High court issues preservation order for alleged ‘grocery stokvel’ pyramid scheme

The Gauteng High Court has issued a preservation order against Women Against Poverty and Hunger, an alleged pyramid scheme for R1 535 040 in favour of the National Prosecuting Authority. The scheme was allegedly disguised as a grocery stokvel.

The National Consumer Commission (NCC) says in a statement that it welcomes the order issued on 18 September. The money is held in three bank accounts belonging to Women Against Poverty and Hunger (WAPH) and one bank account belonging to its founder and promoter, Kelebogile Precious Phumo.

The NCC and the Asset Forfeiture Unit of the National Prosecuting Authority (NPA) are working together on this case.

WAPH appeared on the NCC’s radar during market monitoring and when the NCC investigated WAPH, the NCC found that WAPH has been promoting a grocery scheme through social media platforms, particularly targeting communities in Katlehong, Gauteng.

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Women Against Poverty and Hunger an alleged multiplication scheme

According to the NCC, the scheme invites members of the public to make a once-off payment of R300 and promises them monthly grocery parcels for 12 months. These parcels would then contain 10 kg rice, 10 kg flour, 2 kg sugar, 2 litres of cooking oil, a box of tomatoes and one head of cabbage. On average, members could expect to pay R5 310 for these items over twelve months.

The NCC says its investigation revealed that WAPH conducted alleged multiplication and pyramid schemes disguised as a grocery stokvel, contravening sections 43(2)(a) and 43(4) of the Consumer Protection Act (CPA).

By offering, promising or guaranteeing an effective interest rate of above 1 770%, WAPH is an alleged multiplication scheme, the NCC’s investigation found. A multiplication scheme is an arrangement that promises or guarantees participants an effective annual interest rate, as calculated in the prescribed manner that is at least 20% above the repo rate.

WAPH offered, promised or guaranteed thousands of members of the public an unrealistic annual return of about R5 310 for the items in the grocery parcels over twelve months in exchange for a one-time payment or investment of R300, implying an annual return of about 1 670%.

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Women Against Poverty and Hunger also an alleged pyramid scheme

In addition, the NCC says WAPH operated an alleged pyramid scheme by encouraging participants to recruit more participants for a reward of R1 000 and promising unrealistic returns to participants, contravening section 43(4) of the CPA.

This section describes a pyramid scheme as an arrangement, agreement, practice or scheme where participants receive compensation derived primarily from the recruitment of other people to participate, rather than from the sale of any goods or services.

Hardin Ratshisusu, the acting commissioner of the NCC, calls on consumers to remain vigilant as the scheme may continue. The NCC’s investigation is ongoing and when it is completed, the NCC may take appropriate enforcement action, including a referral to the National Consumer Tribunal, where the perpetrator/s of the scheme may face an administrative penalty of up to R1 million.

“We welcome the issuing of the preservation order. This scheme exploited the most vulnerable members of our society. The Consumer Protection Act prohibits any person from directly or indirectly promoting, joining, entering, or participating in pyramid, multiplication and related schemes.”