Crimes of Persuasion

Schemes, scams, frauds.

Watch out for rip-off foreign 'investments'

South Africans are losing huge sums to scam artists who take the money and run, writes LUCIENNE FILD - June 4, 2000 Sunday Times

'THEIR brochures and newsletters looked so professional. I was convinced the company was for real. I knew I was taking a risk, but thought: he who doesn't dare doesn't win."

These are the words of a devastated Johannesburg pensioner who recently lost R18 000 of his savings to a bogus foreign investment company.

His is one of many sad tales. There is the George businessman who lost R300 000 to the same company. And the Financial Services Board (FSB) is investigating complaints by 28 investors who were cheated out of sizeable amounts of money - most losses reported to the FSB range between US40 000 (R280 000) and 150 000 (just over R1-million).

The company accused of defrauding these investors is Mendes Prior. But this is not the only foreign company operating illegally in SA.

Jim Millar, MD of the Financial Fitness College in Johannesburg, says every week desperate investors phone him for help once they realise their money has disappeared together with the company.

Many are victims of Mendes Prior, but recent cases he had to deal with also involved companies known as Vantage International Management Group Incorporated (Thailand) and Conrad Asset Management (Cayman Islands, Luxembourg, Philippines, Sao Paulo).

Foreign investment companies promoting their business in SA without approval from the FSB are doing so illegally. Thus far only 31 have been approved.

Last year, the FSB closed down a Johannesburg call centre illegally canvassing clients for Mendes Prior. By then, the centre had contacted 15 000 investors. Russel Michaels, FSB manager of communications and liaison, says many could have been conned out of a lot of money.

But most victims don't report their losses to the FSB because they are deeply embarrassed or because they used money which had been transferred offshore illegally.

Johannesburg businessman Tony Silva was about to invest just over 5 000 (R35 000) with Mendes Prior three weeks ago. The Smart Investor magazine hit the streets just then with an article on a Johannesburg couple conned out of R700 000 by a foreign company (Brattford Consultancy). Hoping to warn others he contacted BT Money.

Modus operandi

Mendes Prior phoned him four months ago. The calls are long distance and therefore get priority treatment from receptionists and secretaries. The representative asked if he would be interested in investing offshore. "I said I might, but would need more information."

During March Silva received newsletters from Mendes Prior, and a colour brochure on the company. Three weeks ago Karen Baker, claiming to be a portfolio manager with Mendes Prior Europe, contacted Silva. She told him about an excellent investment opportunity in a US IT company called Dynacs Inc, due to have listed this Thursday.

"She told me Mendes Prior had secured an allotment of shares in Dynacs. She said the shares were set to at least triple in price on the first day of trading and that Mendes Prior would sell on the same day to get the best return. I agreed to buy a minimum of 400 at 13 each."

Two days later he received an invoice, a share registration form, a W8 form or certificate of foreign status, and an application form.

The pensioner tells a similar story, but he was under the impression the "excellent" opportunity came in the form of shares in Renaissance Properties in the US. He was told Mendes Prior had inside information that the company was about to strike a big deal which would cause its share price to triple.

Everything is possible on the stock exchange, he thought, and transferred the R18 000. He never heard from Mendes Prior again despite numerous e-mails and costly phone calls. "Whenever I phoned I was told everyone is in a meeting. Nobody ever returned my calls. "

When Silva contacted us he indicated that Mendes Prior was still expecting his transfer and would contact him. Together with the FSB we drew up questions every investor should ask before placing money with a foreign company. Silva agreed to pose these questions to a Mendes Prior representative:

Silva posed these questions to the Mendes Prior person two days later. He couldn't answer any questions and promised to have the portfolio manager contact Silva. Baker phoned the next day. On the first question she said the details were either provided by a market research team or by a client. On the second, she said she would have to get back to him.

On who its brokers were, Baker said the company didn't use brokers but transferring agents. She was not able to refer him to other clients since that information was confidential. He hasn't heard from Mendes Prior since.

Don't waste your time flying overseas to look up the offices of Mendes Prior or any other bogus company, Michaels says. They are mostly phantoms and there are no offices.

These companies hire message service companies to take its calls to make it seem as if there is an office. Unfortunately most investors rely on very basic research when transferring their savings to bogus offshore investment companies. If someone answers the phone on the other side, most are satisfied that the operation is legitimate.

Michaels says some companies even provide local contact details to make the investor believe they are dealing with a local company. But when you phone that number you are probably dealing with a call centre or message service. You are also unlikely to get a representative of the company to come to the phone. There will always be an excuse.

While the chances of investors getting their money back are slim, says Michaels, the FSB is pursuing all avenues to help.

He says the FSB has linked up with Interpol to try to stop Mendes Prior from operating. It is under criminal investigation in the Czech Republic and authorities in Indonesia report Mendes Prior has not been approved there either.