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Return of Pyramid Schemes and Financial Fraudsters

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With financial hardships caused by Covid-19 pandemic – loss of jobs and reduced incomes – most Kenyans are looking for every opportunity to earn an extra income.  In this situation lies a fertile ground for fraudsters out to fleece unsuspecting investors. Also, with incomes running short, many Kenyans are vulnerable to not only greediness for get-rich-quick schemes but also easy manipulations.

Central Bank of Kenya (CBK), concerned at the resurgence of such schemes, has partnered with a number of stakeholders in the financial services and capital markets industries to counter a growing wave of unlicensed con-schemes fashioned as credible investment vehicles or credit vendors.

The regulators – CBK, Capital Markets Authority (CMA), Sacco Societies Regulatory Authority (SASRA), Retirement Benefits Authority (RBA), and the Ministry of Industry, Trade, and Cooperatives – on Tuesday issued a joint statement warning Kenyans against schemes currently operating in the market.

“As the Coronavirus (COVID-19) 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,” they say in the statement. “These rogue entities include online pyramid schemes, unlicensed credit and savings schemes, and unlicensed online forex brokers and traders.”

The regulators say some of the fraudulent entities have styled themselves as online global networking companies that seek to recruit members of the public to join and make cash deposits purportedly to buy shares in the company.  

“The encouragement to recruit new members in order to receive more benefits is a characteristic of a fraudulent pyramid scheme,” the statement said. “We had previously, issued a Public Notice in July 2018 warning the public against such unlicensed financial services and products.”

Other fraudulent unregulated entities styling themselves as online foreign exchange (forex) brokers and traders have also emerged. These entities promise customers huge returns and are not licensed as required, either as online forex brokers or traders by the Capital Markets Authority (CMA) or as forex dealers by the Central Bank of Kenya (CBK).

CMA licenses and regulates online forex brokerage and trading, and other capital market products, while CBK licenses and regulates all forex dealers and the Kenya Shilling component of any online forex trading and brokerage.

“These rogue entities seek to exploit Kenyans and pose Money Laundering and Financing of Terrorism risks to the financial sector,” the statement says. CBK had previously issued a Public Notice in August 2019 warning the public against unlicensed forex dealers.

Sadly, though, the regulator did not name any culprits in their advisory, leaving Kenyans on their own in spotting fraudsters. As history has shown, Kenyans lured by quick returns often shelve their sense of judgement.

The country has been abuzz lately with investment schemes promising quick and higher returns for those who join. The talk of town is Crowd1, which is recruiting members and charging each Ksh12,000 entry fee.

Crowd1 Warning Signs

Crowd1 scheme is under investigation and even banned in some countries, but that has not deterred Kenyans hoping to cash in from their investments. With economic hardships worsened by the COVID-19 pandemic, the operation continues to attract those eager to make a quick profit.

Crowd1, founded by Swedish businessperson Jonas Eric Werner in 2019 and owned by Impact Crowd Technology, was introduced to in South Africa in November last year and reached Kenya this year.

Crowd1 bears the hallmarks of a pyramid scheme because it works through paid recruitment where money has to be sent up the chain.

It has been touted as the next generation marketing network but there are warnings that it’s nothing more than a get-rich-quick scheme that is bound to leave many in debt and tears.

The operation doesn’t offer tangible products but claims to use multi-level marketing to sell packages and shares to investors. It purports to sell educational packs and shares in casinos across the world but the only way for investors to profit is through the recruitment of others, who have to fork out at least R1,800 to join. But in order for members to make a profit, they have to recruit others into their teams.

See Also >> Why Kenyans Are Always Falling Prey to Pyramid Schemes

Critics say that Crowd1 bears the hallmarks of a pyramid scheme because it works through paid recruitment where money has to be sent up the chain.

Regulators on high alert

CBK and the other regulators warned members of the public against dealing with unlicensed financial schemes and unlicensed online forex dealers. They advised the  public to deal with licensed financial institutions and entities to protect themselves from being defrauded and losing their money.

“Members of the public are reminded that in addition to a business permit, regulated financial institutions are required to have a valid license issued by a financial sector regulator,” it says.

They said appropriate action will be taken against unlicensed entities involved in the provision of fraudulent or unlawful financial services, and unlicensed forex dealers. The warning may come a little too late for thousands of Kenyans who have already been enroled into these schemes.


Unlicensed and unregulated financial services and products include online pyramid schemes, credit and savings schemes as well as fraudulent mobile loan applications downloadable from mobile app stores, including Google Play Store and Apple Store. Some of the features of these products include:

1. They require payment of a registration fee.

2. They require members of the public to save before qualifying for a credit facility.

3. They promise unusually high returns, with little or no risk or without disclosing the related risks.

4. They rely on investment strategies that are not explained or that are not clearly understood.

 5. They may require recruitment of more clients to earn points and qualify for more benefits such as bigger loans.

6. They do not have a registered physical address information and display non-existent telephone numbers, websites and addresses.

7. They copy the look and feel of genuine mobile applications of known and licensed financial institutions.

8. They do not have customer care helplines or support mechanisms.

9. They are not registered, licenced or regulated by any regulatory body in Kenya.

Next >> How to Spot – and Avoid – a Network Marketer

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