By Sanette Viljoen
In the current difficult economic times due to the Covid-19 lockdown there recently was an explosion of get-rich-quick schemes, especially all over the internet and social media.
Many desperate people “invest” their hard-earned money or savings in these schemes in the hope of huge returns as promised by the swindlers in control of these schemes, only to lose all their money in the end.
A pyramid scheme is a fraudulent scheme where existing “investors” are paid out of funds collected from new investors. “Investors” must first canvass other members before they earn returns on their original investment.
Ponzi schemes are managed by swindlers who invite people to invest in their scheme or business and then promise unrealistically high returns on the investment in a short time. These schemes depend on a steady stream of new investors in order to pay off promises to previous investors.
The collapse of both the above-mentioned schemes is inevitable because it becomes impossible to find enough new investors to keep the scheme going.
According to South African legislation a pyramid scheme is an illegal practice in terms of which the newest members fund the investments of existing members of the scheme.
The general prohibition of pyramid and related schemes can be found in section 43(2) of the Consumer Protection Act (Act 68 of 2008).
Consumers are called upon to be sceptical about any investment that looks too good to be true in order to prevent themselves from being mislead by so-called “investments” that promise quick, high guaranteed returns.
These schemes usually rely on trust and an invitation to invest often comes to you from a person close to you, such as a family member, community leader or religious person. Always consult a qualified financial adviser before you invest money and remember the golden rule: if it sounds too good to be true, it probably is!