At some point in your life, you may have received a message on social media about an enticing money-making opportunity. These messages often relate to Forex trading, cryptocurrency, or the chance to sell products from a particular brand and join a life-changing, motivating community. The allure of making extra money, or even easy money, can be compelling.
However, it is crucial to exercise caution with messages from strangers, whether via social media or email, and ensure you have all the necessary information to make informed decisions. Distinguishing between genuine opportunities and fraudulent schemes is essential.
Typically, there are three common models used: Ponzi schemes, pyramid schemes, and multi-level marketing (MLM) corporations. The first two are illegal business ventures, while the latter is a legal form of operation.
Here is a breakdown:
Ponzi Schemes: These schemes manipulate victims into investing their hard-earned money in what appears to be a legitimate business. The income in a Ponzi scheme relies on a steady influx of new investors to sustain revenue. When this flow of new investment diminishes, the scheme collapses.
Pyramid Schemes: Defined within the Consumer Protection Act, pyramid schemes involve income being derived from the active recruitment of new participants rather than the sale of products or services. Participants are required to pay a joining fee, which is then redistributed to earlier investors at higher levels of the pyramid. The National Consumer Commission considers pyramid schemes illegal and advises against participation.
Multi-Level Marketing (MLM): MLM corporations operate differently. They focus on the sale of goods or services, with products sold exclusively through company sales representatives. Representatives can recruit others, who also become sellers of the company’s products. Income is generated from product sales and commissions earned from recruiting new sales representatives. MLM is considered a legitimate business model in South Africa.
If you encounter an investment opportunity and wish to verify its legitimacy, or if you believe you have fallen victim to a scam, contact your trusted attorneys for assistance. Reach out to us at 011 897 1900, 076 777 1920 (after hours), or email info@tuckers.co.za.
This article was contributed by Karlienke Durandt of Tuckers Attorneys.