Ponzi scheme alert as 9 businesses under scrutiny

Cape Town - The National Consumer Commission (NCC) has confirmed to Fin24 that it is conducting a preliminary investigation into nine suspected pyramid schemes, to establish if they are contravening the provisions of the Consumer Protection Act (CPA) and its regulations. 

"The NCC is working together with the Specialised Commercial Crimes division of the South African Police Service, and as part of its investigation will scrutinise the business models and practices of the schemes concerned," said NCC spokesperson Trevor Hattingh.  

The schemes and investment initiatives under investigation are WorldVentures, Kipi, also known as Mydeposit241, Make Believe, NMT Investments, Instant Wealth Club, MMM South Africa, DIPESA, Sikhese (Pty) Ltd as well as Wealth Creation Club.

The probe was prompted by several complaints from the Financial Services Board (FSB) and the South African Reserve Bank (Sarb) about the operations of the schemes concerned, said Hattingh.

Lesego Mashigo of the FSB told Fin24 that members of the public had raised concerns over the legitimacy of these investment vehicles. Suspicions were aroused over bank account movements, as large sums of money were deposited into accounts and then withdrawn again.

"Are these people running a bank? If so, it becomes a matter for Sarb," said Mashigo. As a next step and to mask illegal activities, the companies then typically start selling items such as travel vouchers or bottled water. "This is their way of trying to hide that it's a Ponzi scheme," said Mashigo. That then makes it a consumer matter, hence the referral to the NCC.

If the probe uncovers evidence of fraud, there are several legal routes the NCC could take, said Hattingh.

This could involve taking the matter to the National Consumer Tribunal to declare the practices prohibited and issuing the schemes with compliance notices, which would compel them to cease or alter operations to comply with the law.

Alternatively, the NCC could start criminal proceedings against the initiators of the schemes. "It must be understood that the objective of a pyramid scheme is to defraud. In this context the most effective route would be to criminally charge the initiators of the schemes," said Hattingh.

Sadly, little can be done to recoup investor losses. "Participants of a pyramid or related scheme have no recourse under the law when the scheme collapses," said Hattingh.

The CPA prohibits any person from promoting, or knowingly joining or participating in a pyramid scheme. "In addition, a participant who knowingly participates, but demonstrates ignorance to the law would be committing an offence," said Hattingh. 

"Consumers should steer clear from anything that resembles a pyramid or any of the related schemes that are prohibited by the CPA," said Hattingh.

How to spot a pyramid scheme

Hattingh offers some pointers to help consumers identify a Ponzi scheme or investment initiative:

• It offers very high returns on investments, with interest higher than that of any bank or authorised financial services provider.
• It is never widely publicised or advertised.
• It is normally a get-rich-quick scheme.
• It is not authorised by or registered with financial services providers, and is not accountable to anybody.
• And most notably, investors or participants primarily derive an income or return on investment from recruiting other participants.

*Anyone who becomes aware of a Ponzi or related scheme should report it to the National Consumer Commission on (012) 761 3400.

Have you or anyone you know invested in one of these schemes? Let us know and you could be published.

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