Crypto assets are to be brought under the net of the Financial Sector Conduct Authority (FSCA), after they were declared financial products a year ago. The regulator says it is currently accepting licence applications from companies offering crypto investments.

And not a moment too soon. 

A 2022 study by Triple A (a Singapore blockchain company) found that more than 5.8 million people, or 9.44% of South Africa’s population, currently own crypto assets and 43% are expected to be using them by 2030.

Although some countries, such as Algeria and Egypt, have opted to ban crypto assets entirely, they are legally recognised, with licensing requirements in jurisdictions such as the US and Canada.

In February 2023, the FSCA issued a cautionary advising consumers to be wary when investing in crypto assets. This followed a move by the South African Advertising Regulatory Board to add a new clause to its Code of Advertising Practice to deal with cryptocurrency products. In a nutshell, companies advertising crypto assets have to be explicit in terms of warning consumers that these are high-risk products and that you can risk losing your capital.

The declaration of crypto assets as financial products means that any individual or business that provides financial advice or intermediary services in respect of crypto assets will have to register as a financial services provider.

Broader developments surrounding crypto assets are likely to be given effect through the Conduct of Financial Institutions Bill, bringing these activities within the regulatory remit.

FSCA calls out GS Partners

As recently as last week, the FSCA issued a warning advising potential investors to be wary of GS Partners, which has been offering unrealistic returns, is not licensed in South Africa and has attracted scrutiny from regulators in 10 other jurisdictions in Canada and the US. Locally, the company has been luring investors with promises of returns as high as 22% a week. If you invested R1,000 initially and simply left it invested for a year, that would work out to just under R30-million – which is obviously too good to be true.

The rulings issued by American and Canadian financial authorities on 16 November include:

The Texas State Securities Board issued an emergency cease-and-desist order listing Facebook, LinkedIn, Twitter and YouTube accounts linked with the company. The order was issued for violating the Securities Act and committing fraud.

In February 2023, the Financial Sector Conduct Authority issued a cautionary advising consumers to be wary when investing in crypto assets. (Photo: Twitter)

The Washington State Department of Financial Institutions issued an emergency action against Swiss Valorem Bank and GSB Gold Standard Bank (not related to South Africa’s Standard Bank in any way), citing that they have been representing themselves as banks, although they are not licensed or chartered as banks federally or in the state of Washington. This means investors’ purchases are not insured by the Federal Deposit Insurance Corporation, Securities Investor Protection Corporation or the National Credit Union Administration, and investors thus have no protection from investment losses.

The California Commissioner of Financial Protection issued a cease-and-desist order against GSB, Gold Standard Partners and Swiss Valorem Bank prohibiting them from any further offer or sale of securities in California, including but not limited to investment contracts known as certificates.

The State of Wisconsin Department of Financial Institutions announced an enforcement action to stop an ongoing international fraud scheme. The action accuses GSB Gold Standard Bank of doing business as GS Partners, of offering and selling fraudulent certificates tied to digital assets and foreign currency exchanges, as well as investments in staking pools in a proprietary metaverse. The ruling noted that GS Partners is not registered to offer or sell securities in Wisconsin. However, GS Partners had promoted investments through a multilevel marketing scheme paying “lavish commissions to agents”.

The British Columbia Securities Commission issued a cautionary on 30 May 2023, urging British Columbia residents to exercise caution when dealing with GS Partners or any affiliates including GSB Gold Standard Pay, GSB Gold Standard Bank, Gold Standard Trade, Lydian World, G999, GSTrade and Swiss Valorem Bank – all of which claimed to offer cryptocurrency investment services. As per the cautionary, GS Partners is not registered to trade in or advise on securities or derivatives in British Columbia.

Local investor Jan told Daily Maverick that he came across GS Partners on his Google feed and was convinced to invest R28,000 in carat bars. However, after investing his R28,000, he was told that the company was switching the investment to a cryptocoin called G999.

“I never received statements. There was a website to log into where you could track your investment, and the value of the coin just kept going down until it was worth nothing,” he says.

Who are the people behind GS Partners?

Schalk van der Merwe is an avid promoter of GS Partners on Facebook, and most recently posted an advert inviting potential investors to a live business presentation in New York, where you can learn to “create a digital portfolio using blockchain technology”. Although the New York presentation is free, the business presentation and training sessions in Sandton in January next year will cost R200 per “affiliate”.

In a separate case, Van der Merwe was charged in 2022 with “conspiracy to commit murder” and released on bail in the first quarter of 2022.

In a phone call on Thursday night, Van der Merwe said he is “just a multilevel marketer/consultant” but refused to divulge what product he promotes. According to him, GS Partners is not a financial services provider and crypto assets are “not regulated anywhere in the world”.

Read more in Daily Maverick: Scam warning: Local and international regulators call out GS Partners

Josip Heit is cited in several of the international regulatory warnings as the owner of GS Partners. Although he was supposed to make an appearance at a GS Partners event in Cape Town on 18 November, he failed to show up, but dialled in remotely.

However, other GS Partners promoters, who have been named in the international regulatory warnings, did show up at the Cape Town promotional event in November. These included: Bruce Hughes, a South African and GS Partners’ corporate trainer; Dirc Zahlmann, chief executive of GS Partners; Michael Dalcoe; Haidy Nakos; Nate Hines; Jeanette Hines and Andrew Eaton.

This is a developing story. DM