We Working At The Pyramids Tonight: The Need To Know On Pyramid Schemes.

Note: "We working at the pyramids tonight" is a lyrics from the song Pyramids by Frank Ocean

The image attached herein is an image depicting a screenshot of someone's music media player playing one of the most beautiful songs in the history of songs. Pyramids is a song from the generational artist, Frank Ocean which is one of those songs that hits the perfect spot in one's auditory facilities. This is one of my all-time favourite records ever. I therein knew immediately what image I would use for this blog post.

Although i would be excited to write an entire post on this song, and what it means to me, and how it makes me feel and its impact on my outlook as it relates to art, sadly this is not what we will be doing. Here we will be looking at Pyramid schemes, yes the get people to join, and you will get paid, that pyramid scheme. Pyramid schemes are far from being as beautiful as the Frank Ocean and therefore, i feel its necessary to write for the purpose of raising awareness on the existence of these schemes and how such can be spotted. I have never liked certain sects of people taking advantage of other people and pyramid schemes are premised on that model, the taking advantage of others model.

We will explore what a pyramid scheme is, the law applicable to such a scheme ( because this is still a legal blog) and outline on what to look for in order to avoid falling prey to the dangers of this scheme, or even worse, having the Prudential Authority investigate you for contravening the banks act because you're participating in a "business of a bank" without being registered as a bank ( this part will get clearer-apologies for the forshadowing)

WHAT IS A PYRAMID SCHEME:

You remember that one episode from critically acclaimed series The Office starring Steve Carrel who plays Micheal Scott in the series. In this Mike is recruiting his employees in a business opportunity which he didnt know was a pyramid scheme until Jim illustrates Mike's business on a white board as a pyramid as Mike was in denial that his doing a pyramid scheme. The business opportunity Mike was recruiting his employees was explained as followed by Micheal Scott and I quote: "Phil has recruited me and another guy Now we are getting three people each. The more people that get involved, the more people who are investing, the more money we are going to make. Its not even a pyramid scheme". As Mike said that last sentence, this is the picture Jim drew:

(See the video on the link Michael's Pyramid Scheme - The Office US (youtube.com) for reference.)

That is the simple, straight foward definition of what a pyramid scheme is, and how it looks like.

Now What Does The Law Say About This Model:

There are two pieces of legislation which will be discussed below which from the readings done thus far, provide rules as its relates to the offence of pyramid schemes. Its the Bank Act 94 and the Consumer Protection Act 2008. These two acts provide for the prohibition of engaging in pyramid schemes either directly or indirectly.

The Banks Act:

"The purpose and objective of the banks act is to provide for the regulation and supervision of the business of public companies, taking deposits from the public and provides of matter connected therewith"

Pyramid schemes have an element of taking deposit from the public and therefore the banks act prohibits such business practices as per its Section 11 wherein it states that non shall conduct a business of a bank unless it's a public company and is registered as a bank. Contravention of section 11 is an offence.

Pyramid schemes, due to its business model nature of taking deposit from the public, with the public in return having expectations of receiving returns, is regarded as a business of a bank

A business is conducting a business of a bank where such business accepts deposits from the general public as a regular feature of the business. And also the soliciting and advertising for deposit is as per the banks act a business of a bank. Pyramid schemes are usually characterized by such activity and therefore any business utilizing a pyramid scheme model is prohibited as per the banks act because you cannot conduct a business of a bank without being registered as a bank. Registration and authorization to conduct a business of a bank is governed by section 12 and section 18A of the banks act, which provide basically that authorization must be received from the Registrar and an application for registration as a bank must be done in order to conduct a business of a bank or one similar to a bank.

Wherein there is suspicion that you are running such a business model, you can be inspected by the Governor of the South African Reserve banks in terms of section 12 of the South African Reserve Bank Act 90 . Should after the inspectation of your affairs be found that you running such prohibited act, you will be notified of your obligation to pay back the monies or face being deemed unable to pay your debts and deemed to having committed an act of insolvency. So that chill on the schemes, i know millions in returns are promised and sold in pyramid scheme, but just don't.

The Consumer Protection Act:

One of the main purpose and objective of the consumer protection act is to "prohibit certain unfair marketing and business practices. Pyramid schemes as seen from its explaination from the banks act is a prohibited business practice due to its characteristic of being engaged in a business of taking/soliciting deposits from the general public without being registered as a bank nor being authorised to conduct a business of bank.

Section 43 of the consumer protection act, provides for the prohibition of a pyramid scheme business model in that it stipulates that "A person must not directly or indirectly promote, knowingly join, enter or participate in a Pyramid scheme.

(Note: The banks act does no per se directly name a pyramid scheme as a prohibited business conduct, but due to a pyramid scheme satisfying the characteristic of the definition of business of a bank, with one being the acceptance of deposit from the general public, it offence is informed by that trait in its business model. )

Unlike the Banks Act, the Consumer protection act directly names the prohibition of a pyramid scheme and its further provides an explaination of what constitutes a pyramid scheme.

Section 43(4) of the Consumer Protection Act provides that an arrangement, agreement, practice or scheme is a pyramid scheme if:

• participating member receive compensation primarily from their recruitment of new participants, instead of recieving compensation benefit from sales. So its a pyramid scheme where you sold larger returns through recruiting as compared to sales.

• emphasis in the promotion of the scheme indicates an arrangement or practice as described above. So where in promoting the scheme, the encouragement to join is mostly centred around compensation from recruitment not sale of the provide, then thats a tell sign that you are about to embark in prohibited activities that have potential of posing civil consequences unto you.

Lastly and this is an important mention is that its prohibited as per the Consumer Protection Act to cause someone to join or participate in a pyramid scheme.

In all the writings produced in this blog site, they are accompanied by quick court judgment analysis to show that the subject discussed is a real thing that exist and in this post, we look at the case of Prudential Authority v The Mayongos

Prudential Authority & E Mayongos 2024:

This the courts matter of focus was adjudicating on the issue of sequestration as the applicant being prudential authority bought in a final sequestration application to the court for its consideration. But we wont touch on the technicalities of sequestration in this matter and we will use this matter as an illustration on the type of trouble you could face should you be found being engaged in a arrangement such as a pyramid scheme.

Heres what happened:

Mr E was participating in a scheme that resemble a pyramid scheme. It involved vouchers and recruiting people to sign on so you can go to another level within the scheme which affords you more benefits like hotel discounts and cash and all that nice stuff.

An inspection into his affairs was conducted, and a report was sent to the prudential authority wherein upon the authority's evaluation of the report from the inspectors, it was found that Mr E was participating in a scheme involving the deposit taking from the general public without the necessary authorization. Since that falls within the description of a business of a bank, Mr E was in breach of the Banks Act as he was not registered as a bank and due to that, the authority ordered him to pay back the deposits he received or face being deemed unable to pay his debt and having committed an act of insolvency. Which led to him and his wife jointly in their estate being subjected to sequestration proceedings.

Court found for the sequestration of Mr E as the Prudential Authorities attorney was able establish and convince the court that it would to be to the advantage of the creditors that Mr E gets sequestrated.

All those assets he so cherishes will be sold by the liquidators so that his creditors can be paid and the persons who gave him deposits can be paid back the loss they suffered.

CONCLUSION

I believe in free will. I believe that true freedom is found in true, unfiltered autonomy. Doing whatever you want. My role and contribution from some of my literary works is to bring awareness of what is prohibited and to bring information of the rules of the law which are set to govern law and order of society. So i really want actors of their decision to be informed in acting out their decision. If a person decides to do wrong, or do whats regarded as an offence, they must do so with the information that its an offence and that it comes withs consequences. Its better to face consequence while prepared, instead of being surprised by the consequence showing up in your door step as a section 83 Notice of the Banks Act.

Disclaimer

The views and opinion expressed are those of my own, based on my own experiences and my subjective interpretation of the subject matter. They are not authority nor should they be construed to be authority. Do your research, read further, gain knowledge and do what you want with it. Non of the views expressed herein are legal advice. Always seek a legal practitioner for your legal problems. All views expressed are views founded on opinion and subjective perspective. ITS NOT AUTHORITY