Russian ‘Ponzi scheme’ raises fraud flags at SA bank

 ·25 Jan 2016

A controversial high yield investment program (HYIP) is raising red flags at a South African bank.

Capitec clients who are linked to MMM South Africa have reported that their accounts are being frozen, causing a backlash on social media.

MMM was started by convicted Russian fraudster, Sergey Mavrodi, who was found guilty of running one of Russia’s biggest pyramid schemes in the 1990s, in which millions of people lost their life savings.

The exact same scheme is now running locally, trading as MMM South Africa,

In September 2015, MMM South Africa was listed as one of the potential pyramid schemes under investigation by the National Consumer Commission in South Africa.

The group’s hook is the promise of high returns on investments – as much as 30% per month – along with “testimonials” from clients who claim to have achieved great success with the scheme.

Here is a testimonial from an “MMM captain”, who claims to have received R1 million after a R10,000 payment through the scheme.

Raising red flags

Despite its reputation for being exactly that – the group claims it is not a HYIP, saying it is merely a “community of helpful citizens”.

As transactions are “person to person” and there is “no formal organization” and “no central bank account”, the group claims to be “perfectly legal”.

However, the Consumer Protection Act describes any scheme that offers returns 20% above the repo rate (6.25%) as a “multiplication scheme” – otherwise known as a Ponzi scheme.

Further, despite its advertisements promising high returns, the group says explicitly that it does not guarantee anything, warning users that they might not be paid at all, and indeed, could lose all their money.

The scheme also works with its own internal currency that members buy into, and operates on a”leader” and “referral” bonus – typical traits of a pyramid scheme.

A number of reports and releases from financial groups have warned against signing onto schemes such as MMM.

Fraud prevention

Capitec said it could not comment on specifics, as it would not be in the best interest of clients affected.

Previously, in discussing its fraud prevention technologies, Capitec noted that its systems act on suspicious transactions.

In these cases, dubious transactions through accounts could result in a “soft-freeze”, until more clarity is obtained about the origin of the transaction.

“We do this to protect our clients and comply with the rules and regulations of the SA Reserve Bank,” Capitec said.

MMM denies any links to cheating or fraud, saying users are fully informed of how the scheme works before signing on.

Meanwhile, users of the scheme say the scheme works just like a stokvel, and that the banks should not get involved in how they spend their money.

“Capitec bank should stop freezing people’s money. This is our hard earned cash how we spend its none of your business. It’s our decision to donate to each other to reach our goals! Capitec hands off our accounts,” one client said.

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