AM I BEING SCAMMED?

It can be construed as a right of passage that at some point in your life, you may have received a message on social media informing you about an amazing money-making opportunity. Most commonly, these messages have something to do with either Forex exchange, cryptocurrency or the opportunity to sell products of a particular brand and to be part of a life changing motivating community. The opportunity to make extra money, or even make money easily, is a compelling reason to indulge any of these messages.

However, it is always very important to take caution when it comes to strangers sending you messages, or even emails, and to ensure you have all the information at your disposal to make the right decisions. There are various amounts of schemes and actual opportunities, so it is important to be able to differentiate between them.

Typically, the top three used models are either Ponzi Schemes, Pyramid Schemes or Multi-Level Marketing Corporations. The former two options being illegal business ventures while the latter remains to be a legal form of operations.

Here is a breakdown:

Ponzi Schemes prey on their victims by manipulating them into investing their hard-earned money in what seems to be a legitimate business start-up. The source of income in this type of scheme relies on new investors to maintain a revolving revenue. This flow is crucial, as once it starts to dry up, the Ponzi scheme will ultimately come to an end.

A pyramid scheme is also further contemplated within the Consumer Protection Act which describes this scheme as an arrangement whereby the income is derived from the active recruitment of other participants rather than the sale of products or services. To join the pyramid scheme, one is obligated to pay a kind of joining fee. This fee will then be redistributed to earlier investors aka the people higher up on the pyramid. The National Consumer Commission considers this scheme to be illegal and has warned potential investors against these schemes.

A Multi-level Marketing (“MLM”) corporation acts differently, as it is a business model which relies on the sales of goods or services. Specifically the sale of products only through the sale representatives of the company, making it seem that the products are exclusive. In terms of recruitment, sales representatives are then also able to recruit the interested parties who then will become sellers of the company’s product in their own right. The income is then derived from the sale of these products combined with the commission they stand to earn should they recruit sales representatives of their own. The MLM business model is considered the be a legitimate business model in South Africa.

Should you ever be presented with such an opportunity and would want to verify same, seek out the legality of the arrangement or if you have already fallen victim to what you think is a scam, please contact your trusted attorneys for assistance on 011 897 1900, 076 777 1920 or info@tuckers.co.za.

 

Article contributed by Karlienke Durandt of Tuckers Attorneys.