Dear students
During these uncertain times, we face an increased risk to be targeted with unverified information, fake news, phishing attacks and fraudulent financial schemes. These are infiltrating social media channels at an unprecedented level.
One such an example is the re-emergence of a WhatsApp message widely circulated late last year, encouraging people to invest their money in a 'WhatsApp stokvel'. The National Stokvel Association of South Africa (Nasasa) has warned people against these, comparing it to a pyramid scheme. While traditional stokvels that operate in good faith are acceptable in South Africa, pyramid schemes, on the other hand, are not. A pyramid scheme is a particular type of scam. It is a recruitment scheme and promises great returns if more people are recruited to the scheme. A pyramid scheme has no underlying investments to generate returns for investors, and collapses when the recruitment of new members cannot be maintained. The initial “investors" potentially receive large financial gains by exploiting participants lower down in the pyramid. In South Africa, these types of schemes are illegal and must be avoided.
In the latest message targeting students a joining fee of R200 is required, with the promise of a R1 200 cash pay-out once this group has reached 11 members. It would be easy for us to say afterwards that victims should have known better, but we are not in the business of victim blaming and therefore, I wish to caution you when you are faced with such an opportunity to invest since pyramid schemes are not sustainable.
How to protect yourself
Fraudulent schemes can appear in many different forms, but there are a few warning signs to look out for.
- Promises to deliver an unreasonable return on investment.
- Promises overnight profits or income based on your ability to recruit.
- Pay-outs are made from new investors, not from profits.
- Relies on recruitment without meetings with real members.
- It has no physical address or landline. Only WhatsApp is used in recent times.
- Doesn't give refunds.
Besides pyramid schemes there are a number of other similar scams that operate on a slightly different basis:
- These include Ponzi schemes, which is an investment scheme that promises great returns for invested money and doesn't seem different from other investment services. But there is no investment happening.
- A multilevel marketing (MLM) scheme is similar to a pyramid scheme but involves selling products of some sort. MLM's are controversial, and some could be considered to be pyramid schemes. Recently such scams use promises involving cryptocurrencies and forex trading.
Before you enter into an investment of any kind, make sure that you have as much information about the investment as possible. This includes knowing the person offering the investment opportunity, making sure that a reputable investment or financial firm is involved, and getting advice from a registered investment or financial adviser.
Please take care of yourself and your finances.
Warm regards
Dr Choice Makhetha
Senior Director: Division Student Affairs
(Disclaimer: Stellenbosch University (SU) is not a registered financial services provider and the content of this message should not be seen as financial advice to students or any other members of the SU Community.)
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