daniel chigunwe
Tom Muleya
Fraud Insight
The impact of collapsed fraudulent money schemes commonly known as pyramid schemes or Ponzi schemes has had varying degrees among its victims in Zimbabwe.
Many investors that were expecting of becoming rich over a fortnight have been further impoverished.
Loss of money in these fraudulent financial investments has led to untold suffering among its victims such as; depressions, strokes, mental illnesses, divorces, murder, suicides, impoverishment, homelessness, and business collapse.
The Kwekwe woman, who drank poison, following the collapse of the Berven Capital Pyramid scheme (August 2020) in Harare, is one case in point. Pyramid schemes are a serious threat to human life and economic empowerment.
Many victims in various parts of Zimbabwe are counting their losses from these fraudulent money schemes that promised massive returns for investment.
Some varieties of Ponzi schemes include pyramid scams, Bitcoins, and Crypto Currency Share investment schemes among others.
The first noted pyramid scheme was created by the Italian-American Charles Ponzi in 1919. Despite Ponzi being the one whose name is associated with various types of pyramid schemes, the acts were first committed as early as 1860s.
The recent and famous world record pyramid scheme involved the fall of Bernard Lawrence “Bernie” Madoff, an American financier who executed the largest Ponzi scheme in history by defrauding thousands of investors collectively of over US$65 billion over a period of 17 years. He was sentenced to 150 years imprisonment for this crime of fraud in 2009 while he was 71 years and died still serving his world record sentence in April 2021 at an age 82 years.
Earlier in 1879, Sarah Howe was sentenced to 3 years imprisonment for creating a fraudulent pyramid scheme called the “Ladies Deposit Scheme” in Boston in 1879. She claimed that investor deposits would be doubled in ninemonths. Lucky ran out of her as the Boston Daily Advertiser unearthed the scam leading to Howe’s imprisonment.
In the Zimbabwean context, the history of Ponzi schemes dates back to the 1990s, when the Russian MMM Global scheme was reborn in Bulawayo, Zimbabwe and quickly spread throughout the country. In 2016, the RBZ reiterated that MMM Global Zimbabwe was the biggest pyramid scheme to have scammed investors in Zimbabwe. In 1996, Seke High School teachers in Chitungwiza operated pyramids schemes and defrauded people.
In 2013, the Goezing Pawnbrokers scheme run by George Zingane became the talk of the town.
Civil servants would apply for loans from banks and channel the money into the scheme. Some clients among them, church leaders sold their properties such as cars and houses and invested in the fraudulent scheme.
The diaspora would also sign-up with a belief that the investment would benefit their families back home. Its collapse plunged many investors into bankruptcy.
In 2020, the Covid-19 “Berven Capital Pyramid Scheme” caused a stir among many investors in Harare as people stampeded to invest in the fraudulent scheme that promised very high returns within a short period of time.
And recently in 2021, few months back, the Crypto Currency Share Investor scheme run by Martin Mhlanga, aka Boss Martin, hit the capital city, Harare. The scheme defrauded many investors again like the preceding schemes.
But what are pyramid/Ponzi schemes? And how do they operate and scam investors? Pyramid schemes can be defined and described in so many ways.
Ponzi schemes and pyramid schemes are similar in that both use new investors’ funds to pay earlier investors. A pyramid scheme is an illegal and fraudulent investment based on a hierarchical set of network marketing.
New recruits make up the base of the pyramid and provide the funding or so called returns in the forms of new money outlays to the earlier investors or recruits structured above them in the scheme.
A Ponzi scheme is a non-multilevel marketing strategy and does not involve the selling of products. Rather it relies on the constant inflow of money from new additional investors.
A pyramid collapses once the entity running the scheme is unable to sustain itself by failing to attract new investors to pay off earlier investors.
The second reason that leads to collapse of pyramid schemes is that once they become popular, they attract the attention of Regulatory Authorities such as the Central Bank and are investigated.
Since they are normally not registered under the laws of the country, the founders abruptly shut-down business and disappear to other countries with investors’ money.
Get empowered by Fraud insight and be part of a solution to fraud scams. Watch out for the next issue as we look at ways one can avoid Pyramid/Ponzi schemes.
For your feedback, WhatsApp line: 0772 764 043, or e-mail:[email protected]. Tom Muleya is a Detective Assistant Inspector working under the Criminal Investigations Department. Harare
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