, invested R90 000 into a bank account owned by Manci.

Ramnarain said that prior to this, on 15 January 2021, she invested R5 000 with Manci and six weeks later received a return of R15 000.

Evashni Singh said the money she invested was derived from a personal injury payout for her child after meeting and discussing investing with Perumal.

Singh said she made an initial investment of R20 000 on 4 February 2021 and received R30 000 as a return six weeks later. Convinced of the legitimacy of the scheme, she invested R100 000 with Manci on 8 March 2021 and, one week later, on 15 March 2021, paid another R40 000 into a bank account belonging to Manci.

However, Singh said the promised payouts of R200 000 by the end of April and R1.2 million by the end of December 2021 never materialised, and she then approached the SAPS.

The NPA said Singh knowingly participated in a criminal multiplication scheme, which allowed for the lawful forfeiture to the state of the money she invested.

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Were investors aware of the scheme’s ‘unlawfulness’?

Acting Judge Davis said the key area where all applicants and the NPA join issue is the knowledge of the unlawfulness of the scheme by the applicants.

He said they claim in their affidavits that they did not know and were victims, but unfortunately, none of them deal with the interest rates on offer, which are in the realm of 1 000%.

Davis said the failure to do this and the “test participation” by the applicants caused the NPA to argue the applicants knew or at least ought to have known that this was an illegal multiplication or Ponzi scheme.

He said there is a clear dispute of fact as to the knowledge the applicants had in respect of the unlawful nature of the scheme and such dispute cannot be resolved on the papers.

Davis said neither party sought to refer the matter for oral evidence at any stage, and this factual dispute was perfectly apparent from the original exchange of affidavits between the parties.

“The applicants elected to proceed by way of motion proceedings when it ought to have been clear to them and their legal representatives that a dispute of fact was bound to emerge, which a court would not be able to decide in their favour merely on the papers,” he said.

“The applicants chose to proceed on motion proceedings and must, in the exercise of my discretion, endure the consequences of that decision.

This article was republished from Moneyweb. Read the original here.