Recent Reports Show A Sudden Spike of Scams in South Africa
Since the beginning of 2022, there has been a flood of news about investment scams, ranging from popular Netflix shows glorifying the brazen tales of swindlers’ to local stories about opportunists defrauding individuals and businesses.
South Africans lost more than R1.5 billion in banking and card fraud alone in 2020, according to the South African Banking Risk Information Center (SABRIC). When other scams are factored in, as well as victims who are too embarrassed to report being targeted, the figure is likely to be much higher.
The rising cost of living tightens its grip on the economy, allowing scammers, fraudsters, and hustlers to prey on those desperate enough – and possibly unaware of the dangers – to choose an easy way out of the financial hole they have fallen into.
While there are many scams in our email and SMS inboxes, the good old-fashioned ‘get-rich-quick scheme’ is still alive and well as opportunistic criminals seek to defraud investors out of their money.
The Financial Sector Conduct Authority (FSCA) recently highlighted the case of a South African man accused of defrauding over 600 investors, some of whom lost more than R1 million in savings. This was in response to claims that the individual could double their money in three months by trading foreign exchange.
Investment scammers would be less successful, according to Friedrich Rappard, chief information officer at Momentum Investment, if people remembered a simple golden rule: investing is a long-term game.
“I’m afraid investments will not make you rich quickly,” Rappard said. “It’s important to remember that a good investment strategy should last for years, if not decades.” If someone promises to double your money in three months, you should be wary and question their motives.”
Scammers, according to Rappard, entice people by promising low-interest loans or high returns on investments in a short period of time. He claims that these scammers may go to great lengths, such as creating websites that almost perfectly resemble real investment brands like Momentum (e.g., www.momemtum.co.za or www.momentvm.co.za).
There is a long list of investment scams, according to the FSCA’s MyMoney Learning Series. These are some examples:
- Pyramid schemes
- Ponzi schemes
- Advance fee fraud
- Offshore scams
- SMS phishing
- Identity fraud
- Online gift
- Travel fraud
- Job Scam
- Truck scam
- Property Scam
According to Rappard, the recent Tinder Swindler documentary on Netflix should put “Romance Scams” at the top of one’s mental list. “Requests for travel money to meet you, cash gifts, or money to help them out of a personal crisis should send you running the other way.”
Being unable to meet’ them on a video call or speak with them on the phone should also raise a red flag, especially if they always cancel at the last minute.“
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The modern day pyramid scheme
The rise of social media has simply provided fraudsters with easier access to social networks, but the scam remains the same: a charismatic con artist introduces an incredible financial opportunity that promises unbelievable returns to a small group of investors.
After that, each investor is encouraged to sign up and recruit new investors (friends, family, acquaintances, and colleagues). In turn, these new investors recruit even more investors, forming a multi-level pyramid structure with the fraudster at the apex.
Investors may initially see high returns and can confidently assure new recruits that their investment will pay off. These schemes, however, are not long-term. When the pool of new investors and additional investments runs dry, the scheme is unable to provide returns to its investors and, as a result, fails, leaving investors with permanent capital losses.
“In the digital age, these schemes are administered through messaging platforms such as WhatsApp, which has proven useful for con artists, who can now communicate efficiently and recruit with relative anonymity.”
These schemes operate efficiently thanks to digital payments. “It will be too late by the time the scheme unravels and the truth is revealed,” he warns.
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It can happen to anyone
While many of us believe we will never be taken in by these seemingly obvious scams, the truth is that even the best of us can be taken in.
You are not alone if a con artist has cheated you out of money in South Africa. According to studies, difficult circumstances can make even the most financially savvy people vulnerable to being duped.
Look out for potential scams
Rappard provides some tell-tale signs to look out for when it comes to potential scams to protect yourself from fraudsters:
- Emails requesting personal information such as passwords, personal pins, or your ID number. This should always raise a big red flag.
- “Business” emails sent from publicly accessible email domains. Another warning sign.
- Emails that use generic salutations like “Dear Sir” or “Hello dear” instead of your name.
- Unexpected emails from unknown or even seemingly legitimate sources, prompting you to click on a link or attachment.
- Emails that are poorly written. Pay close attention to grammar as well as spelling.
Always double-check that the URL provided corresponds to the actual domain.
Rappard added that when it comes to investments, there are other tell-tale signs to look out for that only a savvy investor would notice. Take the following into consideration:
- The investment firm should be licenced by the Financial Services Conduct Authority (FSCA) and its FSP number should be displayed on all marketing materials.
- Be wary if the investment’s bank account is in the name of a private individual.
- Any investment transaction conducted via WhatsApp should be regarded as suspect.
- Any reputable investment firm should be able to provide you with a solid track record of previous transactions, as well as client testimonials.
“Don’t be taken in.” “If something sounds too good to be true, it probably is,” Rappard said. “It is your responsibility to do your research and apply logic and reason to an investment offer.” Finally, only invest with a reputable investment firm whose name and reputation you can rely on.”
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