It's a pyramid scheme, not a stokvel: Consumer Tribunal hits Up Money with R1m fine

The National Consumer Tribunal on Monday fined Up Money R1m for conducting a “pyramid scheme” which swindled more than 200,000 investors.

Up Money was given 20 working days to pay the fine.

The National Consumer Commission referred Up Money to the tribunal last year after its investigation into allegations that the operation was a pyramid scheme.

The Consumer Protection Act (CPA) describes a pyramid scheme as an arrangement, or scheme, whereby participants receive compensation derived from their respective recruitment of other people as participants, rather than from the sale of any goods or services.

In August last year, the National Prosecuting Authority's (NPA's) Asset Forfeiture Unit obtained a preservation order to attach bank accounts holding more than R18m for people who ran the scheme.

The NPA said last year that the Up Money pyramid scheme used mainly social media to recruit members. It said new participants were required to pay a one-off joining fee of R180. This qualified them for a meat pack.

New members were then required to recruit five new participants. The original investor would then help the five he or she recruited to each sign up five new members. This was termed level one. This would then ensure that the original recruiter moved to level two, whose benefits were a meat pack, groceries and R500.

When those on level one were moved up to level two through their recruits, the original organiser was pushed to level three. This would entitle the investor to receive level two benefits, plus R3,000.

Deputy trade, industry and competition minister Nomalungelo Gina on Monday welcomed the tribunal's decision, saying it sent a strong message to South Africans not to promote, join or participate in any pyramid schemes.

“While Up Money promoted their scheme as a 'stokvel' to lure participants during the pandemic, the tribunal confirmed that it is not a stokvel but a pyramid scheme, as their operation fits the description of a pyramid scheme as provided under Section 43 of the CPA. Up Money’s business model was unsustainable as it relied heavily on new participants feeding into the scheme,” Gina said.

Acting national consumer commissioner Thezi Mabuza said pyramid schemes were prohibited. She said pyramid schemes continued to mushroom on a daily basis, especially on social media platforms, and consumers continued to lose their hard-earned money.

“We want to reiterate to consumers that all involved: the directors, the promoters (the ones advertised and recruited on social media and other platforms) and all those who joined Up Money, broke the law.

“We want to send a strong message to operators of schemes, arrangements or practices like Up Money that as the consumer protector in the space, we will not tolerate the contravention of the act,” Mabuza said.

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