A regional trade body has warned Kenyans against buying into multi-level marketing firm Crowd1, saying it has all the hallmarks of a pyramid scheme.
The Common Market for Eastern and Southern Africa (Comesa), while warning consumers to be wary of pyramid schemes, gave the example of Crowd1, which “markets itself as a digital multi-level marketing company and whose operations are being investigated in some jurisdictions”.
This comes days after Kenya’s six financial regulators also warned the public against fraudulent financial schemes.
While the regulators did not mention these schemes by name, the consumer alert by Comesa’s Competition Commission documented that the activities of Crowd1 had either been prohibited or were under investigation in various countries.
Crowd1, said the alert, has since been banned in Namibia after authorities found that members make money by recruiting others, the hallmark of a pyramid scheme.
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“In Philippines, authorities issued a cease and desist order to Crowd1 for operating without a licence,” read part of the alert.
Authorities in Mauritius and New Zealand have also issued investor alerts, while those in South Africa are still assessing complaints raised.
“The commission has observed that some pyramid schemes pose as multi-level marketers that pretend to be selling products,” said the commission. “However, at a close glance there are no sustainable earnings from the sale of the products and members are often advised to recruit others to make money.”
The commission noted that pyramid schemes are not as sustainable as those at the top of the pyramid benefit at the expense of new recruits.
“Consumers are, therefore, advised to exercise caution when dealing with Crowd 1 and also conduct research about companies they wish to invest in to avoid losing their hard-earned money,” it added.
Crowd1 is an investment craze sweeping across social media and its model of success is, like many before it, quite simple: the more people you recruit, the more money you make. The pioneers profit off the newcomers and boost the scheme’s spread. It is not based on any solid product or service but promises to make the masses instant millionaires.
Its creators say they are raising funds that will be used to buy online technologies, thus helping innovators in developing countries who have problems getting funds from Silicon Valley in the United States.
Such get-rich-quick schemes largely target the youth. According to a White Paper on consumer financial education in Kenya with respect to capital markets — which is the part of the financial system that raises cash through the sale of shares, bonds and other long-term instruments — when young people think of investment, they think of getting rich quickly.
The findings of the White Paper are intended to inform a national consumer financial education strategy.