In difficult times like these, money-making schemes are often used to trick people into making a quick buck. Social media is now increasingly being used to persuade people to get involved, usually under false pretenses.
On the Potchefstroom Facebook page, there is a message that invites people to be part of a stokvel where you buy in at R500 and get a return of R2,500. The post reads: “R500 stokvel…buy in and make a profit of R2,500.”
But is this really a stokvel? The Herald approached an expert in commercial litigation, Hein Papenfus from Gerrit Coetzee Inc. to explain the difference between a stokvel and this invitation pretending to be one.
Hein Papenfus is an expert in commercial litigation. Photo:
According to Hein, this invitation is definitely not a stokvel, but rather a chain letter or pyramid scheme, both of which fall under the list of prohibited schemes and are declared unlawful in terms of section 43 of the Consumer Protection Act, 68 of 2008 (CPA) in South Africa.
“Traditionally, a stokvel is a pooled-savings scheme, where members opt-in to join a savings club or society, with each contributing a set amount of money every month. Then, based on a predetermined rotation, each member would receive a lump sum payout at a specific time of the year,” Hein says.
A pyramid scheme is mainly characterised by participants receiving compensation derived from their respective recruitment of others as participants, rather than from selling any goods or services.
According to Hein, a chain letter scheme is an arrangement, agreement, practice, or scheme which has various levels of participation, and existing participants canvass and recruit new participants. Upon joining, each new participant must pay a certain consideration. This money is distributed to one, some, or all of the previously existing participants. It does not matter whether or not the new participant receives any goods or services in exchange for that consideration.
A chain letter generally starts with a list of names and participants are asked to send money to the person at the top of the list. They are then entitled to add their name to the list, cross off the one at the top (to ensure they eventually reach the top) and send the letter to a number of people who are asked to repeat the exercise.
These are uncontrolled chain letters because the name at the top of the list is always removed and so it is difficult to monitor the scheme’s progress. However, there are also controlled chain letters where the name of the promotor remains on the list. Money must always be sent to the promoter and at least one other person.
This is usually the person whose name appears directly below the promoter’s name. To reach the levels of earnings the promoter promises, improbable numbers must become involved in the scheme.
A simple example illustrates the problem. X starts a chain letter with five names on the list. He sends the letter to five people who must send it to five people and so on. By the time this process has repeated itself five times, 3,125 people must be involved. If Y becomes involved on the sixth level, 9,765,625 people must participate before Y receives any money at all.
In many circumstances, these schemes are rigged even further. The promoters will not only ensure that their names remain on the list, but they will also re-enter their names at various stages or will have several different aliases with addresses and post office boxes registered to their names.
The CPA specifically stipulates that a person must not directly or indirectly promote or knowingly join, enter, or participate in such a scheme. According to Hein, there could be serious consequences for people who are involved in such schemes.
Charges that could be laid against the founders of such schemes and any persons involved in them include theft, fraud, reckless trading, forgery and uttering, tax evasion, contravention of the Gambling Act, contravention of the Companies Act and contravention of the Banking Act.
Read the original article here
https://potchefstroomherald.co.za/73452/be-aware-of-schemes-posing-as-a-stokvel/
