Regulators warn public on Ponzi schemes return

Tuesday, August 25th, 2020 22:54 |
Central Bank of Kenya. Photo/PD/File

Lewis Njoka @LewisNjoka

Clement Kimani, a resident of Nakuru, joined Crowd1 earlier in the year by buying a 99 Euros (Sh12,647) package online hoping he would strike it rich sooner.

The package was supposed to earn him a minimum of Sh1,277 (10 Euros) within a week.

Months later, he has nothing to show for it other than some motivational talks he attended, courtesy of the educational pack he received upon his registration, which allowed him to attend some online classes.

He is now back to small-scale farming in his rural home in Nakuru having lost his hard-earned money.

Regulatory agencies are now warning the public of the re-emergence of fraudulent financial schemes out to defraud Kenyans under the guise of helping them make quick money during the ongoing Covid-19 pandemic.

This comes at a time when millions of Kenyans are surviving on reduced incomes having lost jobs and others placed on half-pay due to the pandemic, making them vulnerable to exploitation by the fraudsters.

Worse still, it comes amid uproar over a revelation that taxpayers might have lost billions to profiteers in the procurement of medical supplies and kits to fight the Covid-19 pandemic, handled by the Kenya Medical Supplies Authority (Kemsa).

In a public notice, the six regulators warned that action would be taken against the fraudsters and called on the public to report any unlicensed financial service providers to the authorities.

The regulators who issued the warning are  Central Bank of Kenya (CBK), the Capital Markets Authority (CMA), the Insurance Regulatory Authority (IRA), the Retirement Benefits Authority (RBA), the Sacco Societies Regulatory Authority (SASRA) and the Ministry of Industrialisation and Enterprise Development.

“As the coronavirus pandemic continues to unfold, we warn the public of the re-emergence of fraudulent and unlicensed financial schemes ,seeking to take advantage of Kenyans during these challenging times.

These rogue entities include online pyramid schemes, unlicensed credit and saving schemes, and unlicensed online forex brokers and traders,” reads the statement by the regulators in part.

They said some of the fraudulent entities have styled themselves as online global networking companies recruiting members of the public to join and make cash deposits with those who bring in more members receiving more benefits.

This, the regulators said, is a key characteristic of a pyramid scheme out to exploit vulnerable Kenyans.

Crowd1, a global network marketing company with operations in Kenya, has received widespread condemnation in recent days over its activities which mirror a pyramid scheme.

Exercise caution

Members of the newest quick money craze in Kenya earn bonuses by referring others to join the scheme, allowing the pioneers to profit off the newcomers.

A member can pick from four packages costing EURO99, EURO300, EURO750, and EURO2500 with a promise to receive a number of bonuses including a weekly bonus.

The bonuses are pegged on the number of people one brings into the organisation.

Recently, the Comesa Competition Commission issued a warning against pyramid schemes, where it singled out Crowd1 saying it poses as a multi-level marketer but operates as a pyramid scheme.

“Consumers are therefore advised to exercise caution when dealing with Crowd1 and also conduct research about companies they wish to invest in, to avoid losing their hard-earned money,” the commission said.

Comesa warned against dealing with the network marketer saying it has been flagged in Namibia, Philippines, Mauritius and New Zealand and is being investigated in South Africa.

Sacco Societies Regulatory Authority chief executive John Mwaka, said the regulators issued the warning to caution Kenyans now that many transactions have been moved online due to the Covid-19 pandemic.

“It is important that you be careful when you are dealing with financial providers who are not regulated.

Due to Covid-19 challenges, many people have shifted to online transactions, so cyber security issues are very critical.

You would want to deal with an institution that has the oversight of a government regulator,” said Mwaka.

Other fraudulent schemes, according to the regulators, have styled themselves as forex brokers and traders promising huge returns, yet they are not licensed by either the CBK or CMA.

“The purpose of this notice is to warn the members of the public against dealing with unlicensed financial schemes and unlicensed online forex dealers.

The public should only deal with licensed financial institutions and entities in order to protect them from losing their money,” the regulators said.

In August 2019, CBK issued a warning against unregulated online forex dealers terming them fraudsters.

“The attention of CBK has been drawn to the unlicensed and unregulated online forex dealers and platforms that put Kenyans at risk of losing their money,” said CBK in a statement.

At the time, only EGM Securities Limited was licensed to operate as a Non – Dealing Online Foreign Exchange Broker, according to CMA.

This latest warning by the regulators follows similar efforts made earlier, to protect the public from exploitation by unregulated financial service providers.

In mid-April, about a month after the first Covid-19 case was reported in Kenya, CBK barred all unregulated digital mobile lenders from forwarding the names of loan defaulters to Credit Reference Bureaus (CRBs) and stopped the blacklisting of borrowers owing less than Sh1,000.

At the time, more than 3.2 million Kenyans had been listed in CRBs as loan defaulters amid job losses and pay cuts, occasioned by the pandemic.


In July 2018, CBK warned Kenyans to be extra-vigilant citing a rise in the number of unlicensed mobile loan applications over a rise in the number of unlicensed mobile loan applications, online pyramid schemes and credit and saving schemes.

Ever since Covid-19 struck Kenya in March, more than a million people have lost their jobs with the Federation of Kenya Employers warning that 2.3 million workers could lose employer medical cover should the pandemic persist.

It is the desperation emanating from these happenings that the fraudsters are seeking to exploit with their schemes.

Kenyans have for a long time fallen prey to well-orchestrated pyramid schemes that appear only to fleece members of the public of billions of shillings and then go under.

As late as March, members of the fallen VIP Portal were still demanding a refund of about Sh1 billion, the Limuru based firm is alleged to have defrauded them since 2013.

In the recent past, the real estate sector has witnessed its fair share of fraudulent schemes with investors in Gakuyo Real Estate, Diamond Property Merchants, Goldenscape Group left counting losses after their investments turned out to be white elephants.

Even as victims of the recent schemes await refund, victims of the older pyramid schemes such as the Sh34 billion pyramid scheme of 2009 are yet to get justice.

The Francis Nyenze-led taskforce report, which investigated the fraud and fingered powerful government officials over their involvement, is yet to be acted upon.

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