S v Prinsloo and Others

• Jurisdiction: South Africa
• Judge: Brand JA, Fourie AJA and Eksteen AJA
• Judgment Date: 04 December 2015
• Hearing Date: 18 November 2015
• Docket Number: 827/2011 [2015] ZASCA 207
• Citation: 2016 (2) SACR 25 (SCA)
• Court: Supreme Court of Appeal
• Counsel: L Augustyn for the first appellant, instructed by the Justice Centres, Pretoria and Bloemfontein. HF Klein for the second appellant, instructed by the Justice Centres, Pretoria and Bloemfontein. WA Smit for the third, fourth and fifth appellants, instructed by the Justice Centres, Pretoria and Bloemfontein. C de Beer for the sixth appellant, instructed by the Justice Centres, Pretoria and Bloemfontein. GC Nel SC (with AV Rossouw and DWM Broughton) for the state.

Fourie AJA and Eksteen AJA: A

Introduction

[1] In 1919 Italian immigrant Charles Ponzi of Boston, Massachusetts, United States of America (US), devised a scheme by which he enticed B some 11 000 Bostonians to invest approximately USD20 million with him, promising exceptionally high rates of return within a short period of time by purchasing international reply coupons from other countries and then redeeming them in the US for postage stamps. Initially he was able to pay these exorbitant returns to previous investors by simply drawing from the capital investments received from subsequent investors. However, C seeing that the scheme was not based upon any viable underlying economic enterprise, it eventually had to collapse when no more investors could be persuaded to make further investments. Hence, schemes of this nature have, down the years, become known as Ponzi schemes.

D [2] This appeal has its origin in a similar scheme which had been conducted during the period 1 March 1998 to 22 May 2002, initially only within the Vaal Triangle area 60 km south of Johannesburg, but was later also countrywide. The scheme was initiated by the first appellant, but subsequently the second to sixth appellants became involved at E different times and in different capacities. It is common cause that during the four years of its existence, approximately R1,5 billion was invested in this scheme and upon its demise scores of investors had lost all their money and were left destitute. The state contended that what the appellants had conducted was a Ponzi or multiplication scheme, and in view thereof a plethora of criminal charges preferred against them. In F fact, the final indictment contained no less than 218 683 charges.

[3] The appellants, to whom we shall conveniently refer as 'the accused', were arraigned on these charges in the North Gauteng High Court, Pretoria, and their trial commenced before Pretorius J and two assessors G on 27 July 2009. The accused pleaded not guilty to all the charges, but after hearing evidence, Pretorius J, on 8 June 2010, found each of them guilty on a large number of the counts preferred against them. We shall in due course refer to the specific counts, but should mention that the accused were found not guilty on some 1000 counts. They were subsequently sentenced to terms of effective imprisonment, ranging from H 25 years to five years. We shall also in due course return to the sentences so imposed.

[4] The accused are appealing, with the leave of the court a quo, against such convictions and sentences. The state, also with the leave of the court a quo, appeals against the sentence imposed on accused six in I respect of count 218 657.

Dramatis personae

[5] The first accused was the main role player in the scheme. She initiated the scheme in 1998, and it is common cause that, at all times, J she was at the forefront of this enterprise.

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[6] The second accused joined the scheme in the first half of 2001 and A acted as a public official or an office bearer of two entities utilised to conduct the scheme. He married the first accused in December 2001. They were divorced during the course of the trial.

[7] The third accused is the daughter of the first accused. She joined the B scheme in April 1998 and acted as a public official or an office bearer of four of the entities involved in the scheme.

[8] The fourth accused is the husband of the third accused and the son-in-law of the first accused. He joined the scheme in January 1999 and acted as a public official or an office bearer of three of the entities utilised to conduct the scheme. C

[9] The fifth accused is the son of the first accused. He joined the scheme in July 1998 and acted as a public official or an office bearer of two of the entities utilised to conduct the scheme.

[10] The sixth accused is the niece of the first accused. She joined the D scheme in October 1998 and acted as a public official or an office bearer of two of the entities utilised to conduct the scheme.

Chronology of relevant events

[11] The accused did not (and could not, in view of the uncontested E objective evidence) seriously contest the notion that the scheme operated by them was in fact a Ponzi scheme. The evidence clearly showed that the underlying cash-loan businesses conducted by the first accused never generated sufficient income to meet or sustain the interest payments to be made to investors. In the result investors' capital was used to satisfy the interest commitments. The essence of the business of the scheme was F the taking of deposits, initially at a return of 20% per month but later mostly at a return of 10% per month. As a matter of course, the scheme was therefore insolvent ab initio and constituted a Ponzi scheme.

[12] We do not consider it necessary for purposes of this judgment to engage in a detailed summary of all the events giving rise to the charges G preferred against the accused. This laborious task had been undertaken by the trial judge who produced an exceptionally detailed judgment of 1159 pages. We shall merely refer to the events constituting the factual matrix necessary for the consideration of the appeals brought by the respective accused. H

[13] Reverting to the nature and extent of the scheme, it appears that the first accused commenced her cash-loan business in March 1998 under the name and style of Finsure Consultants. Investments were procured from the public at an initial return of 20% per month. In October 1998 the business was converted to a close corporation styled MP Finance CC I t/a Finsure Consultants. The first accused was the only member, but on 29 December 1998 the members' interest was restructured so that she held 60% and the third and fifth accused 20% each.

[14] In the period between 1 March 1998 and 28 February 1999 deposits by investors of R1,57 million were received, whilst R1,4 million was J

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A owed to the investors in interest. This was not reflected in the financial records of the close corporation for the 1999 tax year. They reflected a gross income of R176 478 only, with a net profit of R10 608 before tax.

[15] On 29 February 2000 deposits were held in an amount of R20,65 million. The interest commitment for the period between B 1 March 1999 and 29 February 2000 was R14,9 million. This was yet again not reflected in the financial records of the close corporation, which reflected a gross income of R1,7 million with a net profit of R4530 before tax.

[16] Following an inspection by the Department of Trade and Industry C (the DTI) on 10 May 2000, the first accused represented in writing to the DTI that —

(a)

all investors were repaid on 11 and 12 May 2000;

(b)

the investors were family members and friends who were shareholders and paid dividends based on profits; and that

(c)

there were only 33 investors who invested a total amount of D R682 750.

[17] However, as it transpired subsequently, members of the public who had invested in the scheme did not receive payment of their investments and on 13 May 2000 the total value of these investments was approximately E R37 million.

[18] During May 2000 a new entity entered the fray, namely a company by the name of Madikor Twintig (Pty) Ltd (Madikor). On 18 May 2000 documentation was lodged with the registrar of companies, appointing the first, third, fifth and sixth accused as directors F of Madikor.

[19] In the period between 10 May 2000 and 17 January 2001, 2450 deposits to the value of R131 million were received from members of the public by Madikor. While 'investments G certificates' were issued for deposits received in Finsure Consultants and MP Finance CC, 'share certificates' were issued for deposits received by Madikor. However, during the period June 2000 until April 2002, investor statements were issued in the name of 'MP Financial Services'. These statements listed all investments by and payments to investors, irrespective of the entity used or the fact that an investment in one entity may have been H converted to an investment in another.

[20] On 25 October 2000 an enquiry was made by the South African Reserve Bank (the SARB). This resulted in a written response by the attorneys of the first accused on 11 December 2000, in which it was —

(a)

acknowledged that deposits were taken in contravention of the I Banks Act 94 of 1990 (the Banks Act); and

(b)

undertaken that deposits received would be repaid by 15 January 2001, of which proof would be submitted to the SARB in January 2001.

A list of 105 investors in the amount of R2 996 700 was attached to this letter. However, it is common cause that, on 11 December 2000, there J were in fact 2461 active investments with a total value of more than

Fourie AJA and Eksteen AJA

R126 million, while the underlying business of the scheme at no stage A realised sufficient profit to service the resulting debt payable to these investors at a rate of R13,4 million per month. Needless to say, investors were not repaid as had been undertaken in the letter addressed to the SARB.

[21] On 19 March 2001 an application for membership, dated 30 January 2001, B was filed on behalf of MP Finance SACCO with the Savings and Credit Co-operative League (SACCOL). It appears from the application that an inaugural general meeting of MP Finance SACCO was held on 15 January 2001, where it was decided that the first accused would act as its chairperson and the third accused as treasurer. The fourth accused signed the application as 'member'. However, on 26 March 2001 SACCOL C refused the application for membership.

[22] Notwithstanding the refusal of the application lodged by MP Finance SACCO, deposits...