The Gauteng Division of the High Court has granted a second preservation order – this time for more than R3 million – against “a grocery stokvel” that the National Consumer Commission (NCC) says is a pyramid scheme.
Women Against Poverty and Hunger (WAPH) has been promoting a so-called grocery stokvel through social media, the NCC said.
The High Court granted the first preservation order in favour of the Asset Forfeiture Unit of the National Prosecuting Authority on 18 September. The order froze R1 535 040 held across three bank accounts belonging to WAPH and one account belonging to the scheme’s founder and one of its promoters, Kelebogile Precious Phumo (also known as Madame Lebo).
Read: Court freezes R1.5m linked to alleged pyramid scheme targeting vulnerable consumers
On 30 September, the court granted the second order, for R3 791 829, against WAPH, Phumo, and eight other people. This brings the total amount preserved to date to R5 326 869.
The NCC said it has evidence that WAPH was operating as a multiplication scheme and a pyramid scheme, violating sections 43(2)(a) and 43(4) of the Consumer Protection Act (CPA).
The scheme requires members to make a once-off payment of R300 in exchange for monthly grocery parcels over 12 months. The groceries promised to participants include a 10kg bag of rice, a 10kg bag of flour, 2kg of sugar, 2 litres of cooking oil, a box of tomatoes, and a head of cabbage. In reality, these items would cost about R5 310 over the year. Therefore, the implied annual return was 1 670%, the NCC said.
A multiplication scheme is an arrangement that promises or guarantees participants an effective annual interest rate that is at least 20% above the repo rate.
The NCC said WAPH conducted a pyramid scheme by promising unrealistic returns and encouraging participants to recruit more participants for a reward of R1 000.
Section 43(4) of the CPA describes a pyramid scheme as “an arrangement, agreement, practice of scheme if participants in the scheme receive compensation derived primarily from their respective recruitment of other persons as participants, rather than from the sale of any goods or services”.
The Act prohibits any person from directly or indirectly promoting, joining, entering, or participating in pyramids, multiplication, and related schemes.
The NCC’s acting commissioner, Hardin Ratshisusu, welcome the second preservation order but said the NCC is concerned that the promoters appear to be continuing with the scheme.
