MMM: Pyramid scheme, stokvel or wealth revolution?

Cape Town – If MMM Global SA is a stokvel and not a pyramid scheme, as claimed by some of its members on Tuesday, then it needs to be a member of the National Stokvel Association of South Africa (Nasasa) or a similar body and conform to its rules.

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That’s the message from the National Consumer Commission's (NCC) Trevor Hattingh, who investigated the alleged pyramid scheme in 2015.

“In 2015 the NCC conducted an assessment of the business models and practices of MMM together with that of eight other savings or investment schemes,” Hattingh told Fin24. “The purpose of this assessment was to establish if any of the schemes were contravening the provisions of the Consumer Protection Act.

“The NCC has been working with the South African Police Service on this matter and therefore on completion of its initial role (assessment), handed it over to the SAPS (Hawks) for further assessment.”

“We found something, but we’re not going to disclose that," he told the Cape Times. "We’re still working with the Hawks."

Are you a MMM member? Tell us your story.

“There is an inquiry that has been opened," said Hawks spokesperson Hangwani Mulaudzi, according to the Cape Times on Wednesday. "We’re having a slight challenge in the fact that the scheme is being run through the internet.

“We’ve enlisted the help of the (police’s) cybercrimes unit and the Financial Intelligence Centre. Another challenge is that we have not received any complaints from the investors. We want to encourage them to come forward.”

After news emerged that MMM Global’s Republic of Bitcoin collapsed over the weekend, the South African wing of MMM said its system is not a Ponzi or pyramid scheme and is not affected by the crash.

The SA platform said its members are encouraged to donate money to others by rewarding them with the bitcoin-linked virtual currency, mavros, in return, which they can withdraw in rands. They can apparently get 30% return on their rand investment by doing so. According to a City Press report on Sunday on MMM, the Consumer Protection Act describes a pyramid scheme as any business model that promises an investor an annual interest rate of 20% above the repo rate, which is currently at 7%.

MMM Global SA participant M Makgato told Fin24 on Tuesday that MMM “is not an investment, it’s a stokvel where people donate money to each other. There's no day where (Russian MMM founder Sergey) Mavrodi gets access to the money because the money is within the members.”

Another local MMM member N Zondi wrote: "MMM has never been an investment and is 100% transparent to place it as a strong WARNING on every of its websites that it is NOT an investment. MMM solely is a donation platform whose success/failure relies solely on its participants providing and getting help from themselves.

"In MMM, we say THERE ARE NO GUARANTEES. But no one will join you if they know they will get nothing back in return.

"It is a normal thing for every company/organisation to continuously get inflows (new clients, product sales, advertisement, marketing teams) to ensure it continuously 'LIVE'.

"The same applies in MMM. If everyone wants to be paid it is simple!! We need to keep the donation fuel on (old participants re-donating and new participants donating) at all times.

"So if we all want to be paid - consistent, knowledge-based ideology sharing must NEVER seize!! The day it seizes - then the 'NO GUARANTEE' clause becomes applicable!"

If it's a stokvel

Hattingh told Fin24 that if MMM is a stokvel then it must be a member of Nasasa, or a similar body, approved by the registrar of banks, in writing.

“Stokvels are regulated in South Africa, and are therefore legal,” he said. “There are certain requirements involved for approval such as having a constitution, having a scheme bank account and being a member of Nasasa.

“Because stokvels are legal and regulated in South Africa, their participants have recourse in the event that anything should go wrong with it.”

The MMM SA website describes its scheme in a way that resembles a stokvel, which is “a society formed to hold regular parties that are funded by the members and generate profits for the hosts”.

Khaya Buthelezi's tweet shows how the bitcoin rewards system works:

MMM SA said “it’s a kind of common storage box where people save their money and then take it when needed”.

“There is no central account, where all the system money flows to … All the money is only on the banking accounts of the participants themselves!”

As MMM is strongly opposed to conventional banking and regulations, it is unlikely it can fall under a stokvel. So if it’s not a stokvel, then what is it?

According to Financial Times journalist Izabella Kaminska, "in its previous incarnations, the MMM scheme depended on its own parallel currency, the mavros, for storing and clearing value. The latest MMM Global scheme (which collapsed on the weekend), however, turned to bitcoin for both payments processing and value preservation. Mavrodi has in the past claimed that the MMM scheme has been a key influencer of the bitcoin price. So far the price of bitcoin appears to be unaffected."

City Press consumer journalist Maya Fisher-French said that, based on the information provided on the website, MMM Global SA follows a classic pyramid structure.

She wrote in City Press:

“The participants (of MMM SA) derive their income or returns primarily for the recruitment of new members.

In other words, the returns are not based on investments or the selling of any product, but on money paid by new people joining.

The philosophy is that you offer assistance by paying a joining fee.

Using a simplistic example, if all members pay R1 000 to join and the monthly return is 20% (R200), then as a new member, you pay R1 000 to “assist” other members.

This R1 000 would be divided among five existing members, giving them each R200. The next month, you receive “assistance” and a portion of the next new members’ joining fee is allocated to your account.

In this basic example, you would need one new member per five existing members to keep the scheme afloat just to meet a 20% return – let alone the 100% return.

For example, once there are 10 000 members, for each member to receive their 20%, a further 2 000 members would have to be recruited the next month.

As they join, so the speed of recruitment has to increase.

Now you have 12 000 existing members and need 2 400 new members the next month, 2 880 the following month and then 3 456 new members, and so on.

This is a compounding effect and hard to maintain.

MMM uses a virtual currency called mavro (based on the surname of the founder), which is purchased via the official virtual Bitcoin currency."

However, is it possible that MMM is neither a stokvel or a pyramid scheme?

MMM believes that “there is a lie around us,” it states on its website. “A huge, continuous, monstrous, embellishing lie.”

Its message is clear: “A new fair financial system will be established! Financial Apocalypse! That’s the only thing that can break our financial chains and save us all.”

South Africa’s high unemployment rate and high levels of poverty could not be a more perfect place for such a message.

The concern, however, is that if MMM is a pyramid scheme, then when the mavros run out and the MMM members stop donating money, the poor will be the first to lose out.  

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