South African trading platform faces liquidation

An application for the liquidation of Bafana Bafana-sponsor Banxso has been brought to the Western Cape High Court.

This follows a statement from the Financial Sector Conduct Authority (FSCA) saying that Banxso is allegedly telling its clients that it has been cleared to continue operating when its licence remains withdrawn.

The FSCA provisionally withdrew the licence of Banxso on 16 October following complaints to the regulator regarding Banxso’s conduct and potential breaches of financial sector laws.

This investigation followed reports that the company had been benefitting from ‘deepfake’ adverts promising profits of up to R300,000 a month from an investment of R4,700.

Banxso has been adamant that it has no connection to the adverts which featured Elon Musk, Johann Rupert, and Nicky Oppenheimer. It said it was a victim of hacking.

Some investors who clicked on the ads and gave Banxso their contact details have reported losing millions of rands after trading on the company’s platform.

The decision to provisionally withdraw Banxso’s licence to operate was made after preliminary findings by the FSCA. The investigation is not yet complete, and the company will have a chance to state its case with the regulator.

“The FSCA has taken this step because it is concerned that there may be a risk of harm to clients and/or the general public if Banxso continues its operations,” the regulator said in a statement at the time.

“The provisional withdrawal is based on preliminary investigation findings regarding the activities of Banxso and its possible association with the Immediate Matrix deepfake advertisements.”

Regulators are also concerned about the aggressive and pressurised sales techniques used by Banxso agents when selling financial products to clients.

The FSCA also flagged promises of unrealistic returns and a failure to conduct the required risk and needs analyses prior to directing clients towards specific products.

The FSCA brought the matter to the FIC’s attention earlier this year, prompting it to place a hold on seven Banxso bank accounts.

On 4 October 2024, Banxso approached the Western Cape High Court for an order lifting the hold on the bank accounts. On 8 October 2024, the court ruled against Banxso and the hold was maintained.

The FSCA also brought the matter to the attention of the Asset Forfeiture Unit of the NPA. The National Director of Public Prosecutions successfully applied for a preservation order of the funds in the bank accounts on 14 October 2024.

On 8 November, the court set aside this order, unfreezing R100 million in Banxso’s bank accounts.

However, the court ruling made clear that Banxso shall not withdraw or allow for the withdrawal of any funds in its bank accounts other than for the purposes of migrating clients to an alternative financial services provider (FSP), the FSCA said in a statement on 12 November.

The transfer of funds to an authorised FSP is required because Banxso’s licence remains withdrawn, and as such, it cannot conduct any financial services business.

“Banxso itself cannot deal with the funds in the bank accounts that were preserved,” the FSCA said.

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 is in discussions with Banxso to ensure an orderly transfer of clients.

Despite this, it has come to the FSCA’s attention that Banxso is contacting clients and advising them that it has been cleared to operate and that its licence has been reinstated.

The FSCA said it has interviewed witnesses who have confirmed these allegations and will investigate further.

It will also investigate statements from clients that Banxso is continuing to conduct financial services business in spite of its licence being 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 reiterates that Banxso’s licence has not been reinstated and that it cannot lawfully conduct any financial services business or receive any deposits from clients for such purpose.”

In its statement, the FSCA also said that an application for the liquidation of Banxso has been brought to the Western Cape High Court.

“The Authority is cited as a respondent in the matter, and enquiries about the application should be directed to the attorneys of record for the applicant in the matter, namely Mostert and Bosman.”

The hearing of the liquidation application has been postponed to 4 December 2024. In the meantime, the FSCA’s investigation into Banxso and its offices is ongoing.

Banxso said it was committed to assisting the FSCA in finalising its investigations “with a positive outcome towards the company and its clients”.

It has denied all allegations of financial misconduct and misappropriation.

The company said it is engaging with relevant stakeholders and the FSCA to gather all the necessary facts and understand the full scope of the situation.

The company said it is committed to transparency and regulatory compliance across all its operations.

“Moreover, the company’s primary focus remains resolute on protecting clients’ interests at all costs, and, as such, it will do everything in its power to ensure business continuity as far as possible within the confines of the FSCA’s regulatory processes.”

This article was first published by Daily Investor and is reproduced with permission.