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Wednesday 26 August 2020
From Uganda to Kenya to Nigeria to Zambia : When African governments look on as their peasant citizens are robbed through neo-liberal Ponzi Schemes
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with the Victims of Ponzi Schemes
Victims of pyramid schemes fill claim forms, in March 2009, issued by a
task force formed by the government. Victims of collapsed pyramid
schemes want the government compelled to pay them more than Sh4 billion
they invested in the organisations a decade ago. FILE PHOTO | NATION
MEDIA GROUP
More than 26,000 victims of pyramid schemes have opened a fresh
battle to recover the Sh4.15 billion they lost to fraudsters eight years
ago.
Through a petition filed at the High Court, the
investors are seeking orders authorising use of the assets of the
fraudulent schemes that the Central Bank of Kenya confiscated during a
2007.
The
National Pyramid Scheme Victims Initiative (NPSVI) argues that
continued withholding of the funds, failure to arrest and prosecute the
architects of the fraudulent schemes, and reluctance to compel them to
surrender the ill-gotten wealth is negligent and unacceptable.
The
victims have sued the Attorney General, CBK, and principal secretaries
for Co-operative Development and Marketing, Finance and Office of the
President for compensation over money they lost in 257 pyramid schemes.
“The
petitioners claim this money as of right, with interest and the damages
arising therefore. The respondents have impounded the funds that never
belonged to them for eight years. The petitioners’ property rights are
violated daily by the respondents’ continued retention of the money,”
NPSVI chair Samuel Kariuki says.
PSVI’s suit joins a growing list of individuals seeking
compensation from the State. Three years ago, Andrew Gesora, another
victim of the pyramid schemes, sued the State on behalf of 26 investors.
Loise Nduta also filed a separate suit on behalf of 36 victims.
The
victims claim that the successful crackdown on pyramid schemes and
implementation of the 2008 Sacco Societies Act was an admission that the
fraudulent businesses could have been stopped before they duped
thousands of Kenyans.
Mr
Kariuki says the government should be held liable for the losses
suffered by victims as it has allegedly admitted liability in the past
through actions aimed at safeguarding Kenyans from pyramid schemes.
“From
2008, the respondents set up the Sacco Societies Regulatory Authority
to control deposit-taking societies. This implied admission of
responsibility and liability yet it has not made good our losses,” adds
Mr Kariuki.
NPSVI reckons that the victims of pyramid
schemes could have been saved from loss if the government had properly
vetted institutions that were later found to be fraudulent.
The
organisation says its members entrusted their money with the firms in
the belief that the government had done its due diligence before
registering them.
“The negligent and illegal
registration of the outfits enabled them to comply with banking
requirements and open bank accounts, where the petitioners paid money.
The petitioners cannot just be punished because people unknown to them
committed crimes and who should have been arrested,” Mr Kariuki says.
Former
Co-operatives Development and Marketing minister Joseph Nyagah in 2009
appointed a task force that published a report identifying 270 pyramid
schemes that stole Sh8.1 billion from 121,205 Kenyans.
The
unearthing of the massive scam, which took place between 2005 and 2007
had adverse effects on investors, including breaking up their families,
suicides and deaths from stress-related illnesses.
“We
pray for an order for modalities to be put in place by the respondents
to enable peaceful and systematic refund of the money recovered,” NPSVI
adds.
The organisation also wants to be refunded for
the costs it has incurred in collecting data on details of its members
over the last four years.
The organisation holds that
the National Treasury has in the past agreed to refund victims of the
scams. NPSVI has over 60,000 members, and the organisation claims more
will join the suit after tracing documents proving they invested in the
companies.
The Central Bank of Kenya. Nearly half of all non-bank institutions
surveyed by the regulator said they see demand for loans rising in the
remaining months of the year and well into next year, which is expected
to boost economic growth.
Failure by financial sector regulators to do their job is to
blame for the recent blossoming of pyramid schemes in which Kenyans have
lost at least Sh34 billion, a government watchdog says.
The
Public Complaints Standing Committee (PCSC), popularly known as the
office of the Ombudsman, also blames security agencies for complicity in
the exponential growth of unregulated investment schemes that collapsed
at the end of 2007 leaving thousands of people with huge financial
losses.
“The PCSC is concerned about the regulatory
environment in the financial sector where the Central Bank of Kenya, the
Capital Markets Authority and the registry of companies are the main
players,” says the Ombudsman in its third quarterly report covering
January-March 2009.
“The roles and possible
contributions of the Criminal Investigations Department and the National
Security Intelligence Service in the escalation of pyramid schemes to a
national disaster is also a matter of concern,” the report says.
The
Government through the Ministry of Cooperative Development has
established a task force headed by a former cabinet minister Francis
Nyenze to inquire into the extent of losses that Kenyans incurred in the
pyramid schemes.
The task force says it is investigating a possible loss of Sh34
billion through 132 pyramid schemes and the background of their
directors.
Organisations that took deposits contrary
to financial sector regulations and collapsed included Deci, Sasanet,
Clip Investments, Global, Jitegemee, and Akiba Micro Finance.
Akiba has been sued for receiving deposits from investors without a valid licence from the Central Bank of Kenya.
“We
are awaiting the report by the government task force and if they are
less than candid we will investigate the matter with a view to
unearthing the truth,” said Mr Kenneth Mwige, the executive director of
the PCSC.
“Clearly none can collect billions of shillings from the public and without the knowledge of any regulator,” he said.
The
PCSC says it held consultations with the Central Bank, Attorney General
and the Ministry of Cooperative Development on how to deal with the
complaints relating to pyramid schemes.
600 complaints
Through
its provincial visits and town hall meetings, the watchdog has received
more than 600 complaints on the fraudulent schemes.
Some
victims of the pyramid schemes have lodged complaints with the Kenya
Anti Corruption Commission but the agency has been unable to deal with
them, citing lack of prosecutorial powers.
The PCSC
recommends that the findings of the government task force be implemented
with a view to ensuring that the investors recover their money.
It
also recommended that a legislative framework be put in place to
prevent the establishment of such fraudulent investments schemes.
PCSC also says the government must monitor Saccos and deposit taking institutions to shield the public from losses.
But
even as the Ombudsman continues to receive the complaints, investors
are quickly losing hope of ever recovering their billions.
The
lure of easy money or big returns blinded thousands of people to take
the risk of trusting dubious institutions with their money.
Most of those companies were not properly registered and did not offer full disclosures to their unsuspecting investors.
The
masterminds of the pyramid schemes started off paying hefty interest
rates to investors who spread the news by word of mouth to attract more
savers whose money would later be used to pay off the initial investors.
Major towns
Soon thousands
of people were lining up at the offices of the firms to deposit their
money and wait for returns. During 2006, the pyramid schemes spread from
Nairobi to other major towns such as Mombasa and Kisumu and even to
smaller districts like Siaya, Kisii, Embu, Kakamega and Nyeri.
The police have prosecuted some managers of the collapsed pyramid schemes but any conviction is yet to be achieved.
Many Kenyans have been thrown into debt.
There
have been cases of people who died from depression after losing their
money in the pyramid schemes as the investments which were intended to
be a route out of poverty led them into serious debts and financial
losses.
The complaints committee says it has received and documented over 600 complaints relating to the pyramid schemes.
“The
complaints by the public was, and continue to be, the failure by any
government agency to detect the fraud by the promoters of the pyramid
schemes and to take necessary action to save gullible members of the
public from falling prey to the fraudsters” says the Ombudsman.
A House team has threatened to sanction Cabinet secretaries who
fail to implement resolutions after it emerged that 2004 victims of
pyramid schemes are yet to be compensated for losses running into
billions.
Despite preparation and passing of the
pyramid schemes report, MP David Gikaria, the Implementation Committee
chairperson, said very little had been done to implement the resolutions
of prosecution, seizure of assets and compensation of the victims.
“Other
than the ministry putting in place measures to stop pyramid schemes
from happening again, very little has been done to implement the House
decision,” he told Malava MP Moses Injendi.
The MP had
sought to know the status of the implementation of the report of the
task force then chaired by current leader of Minority Francis Nyenze,
compensation for victims and prosecutions of directors of schemes.
Investors
of the pyramid schemes lost billions of shillings when the schemes
collapsed in the year 2004/2005 leading to the formation of the probe
team.
Mr Gikaria told Parliament that despite investigations by the
office of the Attorney- General, Director of Public Prosecution, the
Central Bank of Kenya banking fraud unit and the ministry of
cooperative, suspects of the pyramid schemes were acquitted by the
courts and some awarded compensation for wrongful prosecution.
He said 11 cases were taken to court but were completed without any convictions.
“Others
were given compensation by same courts,” Mr Gikaria said and blamed
victims for failing to come out to testify or make claims against funds
that were frozen.
“There are indication from the
ministry of industrialisation and Enterprise that recoveries from
accounts/directors were not made due to court cases. The Cabinet
secretary told the committee that Sh11.8 million was withdrawn after
lifting of freezes on accounts by the courts,” the Nakuru Town West MP
said.
He said matters were complicated by the lenient penalties stipulated in the Banking and Microfinance Acts.
“Fines
were payable to the State and not pyramid scheme victims. It is our
recommendation that the CBK should fast track changes to legislation on
pyramid scheme to provide for stiffer penalties.
“The
Attorney General, the Treasury and industrialisation ministry should
establish information centres for victims to register their case,” he
said.
MPs Robert Pukose (Endebes) and Samuel Gichigi
(Kipipiri) demanded to be told why the victims were not compensated
through the money CBK froze from accounts of directors of the pyramid
schemes.
The
Committee on Implementation noted only two cabinet secretaries had
filed status reports on the implementation of 29 House resolutions.
House
Standing Orders require the committee to seek the status reports on
implementation of resolutions adopted by MPs 60 days after passage.
Relevant
Cabinet secretaries are required to file quarterly reports to
Parliament indicating what the government has done to implement the
decisions of the House.
“We have scrutinised 29 House
resolutions but we have only received two status reports from Cabinet
secretaries responsible for Industrialisation and a commitment by the
leader of Majority Aden Duale on the increased prostitution in the
universities,” said Gikaria.
How investors were conned of Sh1bn by Kiambu couple
Investors storm VIP Portal forex agency offices in Limuru before its
collapse last year to present complaints to management. More than Sh1
billion was lost, court documents show. PHOTO | FILE
A Kiambu couple defrauded thousands of investors by promising to
double their cash deposits only to later disappear and close shop after
collecting more than Sh1 billion, witness statements filed in court by
victims of the suspected con game show.
Alfred Wangai
Mundia and Mercy Nkatha Kirimi, the owners of online forex trading firm
VIP Portal, allegedly told clients that they would use their capital to
trade stocks in internationally listed companies but fell back on the
promise as soon as the money had been deposited into their account.
Some
122 investors have lodged a class action suit against the forex trader
seeking compensation for their money, which they claim has not matured
one year after deposit, despite a guarantee that they would receive
dividends on their cash within a month.
The petitioners
claim to have paid a total of Sh77 million to VIP Portal, but police
records say the suspected fraudsters at one time had more than Sh1
billion deposits in the account.
The alleged fraud scheme first came to public limelight last year when accounts of VIP Portal at Family and Barclays banks were frozen through a court order sought by the police.
The
victims want the court to order the couple to refund their cash and pay
them general damages for the broken promise, and punitive damages for
breaching the contract they entered into with the forex trader.
“I
deposited money with the defendant expecting payment of my initial
investment sum plus interest. This, however, was not to be as the
defendant refused to pay what it owes to me, being Sh5.5 million.
“The
defendant’s actions have been done with the intention of defrauding and
swindling me of my hard-earned money and in addition are an express
breach of the service agreement between us,” George Mungai Nyanjui, one
of the petitioners, says in court papers seen by the Business Daily.
The
promise of getting one’s investment plus returns of up to 80 per cent
in just 25 working days with the premium option easily lured several
investors looking to get rich quick.
Investors could also go for the platinum option, which would see their investment grow by 60 per cent in 29 working days.
Samuel
Njoroge, another investor, claims that VIP Portal had agreed to absorb
any losses that would arise after trading using his cash. This was to
give relief to investors who were afraid of losing their money, and was
key in attracting more clients to try their hand in the business.
“Further
terms were that in case any losses were made, it would be absorbed by
VIP Portal and not passed on to the investors. Pursuant to this, the
members deposited money with VIP Portal expecting payment of their
initial investment sum plus interest,” Mr Njoroge says.
The
class action suit comes as Mr Mundia and Ms Kirimi are facing criminal
charges in the Kiambu Chief Magistrate’s court for defrauding the public
and running a forex trading business without a licence from the Central
Bank of Kenya.
The matter attracted the attention of the Law Society of Kenya, which piled pressure on the police to investigate the firm.
The
couple was charged in June after police officers from the Banking Fraud
Investigation Unit concluded that VIP Portal appeared to be a pyramid
scheme and was running a forex trading company without a licence.
Mr
Wangai has, however, argued that the firm is listed as an international
business company in Saint Vincent and the Grenadines, and that it has
never engaged in any illegal business.
Victims
of the suspected con game moved to court after they learnt of a suit in
which VIP Portal is fighting to unblock its accounts held at Family
Bank. Walter Rotich, who lost Sh3.6 million, claims that VIP Portal is
attracting new investors, whose money is being wired to offshore
accounts.
“Despite having its accounts frozen, the
defendant company has continued to receive money from innocent members
of the public who now wire money to their offshore account in Poland,”
he said.
Justice David Onyancha had in October paused
the proceedings of VIP Portal’s suit against Family Bank to allow the
criminal trial to proceed.
He, however, directed that the suit
continue on December 19 after the criminal trial failed to start and was
pushed to March, 2015.
Mr Mundia and Ms Kirimi are the
firm’s directors alongside a man identified as Colin Mundia, who has
gone missing since the start of investigations. Police suspect he fled
to avoid being arrested.
The Central Bank of Kenya had
written to the police in March saying that VIP Portal was not licensed
to operate as a forex trading firm, which led to the couple’s arrest and
arraignment.
At the time the forex trader’s accounts
were frozen in May, the firm had handled over Sh1.08 billion, most of
which had been withdrawn by Mr Mundia and Ms Kirimi. The account had a
balance of Sh174 million prior to the freeze.
“Between
October 2013 and May 2014, the VIP Portal bank account with Family Bank
had received a total of Sh1.08 billion from the public as deposits. The
action against Mr Mundia and Ms Kirimi was taken to prevent a major
pyramid scheme,” police said in a letter to Law Society of Kenya.
The
122 petitioners claim that they have visited the forex trader’s head
office in Limuru several times but have been denied information
regarding whether they will be paid.
“The petitioners
have on several occasions gone to VIP Portal’s registered office to
demand payment of their money only to be met with hostility and denied
information as to when they will be paid,” added Nellie Wairimu,” who is
representing the 122 investors.
The petitioners hold that despite serving VIP Portal with demand letters, the forex trader has refused to pay them their dues.
Nigeria: SEC - Tightening the Noose on 'Ponzi' Schemes
With an estimated
three million Nigerians losing about N18 billion to the Mavrodi Mondial
Moneybox (MMM) Ponzi scheme some years ago despite warnings by the
regulatory authorities against investment in such dubious schemes, many
Nigerians today are still patronizing the schemes in their desperate bid
to make it big financially.
A Ponzi scheme,
which is also known as Ponzi game, is a fraudulent investment package
through which the operator, who may be either an individual or
organisation, pays returns to investors from new capital paid to the
operators, rather than from profit earned through legitimate means or
operations.
After the failed
MMM Ponzi scheme investment 'disaster', investigations by Sunday Trust
indicated that fraudsters are re-strategizing and re-packaging new
schemes such as Twinkas and an online investment scheme tagged 'Loom
Money Nigeria', in their tricks to defraud Nigerians and cart away their
'loot' undetected.
Today, as
regulatory requirements continue to make it difficult for promoters of
illegal investment schemes to thrive in European, American and Asian
markets, many of them are beaming their searchlight on emerging markets
to make fortunes. Of course, Nigeria has remained one of the havens they
are exploring.
Like a horde of
preying locusts, scores of these managers are exploring Nigeria's
investment landscape with an uncommon aggressiveness in recent times to
offer mouth-watering but 'poisonous' schemes that portend financial
death risk to whoever decides to swallow their 'wealth-creation'
prescriptions.
With the impact of
the bitter experiences of millions of Nigerians that suffered huge
losses in the MMM 'investment voodoo' still real in the nation's economy
based on the increasingly worrisome poverty level and in furtherance of
its statutory mandate, the Securities and Exchange Commission (SEC)
has, in the last few years, prioritized investor education in its
activities in a move to protect investors from the ravaging onslaught of
the 'army' of investment fraudsters.
Specifically,
Section 13 subsections (a) and (s) of the Investment and Securities
(ISA) 2007, the SEC is empowered to regulate investments business in
Nigeria and; to promote investors' education and the training of all
categories of intermediaries in the securities industry. This is in line
with the International Organization of Securities Commissions (IOSCO)
requirements and global best practice standards.
Appreciating the
enormity of the task before it, the SEC had in January 2017 signed a
collaborative Memorandum of Understanding (MoU) with the Economic and
Financial Crimes Commission (EFCC) which it renewed in 2019 and signed a
new pact with Nigerian Financial Intelligence Unit (NFIU) to strengthen
its anti-fraud campaigns in the investment space.
An appraisal of the
commission's enlightenment programmes indicates that the capital market
regulator, in furtherance of its statutory roles and particularly to
restore investor confidence in the market after the global financial
meltdown of 2007-2008, has taken investor education drive to major
cities in the country, advising people against investing in Ponzi
schemes in view of the risks of such schemes to retail investors in
particular and the nation's financial system in general.
For instance, since
January 2016, the Mary Uduk-led management of the SEC has moved to the
grassroots in Kano, Lagos, Port Harcourt, Enugu, Karshi and Gwagalda in
the FCT and other cities, to sensitise the public and members of the
armed forces on how to identify fraudulent schemes and avoid being
trapped in the promoters' nefarious investment web.
Apart from the
preventive steps to guide investors against the fraudulent activities of
the monsters in the investment space, the commission has also, in
collaboration with the Nigerian Educational Research and Development
Council (NERDC), concluded plans to introduce capital market studies as
part of mathematics, accounting, business studies and other subjects'
curriculum in primary and secondary schools.
Similarly, the
commission is also intensifying its investment space sanitization drive
by clamping down business premises of the Ponzi operators and exploring
legal options to sanction them.
Last July, based on
complaints by the public and in collaboration with SEC, the EFCC sealed
off the premises of MGB Global, froze its accounts and the promoters
were arrested and interrogated by the police. Other illegal operators
whose premises had been closed in recent months were Money Rite,
Bitcoin, No Failure Development company and X-World.
Commenting on the
commission's intensified drive to protect investors through sustained
investor enlightenment campaigns across the country a few days ago, the
Acting Director-General of the SEC, Mary Uduk, said what the SEC had
done apart from continuing to educate people, is to also go after the
promoters of these schemes, clampdown their illegal offices and
prosecute them.
She said: "We are
stepping up our enforcement mechanisms to ensure that they are
apprehended and their offices sealed off. So many of them are being
prosecuted in courts, we have secured convictions for some, and we have
closed down so many.
"We verify
ownership and return monies collected by them to the owners. It's a
problem around the world and we can tackle the problem by educating the
public, telling them the right investments to make and the right places
to put in their money", Uduk stressed.
She cautioned
investors against investing in any scheme that is proposing return
levels that are unreasonably high by ensuring that the fund managers and
the products they are offering are registered with the commission.
Uduk added: "These
fraudsters or promoters of Ponzi schemes are the false prophets of the
investment environment; they are the ill wind that blows no good and at
whose sight you must flee. They are to be avoided. This is one message
you must take home to family, friends, relations and acquaintances in
order to save them from the agony of loss of their hard-earned money."
Commenting on what
SEC has being doing on investor education and the impact on ordinary
Nigerians who have little or no knowledge about investments in the
capital market or other platforms, a graduate of economics, Sunday
Oluwasola, told Daily Trust on Sunday that the commission's efforts were
desirable in the economy in view of the low investment education of the
people and the likelihood of many falling victims of the fraudsters.
He said: "What the
commission has been doing in the past few years to educate the people on
the risks of investing in Ponzi schemes is commendable. I have read
about the SEC's investor education activities and how they are dealing
with illegal fund operators and I feel that government should encourage
them to do more in protecting investors in the country.
"I think an area
the government should support them more is in area of improved funding
so that they can do pamphlets in indigenous languages about these very
dangerous schemes and take to the grassroots during their programmes. In
this way, the message of their campaigns will get to the grassroots and
the impact would be felt more and more", Oluwasola advised.
An investment
analyst, Nonah Awoh, while admitting that SEC's initiatives are
desirable to improving investors' confidence in the nation's investment
space, argued that there was the need to take the various campaigns
deeper to the grassroots for optimal impact on the financial illiterate
masses.
"Let me say that
the commission still has a lot of work to do in this regard. As against
the current situation in which the enlightenment campaigns are
concentrated in urban centres, SEC should be more concerned about the
people in the rural areas and take these campaigns to them if the
objectives are to be fully achieved", he advised.
SEC has
warned stakeholders and the investing public against the activities of
some unlawful/unlicensed market operators and promoters of other
fraudulent schemed.
The Securities and Exchange Commission (SEC) has
warned stakeholders and the investing public against the activities of
some unlawful/unlicensed market operators and promoters of other
fraudulent schemed.
This was disclosed in a circular, which was released by the apex capital market operator to the investing public and capital market operators. In the circular, the investing public was advised
against dealing the 12 fraudulent Ponzi scheme operators with their
bogus investment and return claims.
“The commission, in recent time, has observed the proliferation
of the operation of unlawful/unlicensed investment schemes, with
promises of huge, but unjustifiable returns on investment.’’ [READ MORE: SEC to strictly regulate crowdfunding, issues new rules)
SEC said these activities are perpetrated by the suspected promoters of these Ponzi and other fraudulent schemes. These Ponzi scheme operators include:
Loom Nigeria Money
Box Value Trading Company Ltd
Now-Now Alert
Flip Cash Investment
Result Investment Nigeria Limited
Helping Hand and Investment
No Failure Development and Empowerment Nigeria Ltd.
MBA Forex and Investment Ltd
Federate Investors and Trading Company
Jamalife Helpers Global Ltd
Flexus Global Solutions and Investment Ltd
United Capital Investment Company Limited
SEC pointed out that, “Members of the public are to note that by
virtue of the provisions of section 39(1) of the Investments and
Securities Act (ISA) 2007, only persons registered with the commission
can engage in capital market activities, thus making the actions of
these entities listed above unlawful.”
Consequently, SEC advised the general public to refrain from
investing in any scheme from those firms that have been listed and
warned that anybody that invests in any unlicensed/unlawful scheme, does
so at their own peril.
Recall that in 2019, SEC clamped down on some of
those Ponzi scheme operators which include MGB Global, X-World, Money
Rite, No Failure Development, Dantata Success & Profitable Company
and so on. The commission blocked the bank accounts and real estate properties linked to operators of the Ponzi schemes and also sealed their premises. Acting Director-General, Securities and Exchange Commission (SEC),
Ms Mary Uduk, stated that the Commission had recorded significant
successes in its efforts to protect the investing public from fraudulent
persons.
[READ ALSO: SEC adjusts operations, introduces e-filing, other measures) She said that there was an upsurge of Ponzi schemes
in Nigeria in 2019, so the Commission had to step up its enforcement
actions to safeguard the investing public and stop these illegal
operators.
Nigerian, some few years ago, were victims of the then-popular Ponzi scheme, MMM, which later crashed.
A Ponzi Scheme is a fraudulent investing scam
promising high rates of return with little risk to investors. It
generates returns for early investors by acquiring new investors and is
similar to a pyramid scheme in that both are based on using new
investors’ funds to pay the earlier backers.
Bank of Zambia warns public on GDN/Zed Chilimba pyramid scheme
THE
Bank of Zambia (BoZ) has warned members of the public to be aware of a
group of criminals operating as Global Dream Network (GDZ) which has
been offering illegal financial services to the people.
According
to the Central Bank, Global Dream Network has been offering a financial
service by collecting deposits from members of the public using social
media platforms especially WhatsApp.
“BoZ’s review of the business
model of Global Dream Network has revealed that the company is in
effect engaging in a ‘money circulation scheme,’ which is prohibited
under Section 157 of the BFSA,” reviewed BoZ in a statement.
The
Central Bank added that, the same WhatsApp administrators are enticing
would be participants to invest a minimum of K350 and get a return of
K100 cash after recruiting two people at the first level.
It also revealed that the scheme promises up to K32, 000 in returns at level four.
BoZ has also warned that anyone who participates in the scheme is liable for criminal sanctions.
“The
Bank of Zambia wishes to also warn members of the public that,
according to Section 157 of the BFSA, it is illegal to conduct,
participate and issue notice or other documents inviting members of the
public to subscribe to a money circulation scheme. Participants and
promoters are both liable to criminal sanctions upon conviction,” BoZ
stated.
It advised members of the public to desist from getting
involved and to further be alert to investments that promise huge
returns without underlying economic activity.
SCORES of Zambians have lost life savings in a
pyramid scheme that went bust. Mineral pay is just one of many that have duped
many people across the globe into investing in the money-making scheme.
Last week, Zambians woke up to find that the
money they had invested in Mineral pay could not be accessed because the
organization’s website had been disabled and the only message left for
depositors was that their accounts had been reset to zero or reduced to zero until further notice. The
website has promised to rectify this in the ‘near future’.
More tellingly, even local Whatsapp groups have
reported been disbanded and members removed.
But what is a pyramid scheme and why do people
fall for this? The following is an excerpt from an online publication on
pyramid schemes and how they work and more importantly, why at one stage,
people lose out.
A
pyramid scheme is a fraudulent investment strategy, deemed illegal in many
countries.
According to the Federal Trade Commission,
pyramid schemes “promise consumers or investors large profits based primarily
on recruiting others to join their program, not based on profits from any real
investment or real sale of goods to the public.”
n a pyramid scheme, an initial investor recruits
a second investor to work under him. This second investor is required to
“invest” a certain sum of money to be paid to the initial investor.
He is also required to recruit another investor
under him and another and so on. Each recruit is required to pay an “investment”
to the recruiter above him and to recruit more investors. If any recruit can
get just ten recruitments under him, he or she will make back his initial
investment plus a small profit.
This process continues until there are no longer
any recruits to be found and the lower level can no longer support the upper
levels. There are some variations on this basic model.
How
to tell a pyramid scheme from a real investment
Many people are exposed to get-rich-quick schemes the world over.
South Africa, in particular, has seen a lot of such money-making schemes over
the past few decades.
The
appetite for investment opportunities that promise “high returns”
remains high, and anything that can meet this insatiable demand will definitely
find buyers.
With a
lack of enforcement of regulation, schemes where the potential to make money is
deemed very high have evolved. Some are pyramids, and others use goods and
services to lure unsuspecting investors. Some sell cosmetics, some sell services,
and they are sometimes called “multi-level marketing”.
The
marketers of these schemes aggressively defend them as not being pyramid
schemes.
Pyramid
scheme members at the top benefit the most and those nearer the bottom only
benefit after top members have been paid.
New
members must be recruited to ensure existing members are paid and this is the
main source of income rather than value created from a product or investment.
When new members can no longer be recruited fast enough, the scheme inevitably
collapses.
It is
good to be able to differentiate between an investment and a pyramid scheme.
Quick and huge returns are more appealing than the prospect of making long-term
returns, but while you may perceive one of these schemes as the shortest route
to wealth, they could in fact cost you all your money.
INVESTMENT
RETURNS
Bigger
than normal returns is one way to identify a pyramid scheme. It may offer as
much as 5% per day, or 30% per month.
As a
general principle, a product that offers returns above 30% a year is abnormal
and, therefore, is a pyramid scheme.
The
lack of regulation in this space means promoters do as they please when setting
expected returns, and there are no legal consequences when the scheme fails and
investors lose their money.
You
will only be guaranteed a return on any legitimate investment monitored by the
Financial Sector Conduct Authority (formerly the Financial Services Board), if
it is a fixed income one.
Banks
usually do this quite well – their 60-day notice deposits are an example.
Government retail bonds also guarantee fixed returns on certain amounts over a
certain period.
Other
investments such as shares and unit trusts, for example, do not promise any
returns when sold correctly by professionals, carry a full risk warning stating
that you can lose your investment as the value of such securities depends on
the market, and the company’s performance. The risks are fully communicated so
you, the investor, can make an informed decision. Steinhoff, African Bank,
Aveng, Group Five and Impala Platinum are examples of stocks whose values were
significantly reduced over time. But investors always knew the risk of loss of
capital as it was communicated.
Pyramid
schemes, however, promise unrealistic returns and should be treated with caution. REQUIRES
YOU TO INVITE OTHERS TO JOIN
This
is perhaps the common giveaway for a pyramid scheme. Its success depends on new
members joining the scheme with new money to keep paying those who joined
first. Schemes often ask members to bring three participants, and each new
member in the scheme has to focus on bringing new participants.
Once
everyone who falls for the scheme has joined, it will eventually collapse as
there is no more cash injection. This is why schemes don’t survive forever.
Companies
promoting normal investments do not carry such invitations for other people to
invest. Instead, as an investor, you will be told the risk of loss and the
potential to earn returns, whereas the pyramid scheme pushers conceal the
reality of potential losses. SERVICES
AND GOODS ATTACHED TO SCHEMES
These
days, as a measure of reducing scepticism around such schemes, promoters
usually introduce products or services that go with the scheme, and people get
a sense of comfort because they have a holiday package, or some drink that can
help reduce weight, to sell. Be cautious if the traits outlined above are
reflected in the scheme, regardless of the goods and services attached.
People
should continue to invest in long-term capital growth, and avoid being taken
for a ride by such unethical schemers.
‘Get rich quick’ scams
Signs to look out for that it is a “Get Rich Quick scam”:
It claims to pay out double-digit returns.
It claims to be an opportunity of a lifetime.
You can’t understand how it generates money.
It is not a registered product or a product offered by an authorised financial services provider.
Returns or profits earned are dependent on recruiting more members to the scheme.
Awareness
tips on how not to fall victim to “Get Rich Quick scams”:
If it sounds too good to be true, it’s most likely a scam.
Be skeptical of any investment’s insistence that you act “NOW”.
Be careful of investments that guarantee you high profits with little or no financial risk.
Exercise
due diligence in selecting investments and the people with whom you
invest – do your homework before investing your money.
Consult an unbiased third party – like an unconnected broker or licensed financial advisor before investing.
SOURCE: businesstech.co.za
Ponzi schemes
Tips to spot a Ponzi scheme:
The promoter promises high returns, which could not be achieved
through normal conventional investment opportunities, within a short
period.
In some cases, the promoter will use fake qualifications
or references to entice investors, for example, an ‘attorney’ with
‘many years’ experience in the stock market’.
Often high returns are paid initially and then investors are lured into investing even more money.
They often promise guaranteed returns –no return is ever guaranteed, all investments carry some risk.
Promoters are usually quite secretive about the actual business model.
The promoter becomes unavailable and returns dry up.
Usually the scheme collapses soon thereafter.
SOURCE: businesstech.co.za
Beware of Latest Ponzi Scheme on the Scene – Invest K25 and get back K100!!
The irony of life is that greed knows no bounds! The latest Ponzi
doing the rounds is the one shown here. It simply states that you
*”invest” K25 and get back K100* and so on.
I wont waste time explaining the scheme for it is _illegal and breaks
every law there is concerning investing and group savings._
One way people are hoodwinked is by being told that it is a
*”Chilimba”* and that then gets the unsuspecting people to part with
their money for promised returns.
Let me get to the point, _it is not a Chilimba in any way!_ It is
*100% ILLEGAL* and if anyone is involved in it, I suggest you drop it
like a hot coal because *THE LAW WILL VISIT YOU IN DUE COURSE*.
I warned the same some years back over *LWESA*, and people did not
heed my warning. When the authorities visited, _many had not just their
fingers burnt, but faced the indignity and challenge of having to refund
so many people back their money which they “invested”!_ 😟
*Very simply put, here are the proofs that this is illegal in every way*
*#1. Registration fee*. No genuine chilimba has any registration fee
whatsoever. It’s just a group of savers who take turns _SAVING THEIR
MONEY and ALWAYS GET BACK WHATEVER THEY PUT IN._ Only difference is that
whoever is first gets back what they eventually save first.
*#2. Group of savers* all know each other and the total amount is
always governed by the number of people saving (times contributed)
*#3. No recruiting is involved* in a genuine Chilimba in order to
earn more. In these “Ponzis” you are _required to bring in new people
because its their money (the new entrants) that purportedly pays you
back your “investment as promised”_. However, any smart person can see
that sooner or later the _new entrants will run out and then problems
will start!_ All new entrants lose out.
*#4. Registration fee goes to founders.* Now this is where it _gets
interesting *(and ILLEGAL)*._ If a registration fee is charged, what is
it for? All *Genuine Chilimbas* are technically *”group savings”* and
_all fees (if any) always get back to the group at the end of the day._
In this case, where do these fees go?
I can tell you, _its to the founders and that is where they make
their millions (apparently for administering the process)_. Every *new
entrant must register and pay a fee*. _Multiply that by the number of
new people and its mind boggling how many millions will be made!_
I have another word for this *(its FRAUD)*.
*#5. The Village Banking Concept*. There is a newer and _more
powerful Chilimba that is currently on the market that is 100% LEGAL and
in order by this name_. In that Chilimba, everyone contributes and can
borrow after every cycle with agreed rates of interest charged. _It is a
very clear and transparent system_. When the entire process is done
with, *moneys are then *returned to everyone and all earnings are shared
equitably*_
The above is *100% legit and is currently running in Zambia very
successfully*. This *Chilimba is very commendable and we as
#ProsperityInsights fully endorse it*
*BEWARE, BEWARE, BEWARE*
The new concept doing its rounds on *WhatsApp is not only illegal but
will defraud thousands of their money once the Ponzi grows*. All those
who start will earn their money back and that is what lures new people.
But inevitably the numbers grow and it soon _becomes unsustainable
and then backfires_. At that point people will start requesting for
their refunds and that is when _”all hell breaks loose”_.
*CONCLUSION*
As one who always _promotes investment and wealth creation and is a
big promoter of Network Marketing too_, I am sounding *the clarion call
and resounding the gong against this scheme*. _Be warned._
Those intending to join _may make money at the beginning, but it will
inevitably fail and you may end up in a lot of problems later_. As for
*the founders*, _you risk being arrested and even facing prosecution to
the full extent of the law that may include one or both fines and even a
jail term_.
*Please avoid this scheme.*
_PS: Kindly share with all your networks and help someone avoid getting into trouble._
The Securities and Exchange Commission (SEC) has
warned stakeholders and the investing public against the activities of
some unlawful/unlicensed market operators and promoters of other
fraudulent schemed.
