FSCA fines Praesidium operators millions

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The Financial Sector Conduct Authority (FSCA) announced on Monday that it has completed its investigations into entities and persons linked to Praesidium, which promised investors that its traders could earn them huge returns on foreign exchange markets.

The investment schemes run by Praesidium Advisory Services, Praesidium Wealth and Praesidium Sentinel, as well as Octox and Imagina FX, crashed in 2019 after operating since around 2015, leaving millions of rands unaccounted for.

At the time the schemes crashed, authorities estimated that people had invested around R1.4 billion, barely R300 million of which was actually used for trading.

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“Based on the FSCA’s forensic analysis, a small percentage (approximately 19.4%) of clients’ funds received were actually traded on the trading platform. The balance of the capital was paid back to clients (including Imagina clients) as investment returns and/or capital withdrawals, paid to the Praesidium Group of entities for operational expenses and paid to the directors,” says the FSCA in its report.

Not authorised

The FSCA found that Praesidium Advisory did not have the correct financial services provider [FSP] licence to advise members of the public to invest in forex instruments. It also did not have the correct licence to receive client funds for the purposes of investment in forex instruments.

“The Praesidium Group of entities further should not have paid clients’ funds it received to Octox or Imagina FX, because these entities were not authorised FSPs and therefore could not lawfully receive client funds and/or act as investment manager of clients’ funds,” according to the FSCA.

All the companies were liquidated, but very little of the money has been recovered.

The directors and other key persons were investigated for several transgression of various rules and regulations aimed at regulating financial services in SA.

The FSCA fined Craig Massyn, a director and someone who was supposed to trade the forex markets, R20 million and debarred him from the financial services industry for 20 years.

Shades of Ponzi

The investigation concluded that once clients invested on the basis of promises made by Praesidium, the funds were paid over to Octox/Imagina. At that stage, Praesidium lost all control and oversight over the clients’ monies.

“Massyn controlled and had access to clients’ funds in the Octox bank accounts and on the trading platform,” says the FSCA.

“Massyn conducted all the trading. The trading percentage returns that were declared to clients every month were provided by Massyn.”

However, Praesidium Advisory’s statutory manager found that the positive trading returns Massyn declared could not be remotely possible, in light of the fact that Massyn was making losses on the trading platform.

Additionally, the balances reflected in the trading account statements produced by Massyn indicated that there was insufficient money on the trading accounts. It would therefore appear that Massyn was operating a scheme similar in nature to a Ponzi scheme, according to the statement.

Massyn not the only one called out

Other Praesidium directors received large penalties too.

Brett Bukes was fined R6.5 million and Andrew Cunningham-Moorat R2.5 million. Both were debarred from the industry for 10 years.

The FCSA says Bukes and Cunningham-Moorat aided, abetted, induced, incited or procured the Praesidium entities to contravene the relevant financial sector laws.

Cunningham-Moorat responded to a Moneyweb query by saying that he has to reserve comment for legal reasons as the investigation is ongoing.

“However, I can confirm I had no knowledge of Craig’s actions and/or fraudulent activities.

“I have been cooperative with the FSCA and the SAPS [South African Police Service] from day one and shall continue to do so going forward,” says Cunningham-Moorat.

“I continue to render and offer that assistance and any queries that you have must be directed to the authorities, so that I do not in any way prejudice those investigations through my discussions with the press.”

Key persons also fined

The FSCA fined two key persons at Praesidium R300 000 each and debarred them from the industry for five years.

It notes that Cindy Lee Schuster and Ryan van Niekerk were approved, per product category, to manage and oversee the business of Praesidium Advisory, but that Van Niekerk signed a document that was presented to clients that contained misleading and incorrect information.

“This document created an impression that Praesidium Advisory was appropriately licensed to conduct its business.

“Schuster testified under oath that she had resigned six weeks after being appointed,” says the report.

“However, a forensic analysis of the evidence she submitted demonstrated that she had not resigned.

“She continued to act as key individual after the alleged resignation and Praesidium Advisory continued its unlawful business during her tenure.

“The FSCA is of the view that she did not have the operational ability to effectively oversee the business of a financial services provider.”

The FSCA says after the investigations were concluded, it made a preliminary decision on the appropriate sanctions – which was communicated to the individuals to provide them with an opportunity to make submissions, before issuing the decision and sanctions.

However, the persons might still have to face the law.

“The FSCA will now formally bring this matter to the attention of the criminal authorities, because it seems likely that several offences have been committed, including fraud and theft,” says the FSCA.

Deterrent

One can only hope that fining a group of people nearly R30 million for such offences will deter the hundreds of operators promising unrealistically high returns and easy money.

The fake advertisements and stories are everywhere, usually accompanied by pictures of a well-known stock exchange or the logo of a prominent company or person.

Headlines such as ‘Make a second income investing in Amazon’, ‘Banks hate us for disclosing this secret’ and ‘Netflix gains 400%’ all lead to very similar-looking websites making similar promises, and a telephone call from people with similar accents following a similar script.

The latest emails and messages offer the best returns ever – R15 000 profit per day on an investment of R1 500.

The promoters promise that it is safe, and even suitable investments for pensioners.

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Ask, and the promoters are quick to say that their “brokerage” is registered with the FSCA. But they backtrack quickly when asked for the FSP licence number or offer the excuse that the investment falls outside of FSCA jurisdiction because it is in a different country, regulated by a different financial authority or involves cryptocurrencies that are not yet regulated.

Both the FSCA and the South African Reserve Bank repeat the usual warning: “If it sounds too good to be true…”

It doesn’t seem to help, however, as regular news reports about failing investment schemes and people losing money continue to testify.

Read: Moneyweb reader embarrassed to have fallen for crypto scam

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