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The position of South African law on get rich quick schemes

It has become usual when scrolling through social media platforms to come across messages or posts like “do you know you can make R2000 a day, ask me how”. What’s more with the current economic crisis, many people are looking for any means possible to escape poverty and debt.

By definition, a get-rich-quick scheme is a scheme that promises to make a person wealthy over a short time without that person having put in much effort. Common examples of these schemes are Pyramid and Ponzi schemes.

In a pyramid scheme, public members are lured into joining a hierarchy of participants by paying a certain fee and are then encouraged to recruit more members to make profits.

A Ponzi scheme, on the other hand, is a scam which promises that investors will receive massive profits on their investments but without any actual investment having taken place as the initial investors are paid out from investments made by those who join at a later stage. In this case, the people behind the scheme are the ones who recruit new members.

Both of these schemes are multi-level marketing programmes and, although these two are illegal, not all multi-level marketing schemes are unlawful. Apparent distinguishing factors are, firstly, whether an actual product is being sold or distributed. If there is no product, then it is likely a pyramid scheme. Secondly, where it’s a promise of investment for profit, consider whether there is an actual investment of the funds to generate a reasonable profit. If not, then it’s likely a Ponzi scheme.

These get-rich-quick schemes are specifically prohibited by the Consumer Protection Act 68 of 2008. Section 43 (2) of the Act provides that:

“a person may not directly or indirectly promote, or knowingly join, enter or participate in –

  • a multiplication scheme, as described in subsection (3);
  • a pyramid scheme, as described in subsection (4);
  • a chain letter scheme, as described in subsection (5); or
  • any other scheme declared by the Minister in subsection (6), or cause any other person to do so.

Since the Act prohibits all acts listed above, it is clear that anyone who still chooses to participate in such schemes does so at their own risk and there would be little chance, if any, of recovering their money should the scheme fall apart. Victims of such scams may nevertheless lay charges of fraud, theft, reckless trading, and forgery against perpetrators of such illegal schemes.

For legal advice regarding any potential investment opportunities or if you are a victim of fraud feel free to contact us for assistance.

 

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