“Where is the love?” wrote Elena James on the Zoutpansberger’s Facebook page in response to the article on the MakaTrade investment scheme that was published two weeks ago. She, like numerous others, lashed out at the newspaper for exposing the illegal investment scheme which, as far as could be established, is continuing in Louis Trichardt.
Some of the people commenting on the article felt that the people driving the scheme, where investors could earn a minimum of 10% per month interest on their money, merely had the best of intentions. One post said that no one had lost any money in the scheme, and the newspaper’s motives for publishing such an article were questioned.
But one obstacle that none of the critics could avoid was that the scheme is illegal. Even the person at the centre of the investment scheme, the 27-year-old De Necker van Schalkwyk, admitted that he was not registered to take deposits and invest people’s money. He later said that he had started with the process of becoming compliant.
In our article published on 30 June, we shed more light on the investment scheme, operating under the name MakaTrade. Investors are promised a 10% per month income on short-term investments and 12% per month on long-term investments, with cumulative growth. The latter scenario means an unbelievable 290% per year return on investment.
No – this is illegal and dangerous, says FSCA
Before publishing the article, we sent a list of questions to the Financial Sector Conduct Authority (FSCA), the body that regulates the industry. Unfortunately, the FSCA used an incorrect address when replying. Only after inquiring again a week later did we receive the response.
“It is a criminal offense to conduct financial services without a license,” said Mr Gerhard van Deventer, divisional executive: enforcement of the FSCA. He said that they were not aware of MakaTrade Investment or Van Schalkwyk’s activities, “but I have asked my team to look into it – even if it is just to publish a public warning”.
He also dispelled any notion that leniency can be applied while someone is in the process of becoming compliant. “It is certainly not lawful for a person to conduct financial services without the required authorisation from the FSCA, and there is no exception for somebody who is ‘working towards being a registered brokerage’,” he said.
Van Deventer said the best protection against falling victim to illegal activity was common sense. People often get lured by unrealistic returns. “If the offer is too good to be true, it is because it is too good to be true. There are no investments that can deliver unrealistic returns; it is a sure-fire way of identifying a scam,” he said.
One of the common traits of an investment scam is that the information about the product, process, and/or structure of the investment is extremely vague. “It is often difficult to understand what the actual financial product that the investment is supposed to be in. The golden rule: do not invest in something that you do not understand,” said Van Deventer.
But can it be true?
When De Necker van Schalkwyk was questioned about the promised return on investments, he was adamant that he could deliver on the promises. He explained that he had been experimenting with online trading for a couple of years. After losing some money, he started to get the hang of it.
Van Schalkwyk said in a telephonic interview that his investments, on average, returned between 14% and 15% per month. He takes 4% to 5%, and 10% goes to the investor.
He also guarantees that investors never have more than a 5% risk. He explained that he sets this percentage as a “stop-loss,” which means that, should the markets have a downturn, the losses are limited to 5% below the purchase price.
What Van Schalkwyk says he is doing is becoming very common across the world, where ordinary people without specialist training are trading on international stock markets. Depending on the source you consult, the size of the global online trading platform market is worth anything between $9 billion and $23 billion per year. One source (daytradereview.com) reckons an estimated 9.6 million people around the world are active traders.
Technology has also made things a lot easier for ordinary people to start trading from the comfort of their homes. Various apps have flooded the market, making it possible for people to have up-to-date market information displayed on their phones.
A world of swinging, scalping and quick profits
To get a better understanding of what the new generation of traders is up to, we spoke to a person who has been doing this for several years. He is considered one of the more experienced and successful traders. He only trades using his own funds, and he asked that his name not be mentioned. We will call him Jack.
Jack said very early on in the conversation that making huge profits with online trading was possible. One could also win the lottery two weeks in succession, but that was extremely unlikely, he added. The problem is that promising the returns that Van Schalkwyk does, is not sustainable.
With so many people trading worldwide, money is obviously to be made from the woes of others. Every “winner” in an online trading transaction needs a “loser” and vice versa. An internationally renowned financial services company, eToro, reported in 2020 that 80% of day traders lost money, with an average loss of 36.3% per year. (Day traders buy and sell stocks or other assets in a single trading day to profit from the rapid fluctuations in prices.)
Some traders can boast an average profit of 2-3% per day, said Jack. These day traders watch the markets closely and capitalise on sudden upward movements in prices. This may not sound like much, but considering that this is the profit for a day, the amount of money is significant. “But that will not happen every day,” said Jack. These traders will watch the markets and only trade when the conditions are favourable.
Apart from the day traders, one also finds swing traders. Whereas day traders buy and sell stocks or assets in a single day, swing traders hold on to these tradable assets for longer, hoping to profit from changes or “swings.” Another trading strategy is “scalping.” This is a trading style that specialises in profiting from small price changes.
Jack mentioned that such trading is not for the faint-hearted, and the risks are very high. You may score big on certain days, but then lose everything the next. The 5% “stop loss” that Van Schalkwyk referred to is also not a guarantee that you will not lose money. “Five percent on a day’s investment is still a lot of money,” Jack said.
If this is so easy, why does everyone not do it?
One of the questions investors in get-rich-quick schemes seem to avoid is how such profits can be made by novices and not by seasoned professionals.
The “king of investing” worldwide is considered to be Warren Buffett. The company he is involved in, Berkshire Hathaway, posted a $22.8 billion loss in 2022, resulting from market volatility. The same can be said for just about all the other top fund managers in the world, with single-digit profits for the year considered to be “above average.”
In South Africa, the situation is not much different. Trying to compare Van Schalkwyk’s claims to well-established local financial firms is not possible without knowing exactly what type of investments are being made, which is also well beyond the scope of this article.
All the financial experts we spoke to were very clear that doubling an investor’s money in just over six months, as Van Schalkwyk is promising, on a continuous basis is not possible. Promising returns of 10% or 12% per month, and even compound interest, is stretching the limits of what even the most opportunistic investor should believe. To achieve a high return on investment in the short term is possible, but this is not sustainable in the long run.
Which is also why the financial-services sector is highly regulated – to protect people from investing in risky schemes that will eventually cause them to lose all their hard-earned savings.
People invest in such risky schemes for a great many reasons, including financial desperation, fear of missing out (FOMO), and a lack of financial literacy. We asked ChatGPT for some advice, and the chatbot concluded with:
“It’s important to note that get-rich-quick schemes are generally ineffective and often fraudulent. They can lead to significant financial loss and emotional distress. Building sustainable wealth typically requires patience, diligence, and a long-term approach to financial planning, investing, and entrepreneurship.”
To get back to Ms James’s question about love, the general consensus is that love should be aimed at achieving the greater good for all, which in this case may be protecting the vulnerable and not the greedy.