Introduction
People all over the world from all walks of life are fascinated by any idea or scheme of how to get rich quick or make easy money and Zimbabweans are no exception.  There has been a resurgence of unethical financial investment schemes such as pyramid/ponzi schemes with social media being the main catalyst.


In economically distressed times, individuals and companies may consider and initiate different kinds of business opportunities. On the 28^th of August 2020 the COMESA Competition Commission issued a statement advising consumers in the region to be on the lookout for pyramid schemes whereby people are encouraged to join and recruit others at a fee to make money.


Pyramid
A pyramid scheme is a scheme under which a person makes a payment to get the right to recruit others into the scheme for which he/she receives an income. The new recruits also make payments to get the right to further recruit others and in turn receive incomes for such recruitment. Over a period of time, a hierarchy of participants resembling a pyramid is formed with the introduction of new recruits, and increased number of participants to the scheme. A Ponzi scheme, operate by paying earlier investors with funds collected from new investors. This is similar to a pyramid scheme in that both are based on using new investors’ funds to pay existing investors.

The Law
Pyramid/ponzi schemes creates a dilemma for regulatory authorities. The Central bank has always been issuing warnings to the public against get rich quick investment schemes under which existing investors are paid returns, not from genuine market investment of their funds, but from contributions made by new investors, until a point when the scheme can no longer attract new investors.


The Central bank has stated that all institutions offering financial services must be issued with licences before operations commence. This means that all entities carrying out banking activities (receiving deposits from the public) and not licensed as a banking institution are in breach of section of 5 of the Banking Act [Chapter 24:20].


Sometime in 2016, the RBZ identified MMM Global Zimbabwe (MMM) as the biggest pyramid scheme to have scammed investors in Zimbabwe. However, the Central bank faced challenges in bringing the scheme to book because the company was not registered under any law and its activities were not regulated by any authority in Zimbabwe.


Recently, a joint law enforcement operation between the Police and the Central bank’s Financial Intelligence Unit investigated a pyramid/ponzi scheme that was being operated in Harare having exploited the Covid-19 pandemic to lure consumers into joining and participating in the pyramid scheme.


With the promulgation of the Consumer Protection Act [Chapter 14:44] No. 5 of 2019 (“the CPA”), one would have expected the CPA to have provided a legal framework to deal with the issue of pyramid/ponzi schemes so as to give effect to new consumer rights.


The CPA deals with fraudulent schemes and offers under the right to fair contractual agreements. It does not provide a definition of a pyramid/ponzi scheme but enshrines a general prohibition on fraudulent schemes and offers in section 37(3).


In South Africa, the Consumer Protection Act [No. 68 of 2008], section 43 (2) expressly deals with pyramid schemes and related schemes. It further defines a pyramid scheme and prohibit people from participating directly or indirectly, promote, knowingly join or enter into pyramid schemes. As such, the South African Reserve Bank (SARB), through their National Consumer Commission has been able to shut down pyramid/ponzi schemes in South Africa.


Pyramid/ponzi schemes are inherently injurious to consumers and when they collapse, the victims are more concerned with the issue of recovering their funds. So, is it possible for a member of a pyramid/ponzi scheme to claim back his/her money once the scheme collapses?  The victim can only claim compensation from the founders of the pyramid/ponzi scheme. However, the prospects of successfully retrieving all the funds invested are very slim because the founding members of the pyramid/ponzi schemes tend to disappear with the funds as soon as the scheme starts showing signs of collapsing or gain too much attention from authorities.


Section 37(3)(a) of the Zimbabwean CPA provides that a person must not directly or indirectly promote, or knowingly join, enter or participate in fraudulent schemes and offers. Although, the contravention of the above section may result in a person being found guilty of a criminal offence contemplated in terms of section 136 of the Criminal Law Codification Act [Chapter 9:23]. If there is no legal instrument enacted to specifically deal with or regulate pyramid/ponzi schemes, many people will fall victims and these schemes will continue to manifest with the use of modern unconventional investment techniques and cutting-edge technology.


In most circumstances, the criminal investigations into the operations of these schemes could take years to complete, depending on the complexity of the scheme which dents investors funds recovery hopes. 


Conclusion
Pyramid/ponzi schemes are by their very nature deceptive, and the best way for consumers to protect themselves is to avoid and be wary of opportunities to invest their hard-earned money in investment schemes that require one to bring in subsequent investors to increase profit and recoup the initial investment. Always exercise caution and independently verify the legitimacy of any investment and make use of authorised financial service providers registered and regulated in terms of the laws of Zimbabwe.