1. INTRODUCTION
  • Over the years many South Africans have been recruited to invest their hard-earned money, life savings, and even funds obtained on loan, into what they believe to be a legitimate business venture. Vulnerable people are lured in by companies that predominantly advertise on social media platforms. The aim of such advertising is to solicit potential investors to invest money into a proposed business venture and to then, in turn, recruit further people to join in. Should the initial investor succeed in recruiting further investors, he/she is guaranteed an incentive in return. The more investors recruited, the greater the financial reward.
  • Blinded by promises of high investment returns and financial gain, many investors have fallen victim to what is known as Ponzi or Pyramid Schemes that are disguised as legitimate business investment opportunities (see our article titled “Is Multi-Level Marketing a Pyramid- or Ponzi Scheme?” for more on this). With these schemes, the risk runs high for funds to quickly dry up, causing the schemes to collapse and investors to be swindled out of their money.
  1. PENALTY FOR PARTICIPATING IN A PYRAMID SCHEME
  • Section 43(2)(b) & (d) of the Consumer Protection Act, No 68 of 2008 (“CPA”), prohibits a person from directly or indirectly promoting or knowingly joining, entering or participating in a pyramid scheme, or causing any other person to do so.[1] Thus, should an investor be found to have invested money into such a scheme, he or she will be in direct contravention of the CPA.[2]
  • With such investments being classified as white-collar crimes, one will undoubtedly face the consequences of the law. Section 111(1)(b) of the CPA provides that, for any contravention of its provisions, one can face the consequences of a fine, or imprisonment for a period not exceeding 12 months or even both.[3]
  • As soon as the National Consumer Commission (“NCC”), as the primary regulator of consumer-business interactions in South Africa,[4] gets wind of such schemes, they will launch a criminal investigation and, consequently, all participants in the scheme could become suspects in the investigation. One such example is that of the recent “Up Money” meal and grocery scheme that made waves on social media platforms and consequently caught the NCC’s attention. The NCC, the Financial Intelligence Centre and the Asset Forfeiture Unit, came together as a formidable front to stop the scheme in its tracks.[5]
  • According to media reports, all 230 000 participants of the aforementioned scheme will be prosecuted and each will be levied a fine of 10% of that person’s annual income, or alternatively R1 million, whichever is the greater.[6]
  1. CAUTION NEEDED
  • In view of the above, participating in a Pyramid Scheme could not only result in you losing your hard-earned money, but you can also furthermore be subjected to a criminal investigation and possibly be fined or imprisoned for your participation in such a scheme.
  • We, therefore, suggest that you carefully consider and investigate all investment opportunities before investing your hard-earned money. For assistance with the investigation of the legitimacy of an investment opportunity, contact one of our experienced commercial lawyers who will gladly assist.

 

 

Louis Stroebel                                                            Heidi Wagner

LLB; LLM (Import/Export Law)                                   BCom (Law); LLB

Director                                                                        Candidate Attorney

Corporate and Commercial Law                         E-mail: Heidi@sstlaw.co.za 

E-mail: Lstroebel@sstlaw.co.za                           Phone: 012 361 9823

Phone: 012 361 9823

[1] Section 43(2)(b)&(d) of the Consumer Protection Act No 68 of 2008.

[2] “Acting Commissioner’s Address: Up Money Pyramid Scheme Media Briefing” National Consumer Commission dated 8 April 2020 (https://www.thencc.gov.za/sites/default/files/media/Acting%20Commissioner%27s%20address%20Up%20Money%20Pyramid%20scheme.pdf).

[3] Section 111(1)(b) of the Consumer Protection Act No 68 of 2008.

[4] “Acting Commissioner’s Address: Up Money Pyramid Scheme Media Briefing” National Consumer Commission dated 8 April 2020 (https://www.thencc.gov.za/sites/default/files/media/Acting%20Commissioner%27s%20address%20Up%20Money%20Pyramid%20scheme.pdf). Accessed on 22 October 2020; National Consumer Commission https://www.thencc.gov.za/search/node/ponzi.

[5] “Acting Commissioner’s Address: Up Money Pyramid Scheme Media Briefing” National Consumer Commission dated 8 April 2020 (https://www.thencc.gov.za/sites/default/files/media/Acting%20Commissioner%27s%20address%20Up%20Money%20Pyramid%20scheme.pdf).

[6]“Up Money pyramid scheme members to be charged” Business Live dated 4 August 2020 (https://www.businesslive.co.za/money/2020-08-04-up-money-pyramid-scheme-members-to-be-charged/).