Pyramid schemes, which are illegal in South Africa, are returning in a more sophisticated form, according to banking registrar Errol Kruger.
He said yesterday that the Reserve Bank's department of banking supervision had investigated about 40 unregistered businesses or investment schemes.
In the 1990s and early 2000s, pyramid schemes operated as simple money chains, in which new members sent money to the person who enrolled them and went on to enrol more members.
Unlike pyramid marketing schemes, money pyramids offer no product or service, and returns depend entirely on expanding the chain.
As the schemes proliferated, the market shrank and latecomers were unable to recoup their investment, let alone make a profit. Then, for a while, the schemes faded from the scene.
Kruger said the schemes, which may have had up to 1 000 members, were now more complex.
The department's annual report for last year says: "They offer exorbitant returns on investment, luring depositors on a large scale. In recent cases, it has been found that the managers often fraudulently justify the exorbitant returns by stating that funds taken from the public will be invested in lucrative property developments."
To begin with, the schemes go undetected because members believe they will benefit. But when a scheme runs its course, those at the losing end turn to the authorities. Once the schemes have been identified, the Reserve Bank moves to close them. "It takes two to three months to investigate, but we believe we are closing them as fast as they come in," said Kruger.
full story from Business Report here