It is very easy to fall into the trap of an illegal pyramid or Ponzi scheme than what is generally realised.
The idea of a no risk, no strings attached, quick rich scheme appeals to a lot of people, especially under certain conditions. Chairperson of the Direct Selling Association, Ernest du Toit, said words such as “no risk”, “no strings”, “fastest way to make money” and “get rich overnight” are used to lure innocent people into getting involved in malicious schemes.
A pyramid or Ponzi scheme is a fraudulent business model that sees older members, who initially started the scheme, draw income from new members, thus always requiring new members to join in order to create income for those already part of the scheme.
Du Toit said such schemes have in the past resulted in thousands of people across the globe losing all their money, savings and even their pension funds. He said the poverty level in South Africa is very high. Where there is poverty, desperate people are looking for desperate means. “How to make money is one of these,” he added.
According to Du Toit, the core issue to keep in mind is that if somebody offers you an opportunity that seems too good to be true, it probably is too good to be true. Du Toit said Ponzi scheme participants rely on a person’s despair by telling him or her about a fast and easy way to make money.
It is important to realise, no matter how desperate your situation is, not to expose yourself (and your meagre savings) to become part of something that is too good to be true. The question is, how do consumers recognise a pyramid or Ponzi scheme?
Du Toit said one should always ask the person or the company approaching you if they are a member of the Direct Selling Association (DSA). There should always be a clear, desirable and legitimate product evident or available for sale. Du Toit said any scheme that focuses and rewards only on recruitment (without an equal focus on product sales) could be a pyramid or Ponzi scheme.
Consumers should, furthermore, also be vigilant when a requirement for joining the business scheme is a major financial commitment. If there is no buy-back programme or cooling off period involved, also be on the lookout.
Du Toit said Ponzi schemes should not be confused with multilevel marketing (MLM) and direct selling industries, which operates on a legitimate business model. He said if consumers are uneasy about a business proposal, they are encouraged to contact the DSA for more detail and advice on a scheme. – André Grobler
andreg@centralmediagroup.co.za