The FSCA has set the record straight following claims that Banxso has been “cleared” and its licence has been reinstated, allowing it to offer financial services. The Authority confirmed on Tuesday that the licence of the Cape Town-based online trading platform has not been reinstated, and it is not permitted to conduct financial services or accept client deposits.
In October, the FSCA provisionally withdrew Banxso’s FSP licence over client safety concerns amid an investigation into its operations. The Authority also stated that it had brought the investigation and the preliminary findings to the attention of the Financial Intelligence Centre (FIC) and the Asset Forfeiture Unit (AFU) of the National Prosecuting Authority (NPA).
It has been alleged that Banxso is linked to deepfake ads featuring prominent figures such as Elon Musk and Johann Rupert. The ads promised unrealistic returns and were traced to Immediate Matrix – an entity against which FSCA warned in December.
Banxso denies it is involved with the ads.
The FSCA’s investigation, prompted by numerous complaints, found evidence of aggressive sales tactics, promises of unrealistic returns, poor client assessments, and client losses.
In its statement released on Tuesday, the FSCA addressed reports that Banxso has been contacting clients, claiming it “has been cleared”, its licence reinstated, and it is authorised to provide financial services.
“The Authority has interviewed witnesses who have confirmed this and will investigate these allegations further.”
In a comment to BizNews, Banxso stated it was investigating reports of agents falsely claiming its FSP licence had been reinstated.
“We take these claims seriously… We want to make it unequivocally clear that this is not the case, and any such statements are not endorsed by Banxso,” the company said, adding that it had informed its 200 employees and service providers.
Banxso acknowledged ongoing legal proceedings, including a court application for liquidation.
“We are actively opposing this matter with a court date set for 4 December 2024.”
The company stated it is working “diligently” to process client withdrawals in line with the court order, pending the release of funds from banking partners.
The FSCA is also investigating claims from clients who allege that Banxso is continuing with financial service operations despite its licence being provisionally withdrawn. “The information received by the FSCA indicates that clients are encouraged to commit more funds to Banxso to recover losses made in trading,” the Authority said.
The FSCA is continuing to investigate Banxso and its officers.
Preservation order lifted
The recent allegations of Banxso contacting clients under false pretences follow the High Court’s decision to lift a preservation order on R100 million held in bank accounts linked to the company.
The FIC placed a hold on seven Banxso bank accounts on 2 October. The FIC took this step under section 34 of the Financial Intelligence Centre Act, suspecting that the transactions in these accounts were the proceeds of unlawful activities.
The FIC’s decision followed the FSCA’s request to freeze the accounts and alert the AFU.
On 14 October, the National Director of Public Prosecutions (NDPP) obtained a preservation order for the funds under section 38 of the Prevention of Organised Crime Act (POCA), reinforcing the legal grip on Banxso’s assets.
According to Fin24, the High Court lifted the preservation order on Friday.
In an urgent motion on Thursday, Banxso argued the order was flawed because the NDPP withheld information. Counsel for Banxso said the State should have informed the court that Banxso was refunding clients who had been misled by the deepfake videos.
Although the preservation order has been lifted, the court ruled that Banxso cannot withdraw or permit the withdrawal of any funds from its bank accounts, except to migrate clients to an FSCA-authorised financial services provider. The Authority explained that this measure is necessary because Banxso’s FSP licence remains withdrawn, prohibiting it from conducting any financial services.
“Banxso itself cannot deal with the funds in the bank accounts that were preserved. It is also a condition of the provisional withdrawal of Banxso’s licence that it must transfer all its clients to an authorised financial services provider,” the FSCA stated.
The Authority confirmed it is in discussions with Banxso to ensure a smooth transfer process for its clients.
Application for liquidation
In February, Moneyweb reported that Banxso seemed to be profiting from the deepfake adverts, which promised absurd profits. According to Moneyweb’s investigation, people who responded to the ads and signed up on Immediate Matrix’s platforms were quickly enrolled as Banxso customers.
Manuel de Andrade, Banxso’s chief operating officer, has stated that the company has no connection to the adverts and claimed it was a victim of hacking.
In an answering affidavit in reconsideration of the NDPP’s preservation order, De Andrade claimed that of the 70 complainants identified by the NDPP regarding the Immediate Matrix scheme, Banxso has already initiated a process to refund them – “while there are some unresolved complaints, Banxso knows the value of these deposits”.
On 25 October, a former investor applied to the High Court to place Banxso under provisional liquidation. The applicant 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.
According to Pierre du Toit, the attorney from Mostert and Bosman (M&B) representing the investor, 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”.
“Banxso is not in a position to pay all these clients/creditors and is therefore both commercially and factually insolvent. In addition, it is also just and equitable, as provided for in the Companies Act, that Banxso be liquidated, as it is conducting its business in contravention of numerous statutory provisions and is defrauding the public on a large scale,” Du Toit said.
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.
He further claimed that the “so-called settlement agreements and refunding of clients” were not actual repayments of the clients’ funds but “paper credits” (known as trading credits) granted in favour of certain investors in their trading accounts on Banxso’s platform.
“The ‘credits’ were made available to investors to purportedly afford them an opportunity to recoup their losses by continuing trading through Banxso’s platform. The credits cannot be withdrawn in cash by clients,” Du Toit alleged in the affidavit.
Due to the media spotlight on the POCA application and the liquidation bid, M&B has been approached by 12 additional dissatisfied investors. These investors, reporting combined losses exceeding R68m, have requested M&B’s representation to present their experiences with Banxso in support of the liquidation application.
A website (https://banxso.liquidations.africa/) has been launched for Banxso’s affected clients to register their details and report their investment losses. Thus far 160 investors had signed up, collectively reporting losses totalling R188m.
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.
Du Toit said the discharge of the preservation order has no effect on the liquidation process. However, he noted that the practical effect is that it may result in the available funds being dissipated by the time that a liquidation order is granted.
“The unfreezing of the preserved funds has no positive implications for any of the clients of Banxso who suffered losses. Any payments to creditors that Banxso may make in the foreseeable future may potentially also constitute impeachable dispositions in terms of the provisions of the Insolvency Act.
“This is based on the principle that all creditors have to be treated equally and that certain creditors cannot receive beneficial treatment by receiving payment of claims, whilst other creditors are not being paid. This applies to all payments six months prior to liquidation.
“In terms of the Companies Act, the effective date of the liquidation is the date on which the application was issued – that is, 25 October 2024. This becomes in operation retroactively on the day that a provisional liquidation order is granted.”
Moonstone reached out to Banxso’s public relations department for comment, but no response was received by the time of publication.
The hearing of the liquidation application has been postponed to 4 December.
