Pyramid schemes - beware!
26 June 2003
Dazzled by the prospect of getting rich quickly, many members of the public are investing their life savings in dubious pyramid schemes. Instead of making money, these hapless victims end up staring poverty in the face, with their hard-earned money disappearing as fast as the conmen who promised to make them rich.
While a few members at the top of a pyramid scheme usually do make money, it is the scores of individuals below them, who enter the scheme later, who don’t.
The government is intent on cracking down on these bogus investment or pyramid schemes to which scores of members of the public continue to lose their life savings. According to Reserve Bank governor Tito Mboweni, the Reserve Bank has spent R13-million in recent years closing down these illegal schemes.
 “We are spending quite a lot of energy and money to root them (pyramid
schemes) out. The big problem is that the banking system does not reach as many people as possible,” Mboweni said recently. Once the Reserve Bank identifies a pyramid scheme, it brings auditors on board to find ways of returning people’s investments.
The National Treasury, together with the Financial Services Board (FSB), has now set up a service - in the form of a call centre run by the FSB - to help members of the public find out whether they are investing in a legitimate company. The FSB registers companies concerned with pension funds, provident funds, insurance and investment.
These are the toll-free numbers for the FSB’s call centre: 0800-110443 or
0800-202087.
After receiving a query, the FSB will check whether a company is registered with them or not. If not, than the business is an illegal one. The FSB will also refer the caller to an expert if necessary.
But before going this far, there are plenty of warning signs a potential investor should
heed before even contemplating putting his or her money into an investment scheme.
Financial advisor Iona Minton says people often get confused between multi-level marketing (MLM) schemes and pyramid schemes – not surprisingly since both function in a similar way. But the difference, she says, is that MLMs schemes – like Amway Herbal Life or Sportron - usually offer a legitimate product, whereas the latter do not.
“If people are sold a real product or service with the ability of making money off of reselling it as a benefit, it is a legal MLM programme,” she writes.
However, “if people are recruited into the business with hopes of making a lot of money by getting other people involved, while selling a poor product, that is a pyramid scheme or illegal MLM”, says Minton.
Often pyramid schemes don’t even have a real product or claim that they do, but focus instead on your recruitment of other investors and on just how much money you stand to make.
The key
is to ask yourself whether you would buy the product on offer without the added bonus of the extra money you stand to make. Chances are, says Minton, that if you wouldn’t, the scheme is dubious.
SouthAfrica.info reporter
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