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Lack of investing knowledge leaves consumers vulnerable

The National Consumer Council is probing 9 questionable investment schemes following complaints from SARS.

Limited understanding makes South Africans vulnerable to beind duped into believing pyramid and Ponzi schemes are sound investment options.Picture: Christa Eybers/EWN

CAPE TOWN - A consumer rights expert says many people fall prey to pyramid schemes due to a poor understanding of legitimate investment models.

The National Consumer Commission (NCC) is currently investigating nine suspected pyramid and Ponzi schemes following complaints from the South African Revenue Service (SARS).

Consumer rights lawyer Professor Tanya Woker says people who have a poor understanding of investments are easily duped into believing pyramid and Ponzi schemes are sound investment options.

Woker says this lack of knowledge makes people gullible and vulnerable.

"Anything over 20 percent of the repo rate, at about 25,5 percent, offered on an investment is actually prohibited."

The National Consumer Commission is conducting preliminary investigations into several businesses, including MMM South Africa, World Ventures and Kipi.

Some of these operations' websites promise a 30 percent return with an added 10 percent bonus for recruiting other members.

The NCC has warned those running such operations they are hot on their heels.

The commission's Trevor Hattingh says there are several ways to identify a pyramid scheme.

"You must also be wary of schemes where you are required to pay, either a joining fee or you are asked to pay an amount up front, as an investment."