Business Practices Committee Report 80

It is almost certain that Propalux transgressed the order issued by the Minister about multiplication schemes. The Minister declared harmful the practice whereby, in the course of business, any person who operates a multiplication scheme, offers or promises or guaranteeing an effective annual interest rate of 20 per cent and more above the REPO rate, as determined by the South African Reserve Bank, to any investor, whether or not the investor becomes a member of the lending entity. The applicable REPO rate is that which applied at the date of the investment. The effective annual interest rate is:

where:

r = the effective interest rate,

R=the interest in rand, which is the difference between the amount paid out to the investor and the amount invested,

C = the amount Invested by the investor or any amount paid by a person to become a member of a scheme, and

T= the period of the investment In months.

This report will be brought to the attention of the Commercial Crime Unit of the South African Police Services.

It is clear that various sections of the Companies Act have been transgressed by Mthombeni, his fellow directors and the companies concerned. This report will also be brought to the attention of the South African Companies Registration Office.

During 1994 the former Business Practices Committee (BPC) Investigated the business practices of Afri-Unity Homes CC, Stander, Handke, Kadir, Swart and Bluequest International Group (Pty) Ltd. These persons and entities represented, through its numerous agents as well as directly, that it could build or sell houses in the townships surrounding Cape Town. Anxious potential home owners were required to make an immediate payment of an initial joining fee or administrative fee of R180 and monthly repayments for a period of 24 months in order to "qualify for the house". No homes were forthcoming. The persons and entities investigated failed to keep proper accounting books and the BPC said in Report 34: Afri-Unity:

"They (the consumers) were grossly misled. Afri’s accounting records and financial affairs were and are In a complete disarray. The total absence of an operational accounting system and commingling of the affairs and funds of Bluequest, AM and the Standers meant that the management of Afri had no means of understanding and appreciating the financial state of the firms. These factors were prejudicial to all Afri’s and Bluequest’s clients".

This paragraph applies to Propalux, the other companies and Mthombeni. The clients of Propalux were grossly misled. The absence of rudimentary accounting records and the almost total absence of an operational accounting system together with the commingling of the affairs and funds of Mthombeni and the companies meant that Mthombeni and his fellow directors had no means of understanding and appreciating the financial state of the various businesses. These factors are prejudicial to all the clients of Propalux and the other companies. It is not possible to pay the returns offered by Propalux. The interest paid to the earlier investors is without doubt paid from deposits taken from more recent investors.