SARB warning on MMM and other dodgy schemes

The South African Reserve Bank (SARB) has warned South Africans to steer clear of any financial schemes that are operating without regulatory oversight, saying money can be lost with little to no hope of it ever being recovered.

According to the Central Bank, 19 illegal schemes are currently being investigated, left over from a total of 41 that were under review in 2015.

However, the Bank noted that it is not a prosecuting authority, and thus it can only investigate contraventions of the banking Act and refer matters of concern to the relevant authorities – such as the SAPS or NPA, in cases of criminal activity.

Several such schemes under investigation by SARB were pushed through for further investigation late last year after receiving complaints from consumers.

These include WorldVentures, Kipi (also known as Mydeposit241), Make Believe, NMT Investments, Instant Wealth Club, MMM South Africa, DIPESA, Sikhese (Pty) Ltd as well as the Wealth Creation Club, as previously reported.

The bank said that the very nature of such schemes means they only get reported when it has become too late to help – but it was encouraged to see that there has been a shift to proactive notification and intervention, which has resulted in securing accounts prior to money being lost.

“Generally, illegal schemes are only reported by investors when they fail to receive their promised returns,” SARB said.

“This typically occurs when the funds have already been depleted and the scheme is on the brink of collapse. As such, the prospects of recovering funds for repayment to investors are limited.”

The bank said it was concerned about the prevalence of illegal schemes in the
country – as well as  the apparent willingness of individuals to participate in such ventures.

“Members of the general public are again cautioned to exercise vigilance and prudence in their investment choices,” it said.

Members of the public don’t care

Public backlash to financial institutions “interfering” with their participation in dodgy schemes has been pronounced and vitriolic – with some of the most vocal being members of MMM South Africa.

MMM South Africa, gained media attention after Capitec Bank started freezing accounts associated with the scheme in early 2016. Accounts were frozen amid apparent fraud concerns.

MMM, which was  started by convicted Russian fraudster, Sergey Mavrodi, guarantees a return of 30% on any fees put into the system – which is 20% above the repo rate, and one of the key signifiers of a multiplication scheme.

The National Consumer Commission (NCC) identified a number of other factors in the scheme that indicates it is a type of pyramid scheme – specifically, that is dependent on users recruiting other users, while each person is required to pay to join, through what the platform calls “donations”.

Read: Beware of MMM – before it’s too late: Consumer Commission

However, MMM members have defended the scheme saying it operates like a stokvel – and have said in no uncertain terms that the banks and authorities should back off and leave them be.

As is often the case with such schemes, MMM’s structure collapsed in early May as users withdrew funds en mass, forcing the scheme runners to freeze payments.

MMM has since rebooted – starting over with the promise to repay frozen funds using new funds being injected into the system; effectively adding old debt to new members.

The scheme is currently under investigation by the Hawks, and members of the public have been warned by the NCC – and now the South African Reserve Bank – to steer clear.

More on MMM

MMM South Africa collapses – and starts over

We are not a Ponzi scheme: MMM South Africa

Russian ‘Ponzi scheme’ MMM Global collapses: report

Russian ‘Ponzi scheme’ raises fraud flags at SA bank

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SARB warning on MMM and other dodgy schemes