Up Money fined R1 million and declared a pyramid scheme

Controversial WhatsApp gifting scheme Up Money has been fined R1 million for contravening the Consumer Protection Act (CPA) and declared a pyramid scheme by the National Consumer Tribunal (NCR) on Monday. The scheme received more than R42 million between 4 May and 2 July 2020.

The NCR found that Up Money contravened section 43 (2) of the CPA that prohibits anyone from directly or indirectly promoting or knowingly joining, entering or participating in a pyramid scheme, which is described as an arrangement, agreement, practice or scheme where participants receive compensation derived primarily from their recruitment of other people to participate, rather than the sale of any goods or services.

ALSO READ: Consumer Commission lays charges against Up Money, attaches luxury vehicles

This is how Up Money worked

New participants were required to pay a once-off joining fee of R180 that qualified them for a meat pack. They were then required to recruit five other new participants as part of level one. The original investor would then help the newly recruited five members sign up five new members each to ensure that the original recruiter moved to level 2 with the benefits of a meat pack, groceries and R500.

When those on level one were moved to level two, the original organiser was pushed to level three where the benefit was the same as for level 2, but with an added R3,000. The new participants made up the base of the pyramid and provided funding for earlier participants who were pushed to the top by the new recruits. This kind of scheme is loosely called push-push.

WhatsApp gifting is illegal

WhatsApp gifting is illegal as it is considered a pyramid scheme. It is not registered with the Reserve Bank and is also not as a stokvel or financial services provider. Social media were used to recruit members.

READ MORE: WhatsApp stokvels expose how Ponzi participants ‘more likely’ to defraud employers

Participants got hot under the collar when challenged about the lawfulness of the scheme, saying that it was not a pyramid scheme or financial scam. WhatsApp operations are not regulated and it was a challenge to investigate as people were not complaining, but in the end the National Consumer Commission (NCC) was alerted to the scheme by a complainant in East London.

After investigating Up Money, the NCC referred the matter to the NCT. Up Money now has 20 working days to pay the fine.

Criminal charges

In August last year national deputy director of public prosecutions and head of the Asset Forfeiture Unit (AFU) of the National Prosecuting Authority (NPA) Ouma Rabaji-Rasethaba confirmed people will be prosecuted for the Up Money scheme, with criminal charges that may include fraud and contravention of various sections of the Prevention of Organised Crime Act (POCA).

Those involved could face charges of racketeering, money laundering, fraud, theft, assisting another to benefit from proceeds of unlawful activities and acquisition, possession or use of proceeds of unlawful activities, an assisting another to benefit from the proceeds of unlawful activities.

ALSO READ: The difference between a WhatsApp stokvel, WhatsApp gifting and a traditional stokvel

Bank accounts, luxury cars seized

It is estimated more than 230,000 investors were conned by Up Money and bank accounts holding at least R18 million were frozen. The NPA also obtained an order in the high court to freeze bank accounts and seize a number of luxury vehicles including an Audi TT, Hummer and Jaguar XKR associated with Jade Matsemela and Sipho Martin Mdlhuli, directors of Up Money (Pty) Ltd and Uniitco (Pty) Ltd.

According to Rabaji-Rasethaba more than R12.5 million was used to pay for goods at retail stores and the three luxury cars.

Department welcomes judgment

Deputy minister the Department of Trade, Industry and Competition Nomalungelo Gina said the department welcomed the NCT decision because it sent a strong message to South Africans to avoid promoting, joining or participating in any pyramid schemes.

“While Up Money promoted its scheme as a stokvel to lure participants during the pandemic, the NCT confirmed it is not a stokvel but a pyramid scheme. Up Money’s business model was unsustainable as it relied heavily on new participants feeding into the scheme.”

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