The Plight of Victims of Economic Crime: Investors as Victims
| Published date | 01 February 1999 |
| DOI | https://doi.org/10.1108/eb025901 |
| Date | 01 February 1999 |
| Pages | 311-322 |
| Author | Hendrik C. Nel |
| Subject Matter | Accounting & finance |
Journal of Financial Crime — Vol. 6 No. 4 — Analysis
The Plight of Victims of Economic Crime:
Investors as Victims
Hendrik C. Nel
An 'investor' is defined by the Oxford Dictionary as
'one who invests money'. However, this traditional
definition does not include the other stakeholders in
the modern corporation: persons such as employees,
members of the pension fund, suppliers, the assured,
depositors and the large numbers of people whose
savings are invested by institutional investors.
In modern economies, all members of society are
actively encouraged to save some portion of their
earnings and to invest it in pension funds, unit
trusts,
life insurance policies, listed companies and
the like. They are encouraged to do so because
usually no other means exist which could enable
them to achieve capital growth and to provide for
their old age. Usually unable to depend upon their
own resources, they place their futures in the hands
of professional advisers or managers of investment
schemes or rely on the pension schemes of their
employers.
Fraud is as old as recorded history
itself,
but fraud
which affects large numbers became possible with the
advent of the modem company. According to some
sources, company frauds at the time of the collapse
of the South Sea Company (1720) 'beggared half of
London'.
After a century of attempted suppression of
companies in England, the industrial revolution and
the necessity to raise capital from large numbers of
people led to the repeal of the 'Bubble Act' in 1825
and the appointment in 1844 of a Select Committee
under the chairmanship of Gladstone, 'to inquire
into the State of Laws respecting Joint Stock Compa-
nies ... with a view to greater Security of the Public'
The Committee reported that,
'The amount of plunder levied by Companies of
this description ... falls with great weight on the
sufferers, who are generally persons of limited
means... the extent of the evil is to be measured
rather by the circumstances of the victims than
by the amount of the plunder. They are usually
persons of very limited means, who invest their
savings in order to obtain the tempting returns
which are offered. Annuity Companies have
proved the most dangerous in this respect. Old
people, governesses, servants and persons of that
description, are tempted to invest their little all,
and when the concern stops, they are
ruined.'1
Pensioners and pension funds are still and will remain
prime targets. For instance, in the UK, hundreds of
millions were lost by the pension funds of the
Maxwell Group and recently in South Africa more
than R36m from a pension fund, with 280 active
members and 65 pensioners, was diverted to another
company and lost.2
The following appeared in the Saturday Argus,
29th August, 1998 under the heading 'Elderly the
hardest hit in R187-m debacle'.
'Investors, depending on their investments, stand
to lose up to 95c in the rand when the R187 mil-
lion Proplace scam is wound up, fund managers
say. Robert Cameron-Ellis of Deloitte &
Touche, who has been appointed by the Registrar
of Banks to wind up the scheme and pay out inves-
tors,
says investors are owed R187 million but only
R57 million is available to be paid out to the more
than 1,050 people who invested in the scheme.
Criminal charges are to be laid against the man
who headed Proplace, Tony Maniachi, who has
skipped the country and is thought to be living
in the Lebanon.
Proplace lured investors with promises of
guaranteed returns of up to 16 per cent with tax
advantages through investments in endowment
policies with the big assurance houses such as
Old Mutual, Sanlam, Southern Life, Fedlife, and
Norwich. Investors, mostly elderly people,
handed over money and Proplace promised to
buy endowment policies on their
behalf.
But the
Deloitte & Touche accountants have found the
promised policies were not always bought; some
were used to cover several investments and those
who invested small amounts were not issued
with policies in their own name.
Cameron-Ellis, who broke the bad news to
investors at a packed meeting in Johannesburg
Page 311
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