Beware WhatsApp stokvel groups: An old pyramid scheme in a new jacket

If you think the pandemic is the scariest thing you will ever see in your life, take a look at the many WhatsApp “stokvel” groups on Facebook where people invite others to join them in what are clearly pyramid schemes.

Some of these groups have around 3,000 to 11,000 members.

These schemes are stripping the most vulnerable people in the country from their last cash reserves in a time when millions are unemployed and the economy is in recession. You cannot help but wonder how many people will go to bed hungry tonight because they lost their last R50?

Invest200, WhatsApp Gifting, WhatsApp Stokvel Group – it does not matter what they are called, they are all run the same way as other pyramid schemes. And, everybody loses in the end.

This kind of pyramid scheme was identified about a year ago when people who lost their money started to complain. It raised its ugly head again during the pandemic to lure in unsuspecting consumers who had very little cash that they would not mind multiplying during difficult times.

It started off with members recruiting people they know, but the operation has grown much bigger. You can now post on one of the Facebook groups if you need more members for your group and even set a date for when it will go down. There are groups working with amounts of R50, R100, R250, R600 and even R1 000.

A scheme made for lockdown

During lockdown the Up Money pyramid scheme became popular as the number of desperate individuals in the country multiplied exponentially.

The Deputy National Director of Public Prosecutions and head of the Asset Forfeiture Unit (AFU), Adv Ouma Rabaji-Rasethaba, says more than 230,000 investors were swindled out of more than R42 million between 4 May 2020 and 2 July 2020. More than R12,5 million of this money was used to buy three luxury cars and at retail stores.

The scheme was not registered with the Reserve Bank and is also not a registered stokvel or a financial services provider. The scheme was loosely called ‘push-push’ due to the way those who joined earlier were pushed to the top by the new recruits.

This is a pyramid scheme

According to Article 43 of the Consumer Protection Act (CPA), an arrangement, agreement, practice or scheme is a pyramid scheme if participants receive compensation primarily derived from recruiting other people as participants, rather than selling goods or services. It is illegal for consumers to directly or indirectly promote, knowingly join, enter or participate in a pyramid scheme or to encourage other people to join.

How it works

• The original recruiter starts a group and invites five people to join for, for example, R100 each.
• Each new member pays R100 into the bank account of the recruiter.
• The recruiter helps each new member to recruit five new members.
• As soon as the group has 11 members, it splits into two groups of five people each, according to even and uneven numbers assigned to the members.
• The recruiter, who is number 1, gets paid and goes on to start new groups.
• Numbers 2 and 3 go through another two rounds to become number 1 and get the money, while numbers 4 to 7 has to go through another three rounds to get paid and numbers 8 to 11 get to number 1 after four more rounds.

The Up Money scheme was not only one to emerge in recent months. There are many more out there not being investigated because no-one has complained about them yet. It is also a challenge to investigate something that happens in a closed community on consumers’ cell phones, says Joseph Selolo, head of enforcement at the National Consumer Commission (NCC).

The NCC can investigate out of its own volition and does not have to wait for complaints to be lodged, according to the Consumer Protection Act. However, looking at all the Facebook requests: where do you even start?

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