Business Practices Committee Report 75Alpha Club3. The Investigation into Money Revolving Schemes |
The investigation by the Committee into the business practices of Newport commenced early in 1997. The investigation was protracted because of numerous court cases instituted by Newport against the Committee. These are set out in detail in Report 56.
The investigation into Newport was preceded by an investigation into the business practices of the Rainbow Business Club.
The Rainbow and Newport schemes led to a mushrooming of such schemes in South Africa during the past three years. These schemes, commonly called "pyramids", create a dilemma for authorities. While a scheme is operating there are people, who are making money out of it. This apparent success is always visible to new entrants. Should the authorities step in and stop the scheme to prevent still more people from losing money, the authorities are accused of being paternalistic, unconstitutional, interfering with the consumers' freedom of choice, ignorance, bias and many more. When the authorities do not intervene and the scheme grinds to a stop, as all these schemes inevitably do, the outcry is "... why did the authorities not intervene?"
The ad hoc investigations took up considerable time and the Committee resolved to undertake a general or section 8(1)(b) investigation in terms of the Act into "money revolving schemes". The following appeared as Notice 1545 in Government Gazette No 18390 of 31 October 1997.
"in terms of the provisions of section 8(4) of the Harmful Business Practices Act, 1988 (Act No 71 of 1988), notice is hereby given that the Business Practices Committee intends undertaking an investigation in terms of section 8(1)(b) of the said Act into money revolving schemes as defined in the schedule.
Schedule
In this notice, unless the context indicates otherwise, a "money revolving scheme" means a scheme-
| a) | whereby participants are required to contribute valuable consideration towards the scheme, part of which contribution is used to reward both the promoters of the scheme and/or participants who preceded new participants and whereby promoters and/or participants are entitled to receive rewards out of contributions made by successive participants; and/or |
| b) | whereby the rewards of promoters and/or participants are directly correlated to the numbers of new participants canvassed directly or indirectly by the existing promoters and/or participants; and/or |
| c) | in which a majority of participants will not recoup their contributions, irrespective of: |
| i) | the stage on the life cycle of the scheme; and/or |
| ii) | at what stage the scheme comes to an end; and/or |
| iii) | at what stage the participants joined the scheme". |
The results of this investigation were published under Notice 1349 of 1997 in Government Gazette 18292 dated 17 September 1997.