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Legal City :: Your Online LEGAL Partner

You and Your Rights

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You and Your Rights

Please note that since this book was last published in 1997 some of the laws that have been referenced may have changed. We are doing our best to update the articles, however, it is advisable that you to consult an attorney before relying on any information contained herein.

Scams And Other Money-making Schemes

When bargains are often not what they seem

There are many people trying to get you to part with your money, some honestly and some dishonestly. Be very careful when-ever you are made an offer which seems too good to believe - there may well be a hidden catch.

Loss leaders

Many shops advertise low prices on specific goods which may be real bargains. This is often a selling strategy because, even if one item is sold at a loss, the owners know that many customers are likely to spend more money once they are inside the shop. Loss leaders lull customers into thinking that the other goods in the shop are also bargains.

...99c

If an item is marked 'R19.99', this creates the impression that it costs about R19. Actually, it costs about R20 - only one cent less than the higher rand amount. Similarly, something marked 'R49.95' is only five cents short of R50. Mentally adjust this kind of price to the higher figure so that you are clear about how much you are really spending

Case History - The Nigerian 419 scam

Even though the Nigerian consulate has repeatedly taken out newspaper advertisements to warn South Africans of the '419 scam', many companies and individuals have lost large amounts of money. It is known by this name because it is outlined in Section 419 of the Nigerian penal code. The scam takes one of the following forms:

  • A specific individual or organisation is contacted by post, fax or courier and made a business offer promising a profit of millions of dollars. The target is offered a share of the proceeds of a lucrative contract, usually from an inflated contract carried out at the Kaduna Refinery run by the Nigerian National Petroleum Company. Victims are persuaded that millions of dollars will be transferred into their bank account if they send blank invoices and bank account information for the transaction and that they will be able to keep a large percentage for their help. Once the documents have been provided, the fraudsters have the tools they need to defraud the company;
  • In another version, the victim may be asked to provide goods (such as gold watches) or money in advance for bribes to make sure the deal can go ahead;
  • Sometimes victims have been persuaded to attend a meeting in Nigeria where they have been detained or their passports withheld until the fraudsters receive the money.

Because transactions of this kind often involve illegal actions and exchange control regulation infringements, victims often keep quiet about what has happened to them.

Dishonest advertising

Shops may advertise 'closing-down sales' when in fact they have no intention of closing and are just trying to attract customers. Sometimes an item is advertised at a low price but when you inquire about it, the salesperson tells you that that particular item is 'sold out'. The salesperson, having got your attention, then tries to take advantage of you by trying to talk you into buying something more expensive.

Fake prizes

Some 'hard-sell' marketing campaigns take the form of sending you a letter or telephoning you to say you have won 'a prize', all you have to do to collect it is to attend a sales seminar...

Lotteries and gambling machines

Although any person who holds a ticket in a lottery stands just as much chance as any one else to win the prize (providing all the tickets are sold), the chance of any one person winning a national lottery is probably millions to one against. The chances of winning a lot of money on a gambling machine are also very small. The only reason lottery and gambling companies continue to operate is because they are taking in relatively large amounts of money and paying out relatively small amounts. This applies as much to schemes that are run 'for charity' as it does to others which are unashamedly run for profit.

Fake goods and inaccurate labelling

If you buy a leather jacket at an unbelievably low price, or a piece of jewellery, or a watch, or a brand-name piece of clothing, make sure it really is what the label or salesperson says it is. The 'leather' may be vinyl, that 'diamond' a piece of polished glass, and that brand-name watch or piece of clothing a cheap fake. Even if items are real, they may be of very poor quality, or they may be stolen, in which case any guarantee is invalid. Find out what you can do if you are not satisfied before you part with your money. If you have any doubts about the goods or the vendor, walk away. Buying 'cheap' might actually be throwing your money away on junk.

Case History - The Kubus Kwekery sour milk lottery

In January 1984, Adriaan Alettus Nieuwoudt placed a newspaper advertisement inviting members of the public to earn more than their present salary by 'cultivating vitamin plants in a glass'. In order to participate in the scheme, customers would have to send R30 to Kubus Kwekery for an 'activator', a substance that would enable them to cultivate a milk culture known as 'kubus'. 

The first crop of kubus, it was advertised, could be harvested after seven days, and after that on a weekly basis. Commencing two months after the purchase of the activator, Kubus Kwekery undertook to buy back from the customer a 'dried product' derived from the kubus crop at a rate of R10 per unit delivered. Customers could not deliver more than one unit per week to Kubus Kwekery for each activator acquired by them, although they could buy as many activators as they wished. Each activator would - at least in theory - yield, after two months, a permanent income of approximately R40 per month. 

The company put large quantities of the dried product returned by growers, together with the envelopes into which it had been packed, through a mill and ground it into a powder, which was then parcelled and resold as new 'activators'.

  • The Cape Supreme Court held that the kubus scheme was an illegal lottery - the ability of Nieuwoudt to pay participants for the kubus they had grown depended upon prior sales, to other growers, of 'activators' used to cultivate the kubus, and participants could not influence the point - which would inevitably be reached - at which Nieuwoudt would run out of funds with which to meet their claims.

(Rousseau & other NNO v Visser & another, 1989)

Defective goods and defective backup

Some goods that are sold at attractive prices are actually rejects, defective in some way, or outdated. Good rules of thumb are to find out as much as you can from more than one source about what it is you are buying, and only to buy from established dealers who have a reputation of offering good backup service. Even honest dealers who sell defective goods in good faith may be too small to be able to offer a speedy and effective backup service. Beware also of dealing with people who may not be in business for long enough to be able to honour the guarantee they have promised you. Try to make sure that the goods you buy are guaranteed by the manufacturer and that you keep your proof of purchase so that you can make a claim if necessary.

Investments offering unrealistically high returns

Be suspicious of any investment offering a rate of return which is significantly higher than that which is available elsewhere in the market. You may be buying into a pyramid scheme, one which is able to pay investors the advertised rate of return using the money of new investors rather than any real return on an investment. When the rate of new investors starts slowing down, such a scheme will be unable to meet its payment obligations.

Chain letters

Chain letters are very similar to pyramid schemes. You may receive a letter in the post promising you large amounts of money if you send money to the addresses on the letter, photocopy the letter with your own name on it and send a certain number of copies to other people. As is the case with other pyramid schemes, those who are in on this scam early will make money, latecomers always lose as the letter loses momentum. Some chain letters do not involve money - they promise good luck if you pass the letter on and bad luck if you do not.

Property scams

Make sure that property developers are able to stick to their promises. For instance, in a new development there may not yet be stormwater drainage, sewerage, street lights, electricity or roads although the developer might claim that all these things will be provided by the government. Find out whether this is true and do not buy if you have any doubts. Also, check the track record of a property company before having any dealings with it.

Gambling games on the street

You may see a group of people playing a gambling game on the pavement. One such game is played with a number of bottle tops. A stone is put under one of the bottle tops and they are moved around. A number of bystanders stand around and bet on which one is hiding the stone. The betters, who are really all in collusion with one another, draw gullible passers-by into the game. By sleight of hand, the tops are manipulated so that, once newcomers have risked their money, they lose the bet. If betters are cautious and initially only bet a small amount, the tricksters may be willing to allow them to win in order to build up the confidence to risk a large bet.

Case History - The USM investment bubble

For nearly seven years the directors of SA Unlisted Securities Market Exchange (usm) ran an 'investment bubble' based on pyramid-sales or chain-letter technique. People were invited to invest their money on the promise of excellent returns. They were told they were buying shares in companies which were due to be listed on the Johannesburg Stock Exchange and that these shares would be bought back at the end of three years at between 15 per cent and 22 per cent more than they initially paid for them. Investors were paid from money coming in from new investors and from the huge profits usm made from reselling shares at a higher price to other gullible investors. 

The chain was finally broken when an investor complained to the Harmful Business Practices Committee that her letters were not being answered. After investigating usm, the committee put an end to the scam.

Confidence tricksters

Be careful of anyone coming up to you trying to sell you something, or trying to get you to give donations to causes you have never heard of, or asking you to give them money on the promise of receiving something later. Confidence tricksters may try to gain access to your house claiming to be police officers, government inspectors or people who do repairs. Demand proof of identity and telephone the person's employer whenever you are unsure about whether an official is genuine or not. One popular confidence trick is for a group to approach a person in a public place and ask an easy quiz question. The person is congratulated on winning a prize when the correct answer is given.

Having won the victim's confidence, the con artists then say they know how to double a large sum of money immediately. The person is encouraged to draw all the money from his or her bank account and to hand it over. With broad smiles and much apparent warmth, the group agrees to meet the victim to hand over the proceeds but, of course, they never arrive.

Another trick is to offer a person something valuable at a low price. Victims are persuaded to hand over the money or, if they do not have all of the money, whatever money they have as a 'deposit'. The fraudster promises to deliver the goods at the same place the next day...

'Charity' scams

Be suspicious of callers claiming to represent a 'charity', often proffering a book with an official-looking stamp in it.

The book usually contains initials or signatures showing donations allegedly made by the public. If the appeal is genuine you would be entitled to a receipt for your donation bearing an official fund-raising number. (See consumer protection; complaints.)

Disclaimer :: You and Your Rights
Although we have gone to great lengths to ensure the accuracy of the information contained in this database, it is important to remember that laws, government departments, interest and taxation rates are constantly changing. If you have a particularly difficult problem you are advised to consult a qualified legal authority. The publishers, editors and their representatives cannot accept responsibility for any act or omission arising from consulting the information contained herein.
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General Disclaimer: The content of Legal City does not constitute legal, tax or financial advice, nor does it necessarily reflect the views of our management, staff, shareholders, associates, contributors, authors or suppliers. Even though every endeavour has been made to ensure the accuracy of this information we cannot be held responsible for any errors and/or omissions. By using this web site you agree to accept and abide by our terms and conditions.
This web site and all its content is copyright © 2000-2014, Legal City CC • Web site managed with qPortal Content Management v 4.0.0 • This page loaded on September 22, 2014 at 8:08:41 am, SA Standard Time.