A legal analysis of the regulation of pyramid/ponzi schemes in South Africa with specific focus on the following; the R699 car deal scheme and the travel scheme World Ventures.

Abstract

Pyramid and Ponzi schemes are classified as a white-collar crime due to their fraudulent nature and non-application of physical violence. The primary intention of these types of schemes is to extract considerable financial gain from their victims. The promoters behind these types of schemes are intelligent, confident and manipulative. They have a natural ability to allay fears or concerns to gain the trust of potential investors. The schemes which are the topic of this study offer an insight into the measures taken by promoters to ensure that the pyramid or Ponzi scheme appears as a legitimate investment opportunity. The South African legislature has enacted several pieces of new consumer and financial legislation prohibiting the growth of these types of schemes. These pieces of newly enacted legislation have formed a comprehensive regulatory legislative framework which is aimed at strengthening existing rights, giving effect to new consumer rights and establishing alternative avenues for victims to seek recourse or redress. The purpose of this study is to determine the effectiveness of the current South African regulatory legislative framework in addressing the dangers posed by pyramid and Ponzi schemes. In order to assess the effectiveness of the current regulatory legislative framework, this study analyses two prominent schemes which have affected many South African consumers. The two schemes which have been selected are the R699 car deal Ponzi scheme and the suspected pyramid scheme, World Ventures. These two schemes are estimated to have entrapped a combined total of over forty-thousand South Africans with their respective undertakings. The detailed discussions which are contained in this study highlight the strengths and weaknesses of the current regulatory legislative framework. In addition, the study explores the perspective of the victims and attempts to determine whether or not the established avenues of recourse are as effective as they are portrayed. The study concludes by offering an overall perspective of the current regulatory legislative framework and includes suggestions which may aid the current regulatory legislative framework to be more effective.