Taskforce formed on pyramid schemes

February 9, 2009
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, NAIROBI, Kenya, Feb 9 – The government has constituted a taskforce to advice on how Kenyans who lost billions of shillings worth of investments in pyramid schemes can recover their money.

Cooperatives Minister Joe Nyaga said on Monday that the nine-member team would also be expected to recommend strategies to apprehend the operators of the schemes with a view to prosecuting them.

“The team, which should submit a draft report and the recommendations in three months, should also establish the number and nature of pyramid and other related schemes in existence and the identities of their directors,” the minister said.

It is estimated that approximately Sh35 billion was lost especially between 2006 and 2007 when there was a proliferation of the illegal ‘get-rich quick’ schemes where promoters promise exponential returns that are beyond market fundamentals.

Their success rests on the recruitment of new members but they eventually collapse when they cannot deliver the promised high-return payments.

Many schemes had been registered as self-help groups, Savings and credit co-operative societies (SACCOS) or companies but immediately reverted to pyramid related activities.

Mr Nyaga explained that the government was in the process of developing a SACCO Societies Bill which is a comprehensive legal and regulatory framework aimed at strengthening Micro Finance Institutions (MFIs) and SACCOs.

This regime, he observed would provide Kenyans with an alternative and secure investment vehicle and thus reduce the attractiveness of fraud scams. Mt Kenya, Nairobi and parts of Western Kenya provinces have been worst hit.

At the same time, the Pyramid Schemes Victims Initiative is lobbying the government to have the frozen assets of the schemes released to them.

The initiative’s Chief Executive Officer Joseph Kinyua said the money would be used to refund some of the claims lodged by the victims.

“The government is holding money in the Central Bank of Kenya (CBK) which belongs to investors. So the government should release it to the rightful owners,” Mr Kinyua demanded.

In 2007, the government through the CBK directed commercial banks to urgently conduct due diligence on the accounts “exhibiting characteristics of pyramid schemes” and urged them not to accept deposits into such accounts.

He said the initiative had 30,000 registered members who’ve been conned and together, they had lost Sh3.4 billion, which is about 10 percent of the funds lost when the systems collapsed.

Mr Kinyua claimed many of his members had committed suicide as a result and appealed to others not to take their own lives.

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