By Gareth Stokes
Few love a get-rich-quick scheme more than your fellow citizens. On one hand, South Africa’s hard-pressed consumers will turn their collective noses up at investing R1 000,00 per month in a safe-as-houses index fund, complaining they have nothing to spare; on the other, they will pour their life savings into the next gold-from-fly-larvae scam based on little more than a promise and some ‘blingy’ marketing campaign.
Making millions from rotten milk
Readers who find today’s introduction a bit harsh should Google the so-called ‘Kubus’ or ‘vrotmelk’ scam that captivated the usual suspects in the early 1980s. Back then, investors were duped out of R500,00 as an initial investment in return for which they received a dried plant, a secret ‘activator’ and instructions on how to create a powder from a milk yeast ‘culture’. The exact mechanics of the process are irrelevant, but it helped that ‘investors’ felt they had a hand in their financial outcomes through a physical manufacturing process. They were not being scammed but running a business.
The scam’s perpetrator promised to buy back the powder for R10,00 per teaspoon, which investors could mail in. The potential returns were staggering, and hard-working investors could claw back their initial investment in just five weeks. Reflecting on the scheme, financial journalist Rob Rose wrote: “In practice, it was a classic Ponzi scheme, [with the instigator] recycling the money paid in by ‘new’ investors to repay the ‘older’ investors.” Funnily enough, the scheme unravelled in much the same way that more sophisticated schemes do nowadays. Who could have foretold?
First, it gained popularity, attracting thousands of investors. Then, reports started circulating of people battling to get their promised returns. Those who were heavily ‘invested’ ignored the warning signs while critics of the scheme were belittled, threatened and ultimately blamed for causing its collapse. By November 1984, when the scheme was declared an illegal lottery, it had left around 70000 people out of pocket to the tune of R140 million. The scheme’s perpetrator, who allegedly skimmed around R80 million from these activities, was sequestered and reportedly left with nothing.
Tough lessons, not easily learned
Lesson learned? You would think so. But over four decades later, South African consumers are still ploughing their hard-earned savings into ventures with fancy monikers like Mirror Trading International (MTI) or Validus. The milk yeast culture of yore has been replaced by the alchemy of modern-day financial innovation involving Bitcoin and the magic of artificial intelligence (AI)-backed trading bots. Launched and marketed as a cryptocurrency trading platform in 2019, MTI collapsed in December 2020, impacting around 100000 people from 140 countries.
MTI has since been labelled one of the largest Ponzi schemes involving cryptocurrency, though it is nigh impossible to get a clear idea of the sums involved. One of the issues this writer has with reporting financial scams is that journalists try to inflate the total loss by as much as possible. It seems crazy, for example, to report investors’ losses as their capital investment plus the fictional returns they were promised. Whatever the case, by June 2021, when the Western Cape High Court granted a final liquidation order against MTI, the sum mentioned was north of R1 billion.
Against the backdrop of Kubus, Krion, Tannenbaum, MTI and, more recently, BHI Trust, it is fitting that one of the first warnings issued by the Financial Sector Conduct Authority (FSCA) for 2025 deals with yet another promise of unrealistic returns. In keeping with its familiar and oft-repeated ‘public warning’ format, the FSCA media release, dated 10 January 2025, warned the general public against an entity trading as CMFX Trading.
Making money is never this easy
The FSCA is warning you, dear reader, to be cautious when conducting financial services with the aforementioned business. “It has come to the attention of the FSCA that CMFX Trading is soliciting funds from members of the public for investment purposes, while promising unrealistic returns,” the FSCA writes. They then hint at a marketing spiel that repeats over and over again. The trading platform is ‘promising’ investors a return of up to R23,000.00 from an initial R6,000.00 investment in a matter of just three days.
To illustrate what constitutes an unreasonable return, your writer plugged the last sentence into ChatGPT, asking the large language model to calculate the annual return being offered. It responded: “This calculation implies an astronomical and unrealistic return of several quintillion percent annually.” Or put differently, an investment of R1 000,000 compounding at the promised rate for a full year would yield an incomprehensibly large number, far exceeding the global GDP or even the combined wealth of the world.
Oh boy/girl. How to respond to such opportunities? Sadly, those who fall into the ‘typical South African consumer’ grouping tend to respond by bouncing up from their lounge chairs, clutching thousands in each hand, and screaming, “Where do I sign?” The financial advisers among the FAnews readership are more circumspect and will be muttering some choice phrases under their collective breaths, principal among these, “Oh no, not another one of these scams.” Shifting focus somewhat, your writer was surprised the FSCA warning was so ‘soft.’
The authority declined to comment on the specifics of CMFX Trading’s business, offering a sweeping: “Trading profits cannot be guaranteed, and any offer of unrealistic returns must be viewed with great suspicion.” They also reminded the public that CMFX Trading was not authorised in terms of any financial sector law to provide financial services to the public in South Africa.
Instagram and Tik Tok for laughs, not financial advice
“To avoid unnecessary risk, the public should refrain from accepting financial advice, assistance or investment offers from individuals or entities not authorised by the FSCA,” they wrote. “Authorised financial services providers must clearly display their authorisation status in their documentation [and] if this is not present, [the public should] further investigate before making any payments.” The regulator also offered the common-sense advice to exercise caution when considering investment or trading offers, especially when the offers were unsolicited and / or promoted via social media.
As financial advisers, you can add real value to your clients by ensuring they check in with you before going ‘all in’ on some or other investment fad. As a minimum, you should instruct them to verify the legitimacy of the entity, individual or financial services provider (FSP) offering the product they intend to buy. These individuals or FSPs need to be authorised by the FSCA to provide financial advice, products and services. It is equally important to confirm the specific category of advice or product an individual or firm is registered to provide or advise on.
