Crypto scams: Here’s how they use old pyramid scheme tricks to chow your money

Crypto scams can be as evil as pyramid schemes in a time when consumers are still trying to recover from the Covid-19 pandemic that forced many people out of their jobs and where reduced pay cuts became a norm.

Some individuals became desperate enough to look for quick money-making schemes to supplement their salaries, says Phetho Ntaba, spokesperson for the National Consumer Commission (NCC).

“Watching the SABC’s Cutting Edge recent exposure of Sebastian Gwetyana, who allegedly swindled desperate and unsuspecting South Africans out of their hard-earned money, left me with mixed emotions. This particular episode highlighted the greed, deceit and amoral actions of those who claim to be crypto gurus while they are out to scam people.”

Gwetyana claimed to be a “cryptocurrency guru” and author running an investment company, Crypto Insight, an ” investment” initiative that promised investors up to 100% of their investment in the shortest period possible.

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Remember UpMoney?

The NCC was alerted to a pyramid scheme, UpMoney, operating throughout the country, masquerading as a grocery stokvel late in 2020.

The directors of UpMoney capitalised on Covid-19 to manipulate desperate consumers into believing that UpMoney was an answer to their problems.

Ntaba says UpMoney – just like other schemes which pop up and then vanish with people’s money – was popular on Facebook before moving to closed WhatsApp groups.

“By the time the NCC got involved, at least 236 000 South Africans were already part of the pyramid scheme.”

The NCC was informed that participants were benefiting from the scheme until the promoters could not honour their promises.

“As with any other illegal scheme outlawed by the CPA, participants were required to join the scheme and recruit other people to keep the scheme active.”

After the NCC investigated the pyramid scheme, it turned out that its directors were living a flashy life, enriching themselves while desperate and vulnerable South Africans were left out to fight those who recruited them.

The directors were prosecuted and fined R1 million in March 2021, she says.

Ntaba says Crypto Insight’s modus operandi was exactly to scam unsuspecting consumers.

“It took one person to buy into Gwetyana’s story and later recruit or convince other people to buy into this so-called investment vehicle.

“Again, as with other schemes, Crypto Insights ‘thrived’ just to lure other potential investors. Do not get me wrong, I am not suggesting that cryptocurrency investments are all evil.

“The message here is to say, know the product you are buying before transacting.”

ALSO READ: If it’s too good to be true… How to identify a pyramid or Ponzi scheme

Using social media to lure you

According to one of the participants, they were encouraged to create WhatsApp groups to communicate better and encourage each other.

“This was the bigger plan to conceal the operation from the authorities, and they succeeded.

“Closed social media groups like WhatsApp and Telegram are very difficult to detect as an operation becomes a family affair, keeping the authorities from acting quickly and decisively.

“It looks like Gwetyana knew very well that he was dealing with desperate people who want to make quick cash.

“In the case of Crypto Insight, the NCC’s role is very minimal as consumers did not report the scheme.”

Ntaba says consumers hardly report crypto scams, probably because they know that it is a gamble.

“Some consumers participate knowing very well that they are taking part in illegal schemes. When they inform the authorities, it is because the scheme is collapsing or has already collapsed.”

While the authorities work hard to discourage these schemes, it must be noted that during the recruitment stage, promoters are prepared to use every resource to market their offering.

This makes it difficult for the authorities to nip the scheme in the bud as their messages can be overpowered by that of the participants, Ntaba says.

She warns that consumers must be cognisant of the fact that these schemes are not sustainable.

“There is no ‘join while it is still new’ because you do not know when the scheme started operating. No investment can guarantee you 100% interest on your returns.

“Remember, to investigate and bring to book the operators and promoters of the scams is not as easy as joining and making a payment.

“It is either you become part of the statistics (in fact, you are not only a statistic, but you are also an offender), or you help the authorities to put an end to these scams.”

ALSO READ: Bitcoin scam MTI’s ‘winners’ disappear after sheriff comes to court

Protection from the Consumer Protection Act

Ntaba says the CPA was enacted to protect consumers against unscrupulous suppliers of goods and services.

Section 43 of the CPA prohibits conduct that encourages consumers to join, participate, recruit others or promote a pyramid scheme, chain letter scheme, multiplication scheme and any other scheme.

“Once you take part in any of these schemes, you have committed an offence in terms of the CPA, and you are not protected by the law but can face prosecution just like the operators of UpMoney,” she says.

Tell-tales of these schemes are:

• Emphasis on recruitment
• Over-promising on returns (at least 20% above the repo rate)
• Very persistent (join now or miss out)
• Not registered with the Financial Sector Conduct Authority
• The scheme depends on recruits to pay members.

Ntaba says if you suspect that you have been recruited into joining such a scheme, get in touch with the NCC before it is too late. 

Send an email to Advisory@thencc.org.za. And remember:

“If it is too good to be true, it is too good to be true!”