Capitec CEO Gerrie Fourie says that the bank has shut down 2000 accounts associated with “Ponzi scheme” MMM.
The CEO was speaking in an interview with Fin24, and said that the bank had earlier in the year started freezing accounts associated with the scheme, before reporting it to the South African Reserve Bank.
According to Fourie, the scheme, which he calls a Ponzi Scheme, has had a big impact on the bank, and the “drastic” action was taken to protect its banking clients.
Over 2000 accounts linked to MMM have been shut down, Fourie said, adding that clients then become “extremely violent” – to the point that security had to be called into the branches.
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”.
The scheme is currently under investigation by the Hawks, while its widely accepted label as a Ponzi scheme is being challenged by one of its members in the High Court.
The NCC as well as the South African Reserve Bank have issued warnings around the scheme – and others like it – calling on the public to proceed with caution when dealing with their money.
In early May, the scheme collapsed after panicked members withdrew funds en masse, forcing the scheme runners to freeze collections and payments, causing those still stuck in the system to lose their money.
The scheme has since rebooted, with the promise that all old account balances would be paid off using new money coming into the system, effectively adding the burden of debt to all members of the scheme.
Supporters of the scheme say that it operates like a stokvel, and is based on donations. Members have slammed the banks, and financial regulators for getting involved, saying that it is up to the individual to decide what they do with their money.