Home News illegal investment scheme exposed

illegal investment scheme exposed

by Lesotho Times
12 comments 184 views

MASERU — A financial services company that was fined for being dishonest about its operations and had its licence renewal application rejected by the Central Bank of Lesotho (CBL) has slithered back into Lesotho to operate illegally through a middleman.

Independent Client Introducer (ICI), a South African firm, left Lesotho earlier this year under controversial circumstances after the central bank refused to licence its operations.

Official sources say the central bank refused to register the company because it had made “gross misrepresentations” in its initial licence application.

ICI is a subsidiary linked to StratEquity, a Johannesburg Stock Exchange-listed company that operates collective investment schemes.

StratEquity deals with low-end-of-the-market investors whose small incomes prohibit them from buying shares, investment instruments like bonds and treasury bills directly from the market.

The company then takes subscriptions from investors and establishes a fund to buy investment instruments on the market.

Investors will then share the yield from the collective investment depending on how the fund has performed.

ICI is a subsidiary that sells this scheme directly to the market and until its controversial exit from Lesotho it had gathered investments from thousands of people.

It was managing investments worth hundreds of thousands of maloti, according to sources close to the company.

Apart from selling directly to the people ICI also invites existing members to introduce new members to the scheme for a special commission under its Wealth Creator Subscription Plan.

The more people an investor persuades to subscribe to the investment scheme the more commission they get. 

A new subscriber contributes M260 per month under the name of the person who would have introduced them to the scheme.

For every M260 that the new member pays every month in subscription ICI pays a 10 percent commission to the introducer.

The introducer takes an initial “supervisory” fee of M100 from the subscriber’s initial M260 payment. 

ICI set up base in Lesotho some years ago and started operating without a licence from the central bank.

When the central bank got wind of its operations it forced ICI to get a licence.

That is when the web of misrepresentations began to unravel.

In its application the company described itself as an ancillary financial services provider.

It claimed that it was in the money transfer business akin to that of international companies like Western Union and Moneygram.

The central bank believed the story and promptly licensed ICI as an ancillary service provider.

But the bank was not hoodwinked for long and sometime last year it discovered that the company was not what it claimed to be.

It was a collective investment scheme and not a money transfer business, the central bank discovered.

That was when trouble started for the company whose offices were on the ground floor of the NRH Complex in Maseru until early this year.

The central bank swooped on the company and forced it to reveal its real operations.

ICI admitted that it was a collective investment scheme and the central bank slapped it with a fine.

But when it applied for a renewal of its operating licence late last year the central bank turned down the application on the basis that it had made misrepresentations in its initial licence application.

The bank also demanded that the ICI hand over audited accounts of its operations. 

The company did not comply with these demands but instead its managers announced that they were winding down operations.

It shut down its offices, refunded investors and left the country.

The central bank however says the company did not comply with its demand to submit audited accounts and provide a clear computation that it had refunded every investor to the last cent.

It also says it has no proof that the company paid every investor in Lesotho before it left.

Investigations revealed that the company recently slid back into the country and had already started soliciting for investments from the public without a licence from the central bank.

This time the company is operating through a middleman by the name of Rethabile whose contact details are on fliers that are being distributed across the country.

The flier says people can get paid for “simply sharing” the Wealth Creator Subscription investment opportunity “with others”.

“For every new Wealth Creator Subscription Plan subscriber that you introduce (Level 1), that also becomes ICI members, you will receive a once off supervisory fee of M100 when they register,” the flier claims.

Every month, the company claims, a “lump sum reward is shared exclusively amongst active ICI members who introduce new active ICI members…”

“The bonus lump sum is shared amongst the qualifying ICI members based on the total number of new members recruited,” it says.

The more ICI members you introduce the bigger your share will be, the flier adds.

“For example, let us say that this month’s recruitment bonus pool amounts to M500 000 and you are the only ICI member who recruited an active ICI member for the month then you would get the full M500 000 bonus.”

The language on the flier is persuasive with its promises of instant profits and easy money.

Rethabile claims to have joined ICI and is on a drive to recruit more members to join the scheme.

These new members will register under his name, he told the Lesotho Times on Tuesday.

But the central bank says such business should not be operating in Lesotho because it is not licenced.

Because the business is not registered there is no way of tracing the money and bringing the company to account if it leaves the country or goes bust, says the central bank’s public relations manager Thato Mohasoa.

The fact that people are investing under his name (Rethabile) makes the flight risk very high, Mohasoa adds.

“It cannot operate in this country unless if it is registered under the laws of this country”.

Yet that has not deterred Rethabile from selling the “opportunity” to the public.

He says he does not have offices in Lesotho but will continue selling the investment product to Basotho.

According to Lesotho’s financial regulations this is illegal.

The regulations state that a financial service provider must be registered and have offices in Lesotho if they want to sell products here.

The directors of the company must be known and their credentials as well as their financial affairs must be vetted.

An official at the ICI’s offices in Centurion, Johannesburg, however insisted the company no longer has operations or clients in Lesotho.

He says Lesotho citizens cannot be ICI members unless they have South African bank accounts.

Yet Rethabile’s flier says nothing about the South African bank account prerequisite because new investors will be registered under his name.

He claims to have a South African bank account. 

The central bank is currently battling to clean its image soiled after it failed to act early when MKM was operating banking and insurance businesses without a licence for years.

By the time it decided to close down MKM in November 2007, the company had taken investments worth M400 million from nearly 300 000 people.

An audit later revealed that the company could only account for M100 million out of the M400 million that it had taken from investors.

The MKM business was basically a pyramid scheme meant to fleece people, PricewaterhouseCoopers, the company hired to do the audit said in its final report.

This was confirmed by both the High Court and the Court of Appeal. 

And for the past three years the bank has been fighting endless court battles to liquidate the company so investors can salvage the little value that might be left.

Analysts say had the bank acted decisively from the onset MKM’s damage to the public would not have been so colossal.

Rethabile’s business is not a pyramid scheme per se but it is operating without proper licencing.

Network marketing, which is ICI’s core business and that of its middlemen, is legal in South Africa. 

The danger with its operations in Lesotho is that they are not registered. 

“Without proper registration and licencing it will be difficult for the central bank to trace investors’ monies if the company closes,” says Mohasoa.

Little is known about Rethabile himself.

He refused to give his surname.

When pressed for more answers he preferred to refer all questions to the ICI head office in South Africa.

You may also like

Comments are closed.