Banxso v FSCA over links to deepfake adverts

Conflicting accounts have surfaced regarding Banxso’s alleged connection to deepfake advertisements that falsely promise high investment returns. The FSCA now suggests a potential link between the Cape Town-based online trading platform and Immediate Matrix (IM), the creators of these ads. But Banxso continues to deny any such association.

In February, Moneyweb reported that Banxso seemed to be profiting from the deepfake adverts. According to Moneyweb’s investigation, people who responded to the ads and signed up on IM’s platforms were quickly enrolled as Banxso customers.

After the FSCA launched an investigation into Banxso’s activities in March, the Authority temporarily withdrew Banxso’s FSP licence in October because of concerns over client safety. That same month, the Financial Intelligence Centre (FIC) froze seven of Banxso’s bank accounts, and the National Director of Public Prosecutions (NDPP) secured a preservation order. However, on 8 November, the High Court in Cape Town lifted the preservation order on the R100 million held in these accounts.

The discharge of the NDPP’s preservation order was primarily a result of a procedural flaw in the manner in which the NDPP approached the court for the granting of the initial ex parte preservation order by not making a full disclosure of certain facts, and not because Banxso has proved that its business model is lawful.

Banxso said the State should have informed the court that Banxso was refunding clients who had been misled by the deepfake videos.

Read: FSCA refutes claim of Banxso licence reinstatement amid ongoing investigation

Although this likely signals the beginning of a protracted legal battle on various fronts, the opposing affidavits submitted in connection with Banxso’s application in the matter between the NDPP and Banxso make for interesting reading.

What Banxso says

On the one side there is the answering affidavit of Manuel de Andrade, Banxso’s chief operating officer.

In his answering affidavit for reconsideration, De Andrade addresses the IM scheme. He states: “It can be taken as common cause that Immediate Matrix has created false and misleading videos and adverts.” He emphasises, “Banxso, however, is not associated with the IM scheme.”

De Andrade states that in February, after the FSCA’s public notice about the IM scheme (issued in December 2023), Banxso received its first direct communication from the FSCA outlining concerns related to the scheme. “At the time, Banxso had only just become aware of the issuer via media reports, and initiated an internal investigation in respect thereof,” he says.

Following this investigation, Banxso concluded that the IM scheme was a cross-site scripting (XSS) cyber-attack that targeted the public, “phishing” their personal information for illegitimate purposes, and redirecting them to Banxso’s website. According to De Andrade, the attackers aimed to exploit Banxso’s systems and domain “using the company’s platform and goodwill to legitimise its maleficent endeavours”.

“In other words, victims of the scheme would use the Immediate Matrix website and click into it, only to be redirected to Banxso’s website. The reason for this redirection is so the ‘click’ from Immediate Matrix appears to be legitimate – the ‘click’ could just as well have been to one of the big banks’ websites, for example. Unfortunately, the IM scheme chose Banxso,” De Andrade explains.

After discovering that the IM scheme had co-opted its business model, Banxso took action to counteract its use of Banxso’s systems. De Andrade states that Banxso identified victims of the IM scheme, informed them about the nature of the fraud, and provided refunds.

“The NDPP refers to ‘roughly 70’ complaints being received. Banxso’s investigation confirms that 70 complaints were received from clients being brought into Banxso’s platform via the IM scheme. Banxso has had 27 600 clients trade on its platform. Complaints deriving from the IM scheme therefore account for 0.25% of Banxso’s total business,” he notes.

De Andrade elaborates that Banxso identified and responded to each complaint related to the IM scheme.  Out of the 70 complaints – amounting to a total investment amount of R14 104 839.43 – 65 clients have been repaid.  “The five complainants which have not been refunded have been contacted by Banxso. However, the complainants have been unresponsive,” he states.

He further asserts that the FSCA was aware that Banxso was not associated with the IM scheme.

De Andrade also mentions a phone call referenced in a replying affidavit in the matter involving Banxso and the FIC, Standard Bank, Nedbank, and Capitec.

It is claimed that on 22 April, Banxso’s chief legal officer, Lara Hughes-Thom, had a phone conversation with Gerhard van Deventer, the FSCA’s divisional executive for enforcement, during which the IM scheme was discussed.

“During this call, Mr Van Deventer in no uncertain terms confirmed to Mrs Hughes-Thom that the FSCA were satisfied that the IM scheme was a ‘scam unrelated [to] Banxso in any way’. Mrs Hughes-Thom requested this confirmation in writing, to which end Mr Van Deventer responded that the conclusion would form part of the FSCA’s final report,” De Andrade alleges.

What the FSCA says

Then there are the replying affidavits of Sanele Magazi, the FSCA’s lead investigator, and Van Deventer.

The FSCA’s investigation into Banxso began in March. In an affidavit dated 28 October, Magazi states that he and his colleagues are conducting extensive analyses of the documentary evidence received from Banxso and other parties, as well as large volumes of telephone recordings between Banxso’s representatives and its clients, “which will be incorporated into a final report”.

Magazi notes that although the investigation into Banxso is ongoing, it is nearing completion. “I therefore reply on the basis of the evidence that has been collected to date, and that will be taken up in the investigation report,” he states.

He disputes De Andrade’s assertion that Banxso was not linked to the IM scheme, arguing that Banxso cites clickbait as the reason for its apparent connection to IM. However, he points out a flaw in Banxso’s reasoning.

He explains that clickbait advertisements are designed to capture attention and drive clicks to a website, thereby generating advertisement revenue. Each time someone clicks on a monetised website or a hosted link, it produces revenue.

“In essence, there are two parties involved: the link or service provider (in this instance, Immediate Matrix) and the benefiting party (in this instance, the respondent). The benefiting party (the respondent) gains from the traffic directed or redirected to its website. It is clear in the present case that the respondent benefitted at every turn of the redirected traffic.”

He continues by explaining that IM benefits from generating advertisement revenue.

“Such advertisement revenue is funded by the owner of the benefiting website (the respondent). This leads to a strong inference that there must have been some form of arrangement between Immediate Matrix and the respondent. If not, the actions of Immediate Matrix would make no commercial sense, as it would not be rewarded for its extensive efforts because it would not receive any advertisement revenue,” states Magazi.

Responding to De Andrade’s assertion that client complaints related to the deepfake scams account for less than 0.25% of Banxso’s total business, Magazi states, “it is not correct”.

He bases this on Banxso’s own claim that deepfake-related investments amount to R14 104 839 of its book. According to Magazi, the most recent figures show that client investments from the deepfake scam exceed R35 million.

“However, this only represents complainants known to the FSCA at this point in time, and only for the period July 2024 to October 2024. To provide perspective, we believe that the deepfake scams that benefited the respondent aired from at least July 2023 to date. This belief is premised on the fact that some complainants referred to seeing deepfake advertisements around July 2023.”

Magazi adds that he expects this number to increase significantly, as the FSCA continues to receive additional complaints, with the most recent one as late as 25 October. “The new complainants specifically mention that they were influenced by the deepfake advertisements,” he states.

Regarding Banxso’s claim that it has already started refunding complainants, Magazi asserts that Banxso has not disclosed material facts to the court. He alleges that some complainants have revealed that Banxso is pressuring them to accept settlement amounts that are substantially lower than their invested capital.

“In addition, the respondent is offering them a trade credit on the platform (a so-called bonus), instead of an actual payout.”

Commenting on the alleged phone call with Hughes-Thom, Van Deventer notes that he does not recall this specific conversation. However, he adds that he had multiple telephone conversations with Hughes-Thom at the beginning of the investigation when the IM scam surfaced, which likely included discussions about Banxso’s role in the scheme.

He states he is uncertain whether he would have conveyed his opinion at the time with the same level of certainty described in the answering affidavit, noting that any opinion he expressed would have only been a preliminary view of the case.

Van Deventer notes that, at the time of the alleged conversation, the FSCA investigation team had just begun its inquiry. “The prudent course of action” was to conduct a comprehensive investigation into Banxso’s involvement, given that Banxso was licensed by the FSCA as a financial services provider.

“However, at that stage, we had very little evidence to believe that the respondent may be involved. My team had just interviewed the chief technology officer of the respondent, whose evidence was exculpatory of the respondent, and they would have reported back to me on it. It certainly did not seem improbable at the time that the respondent was not involved.”

Van Deventer notes that since then, the FSCA has carried out an extensive investigation, which included:

• Interviews under oath, affidavits, and information gathered from key persons at Banxso, its clients, international financial regulators, the South African Reserve Bank, and the FIC.
• Data obtained from open-source intelligence, website analytics, hack test results, emails, crypto wallets, tracing efforts, and company records.
• Comprehensive analyses of at least eight bank accounts and cryptocurrency transactions.

“The team has uncovered material additional evidence, including voice-call recordings of the respondent’s representatives with its clients. In my view, this additional evidence is convincing and incriminating of the respondent,” Van Deventer states.

He further adds that if he held a preliminary view in April, he no longer holds that view today. “I believe our investigation has shown that, as a low water mark, there must have been some form of arrangement between the respondent and Immediate Matrix.”

Van Deventer also notes that his current view is supported by “convincing” evidence included in the founding affidavit of an investor in the liquidation application filed in the High Court on 25 October. “I mention that it is convincing because it aligns with and is corroborated by the evidence uncovered during the FSCA investigation.”

What investors say

In the application to place Banxso under provisional liquidation, the applicant – a 60-year-old pensioner – claims a liquidated claim of at least R500 000 against Banxso, asserting that the company is unable to repay the amount because it is commercially and factually insolvent.

In the founding affidavit, the pensioner outlines the sequence of events as follows.

In early July 2024, she encountered an online ad featuring a video clip of a televised interview between SABC presenter Sharlene Rood and Elon Musk, promoting an investment opportunity with “Immediate Matrix”. The ad suggested that investing R4 700 could yield R34 300 within a week.

After clicking the registration link and filling out an online form, she immediately received a call from a woman named Akona, claiming to work for Banxso. Akona advised her to make an initial deposit of R1 800 and assess the results before investing more.

Upon depositing R1 800, she was assigned a “success manager” named David, who directed her to make specific “buy” and “sell” trades, resulting in an immediate R900 profit. On August 25, she deposited R10 000, followed by an additional R20 000 on August 27, based on David’s urging that “the market was doing well”. After these deposits, she was informed of a further R5 000 profit.

The pensioner stated that David continued calling her with increasing pressure to invest more. Under promises of significant returns, she deposited R470 000 on 6 September, which, according to Banxso’s platform, showed a R200 000 profit. However, by September 24, she began receiving alerts from the Banxso app and discovered her entire investment had been wiped out due to apparent trading losses.

When she tried to file a complaint with Banxso’s support team, she received another call from David. “He said that if I invest a further R500 000, Banxso would also contribute R450,000,” she said.

Realising something “sinister was going on”, she informed David she would consult an attorney. “To date, I have not received any further advice from Banxso.”

According to Pierre du Toit, the attorney from Mostert and Bosman (M&B) representing the pensioner, the grounds for seeking a liquidation are “the fact that Banxso’s business model is unlawful, which results in all agreements with clients being void and, consequently all clients being entitled to recover the capital amounts which they have deposited with Banxso”.

In a supplementary affidavit submitted on 6 November, Du Toit claimed that the number of clients “lured to Banxso through the deepfake advertisements” is significantly higher than the original group of 70 who filed complaints with the FSCA.

Moonstone reached out to Du Toit for an update on the application proceedings. Du Toit stated that as of 12 November, M&B had been contacted by 12 additional investors who expressed dissatisfaction. These investors, citing combined losses exceeding R68 million, have requested M&B’s representation to share their experiences with Banxso in support of the liquidation application.

A dedicated website was launched for affected clients of Banxso to register their information and report investment losses. By the same date, 160 investors had signed up, reporting collective losses amounting to R188 million.

According to Du Toit, most of these clients indicated that they had responded to the deepfake online advertisements.

“This is in stark contrast to Banxso’s version in the opposition to the NDPP’s preservation application, where they allege that only 70 clients were onboarded as a result of these deep fake advertisements and that they have refunded almost all of these clients, whose claims were approximately R14m,” he said.

The hearing of the liquidation application has been postponed to 4 December.