The upside-down triangle: A legal analysis of Ponzi Schemes in Zimbabwe

NAMATIRAI RUZVIDZO

Mr. Chirinda had always been a hard worker, but after years of  barely making  ends meets, he was desperate for a financial breakthrough.

That was when he met Mr. Mugabe, a charismatic businessman who promised him a  life changing investment opportunity.

Mr. Mugabe introduced Mr. Chirinda to an investment opportunity that seemed too good to be true. He promised that if Mr. Chirinda invested $10,000, he would receive a guaranteed return of 20% per month. Mr. Chirinda was skeptical at first, but Mr. Mugabe showed him documents and testimonials from other investors who had made huge profits. Desperate for a way out of his financial struggles, Mr. Chirinda decided to take the plunge. He invested the $10,000, and for the first few months, everything seemed fine. He received regular payments of $2,000, and he was convinced that he had made the right decision.

As time went on, Mr. Chirinda began to notice that something was off. The payments became less frequent, and when he tried to contact Mr. Mugabe, he was ignored. It was not until he received a call from a friend who had also invested in the scheme that he realized he had been scammed. The friend told Mr. Chirinda that Mr. Mugabe had been arrested and charged with running a Ponzi scheme. The scheme had been operating for years, and hundreds of people had lost thousands of dollars. Mr. Chirinda was devastated. He had lost his entire investment, and he was left with nothing. He felt foolish and ashamed, and he didn’t know how he was going to recover from this financial setback. As he looked back on the experience, Mr. Chirinda realized that he had been blinded by his desire to make a quick profit. He had ignored the warning signs and had invested in a scheme that seemed too good to be true.

What are Ponzi schemes?
Ponzi schemes, often referred to as pyramid schemes, have sadly made their mark across the globe, including in the rich history of Zimbabwe. With their tantalizing promises of quick and easy wealth, these fraudulent systems have left countless individuals in financial ruin. In this article, we will explore the legal aspects surrounding Ponzi schemes in Zimbabwean history, shedding light on the stories, consequences, and lessons learned.

Historical background
Zimbabwe has unfortunately witnessed a number of prominent Ponzi schemes that took advantage of unsuspecting victims. From the early days post-independence to recent years, these schemes have tarnished the country’s financial landscape.

Case Study 1: The E-Creator scheme
The E-creator Ponzi scheme was a notorious investment scam that operated in Zimbabwe in 2022 – 2023, targeting unsuspecting investors with promises of unusually high returns. E-creator promised investors returns of up to 30% per month, which is significantly higher than what traditional investments offer. The scheme claimed to invest in cryptocurrency and forex trading, which are complex and often volatile markets. E-creator recruited investors through social media, online advertising, and word of mouth. They targeted individuals looking for quick and easy ways to make money. E-creator made initial payments to investors, which were often small amounts, to build trust and credibility. As the scheme grew, investors began to experience difficulties when trying to withdraw their funds. E-creator would often cite technical issues, market fluctuations, or other excuses to delay or deny withdrawals. Eventually, the scheme collapsed, leaving thousands of investors with significant financial losses.

Case Study 2: The Pyramid mirage
Another prominent Ponzi scheme in Zimbabwean history was cleverly named “The Pyramid Mirage.” This scheme captivated victims with promises of unparalleled financial growth through various investments. The perpetrators maintained an elaborate facade, creating the illusion of thriving businesses. Unfortunately, this Ponzi scheme crumbled under its own weight, leaving countless people financially devastated.

Case Study 3: The MMM scheme

MMM (Mavrodi Mondial Moneybox) was a notorious global Ponzi scheme founded by Sergei Mavrodi in Russia in the 1990s. It promised high returns on investments, but it operated without any legitimate underlying business activity. MMM entered Zimbabwe’s financial landscape in 2016, attracting a significant number of participants with its promise of guaranteed returns of 100% or more within 30 days. MMM targeted vulnerable individuals facing economic hardships, promising them quick and easy solutions to their financial problems. It used social media platforms, word-of-mouth referrals, and community meetings to lure potential investors.

Participants were required to register on the MMM platform, provide personal information, and invest a specific amount of money. They were promised a percentage increase in their investment within a month. Participants were encouraged to recruit others and earn referral bonuses. The MMM scheme relied on new investments to pay returns to existing participants, rather than generating profits through genuine business activities. This unsustainable model created a snowball effect, where the scheme could only survive as long as new investors kept joining.

 In September 2016, MMM Zimbabwe abruptly announced it was freezing all accounts, blaming “heavy workload” and the need to “restructure.” This led to panic among participants who feared losing their investment. Thousands of people lost their savings, with some investing their life’s earnings in the scheme. The collapse of MMM Zimbabwe had severe socio-economic consequences, causing distress, despair, and financial ruin for many individuals and families. Following the collapse, regulators and law enforcement agencies in Zimbabwe launched investigations into MMM’s operations. Authorities warned the public about the risks associated with Ponzi schemes, emphasizing the need for due diligence before investing.

Legal aspects and consequences
Fraudulent misrepresentation
In a Ponzi scheme, the perpetrators intentionally misrepresent the nature of investment opportunities to lure new participants. This fraudulent misrepresentation is a serious offense under Zimbabwean law and is punishable by imprisonment and fines.

Money laundering
Ponzi schemes often involve the laundering of illicit funds. Through complex financial transactions, perpetrators attempt to disguise the source of their ill-gotten gains. The Money Laundering and Proceeds of Crime Act [Chapter 9:24] imposes severe penalties on those involved in this crime, including hefty fines and imprisonment.

Asset recovery and restitution
When a Ponzi scheme collapses, it is crucial to follow legal processes to recover and distribute the remaining assets to victims. The Criminal Law [Codification and Reform] Act [Chapter 9:23] provides mechanisms to ensure that victims have a chance to recover some of their losses. This process involves tracing and freezing assets, appointing liquidators, and initiating civil proceedings against the perpetrators.

Regulatory and enforcement measures
The Zimbabwean government has taken steps to combat Ponzi schemes by strengthening regulatory frameworks and enhancing enforcement mechanisms. Regulatory bodies such as the Securities and Exchange Commission of Zimbabwe (SECZ) and the Reserve Bank of Zimbabwe (RBZ) play a vital role in monitoring financial activities and preventing fraudulent schemes.

Lessons learned and future efforts
The prevalence of Ponzi schemes in Zimbabwe underscores the importance of financial literacy and awareness among individuals. Public education campaigns and initiatives by regulatory bodies are crucial to empower citizens to identify and avoid falling victim to such schemes. Additionally, continued efforts to strengthen legal measures and enforcement will help deter potential fraudsters and protect Zimbabwe’s financial integrity.

Conclusion
The history of Ponzi schemes in Zimbabwe serves as a stark reminder of the devastating consequences these fraudulent schemes have on individuals and society as a whole. The legal aspects surrounding Ponzi schemes highlight the need for strong regulations, effective enforcement, and education to safeguard against future occurrences. By learning from past mistakes, Zimbabwe can strive to protect its citizens from falling prey to the upside-down triangle of deception.
Namatirai Ruzvidzo is a registered Legal Practitioner, Conveyancer and Notary Public with the law firm, Ruzvidzo Legal Counsel. She can be reached on +263 784 228 534 or email namaruzvidzo@gmail.com, copying hello@rlcounsel.co.zw