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From Moneyweb.co.za

Consumer Commission not looking into Crowd1

Despite Namibia and the Philippines declaring it a pyramid scheme.
The exact number of Crowd1 members in South Africa is unknown, but there are several local Facebook groups with members numbering in the thousands. Image: Shutterstock

The exact number of Crowd1 members in South Africa is unknown, but there are several local Facebook groups with members numbering in the thousands. Image: Shutterstock

The National Consumer Commission (NCC) is not investigating Crowd1, despite several financial regulators like Bank of Namibia and the Philippines’s Securities and Exchange Commission prohibiting it from operating in their countries.

The authorities in Namibia and the Philippines took this action because they believe the Spanish-based group, which claims to be a networking marketing firm, is in actual fact a pyramid scheme.

Bank of Namibia said in a statement on February 21 that its investigation into Crowd1 found that it had contravened Section 55A of the Bank Institutions Act, as it derived most of its revenue from getting exiting members to sign up new members, rather than selling a product.

“It is evident that the business model of Crowd1 Networking Limited is not sustainable and will result in members of the public, especially those at the bottom of the scheme, losing their money.”

It then called on those promoting and participating in Crowd1 in Namibia to “stop their business operations immediately” and that failure to do so would result in action being taken against them, in terms of the act, which could result in a N$1 million (just over R1 million) fine and/or a sentence of up to 10 years.

For its part, Crowd1 describes itself as a networking marketing firm that focuses on selling education products online.

Not so!

Impact Crowd Technology SL, the company that runs Crowd1, took issue with the bank’s findings. Crowd1’s chief of Africa expansion, Jonathan Ström, says he strongly opposes the findings of Bank of Namibia and stresses that it is purely a network marketing business.

“There is no sign-up fee in Crowd1, hence no revenue derives from the sign-up process,” Ström says.

He adds that all revenues in Crowd1 come from product sales, where the education packages represent one of its product lines.

“100% of Crowd1’s revenue comes from the selling of our products.”

Ström says lawyers from Crowd1 contacted Bank of Namibia and asked to receive a copy of their investigation so it can get insight into the claimed charges and the evidence behind.

He also pointed out that Bank of Namibia had not made contact with Crowd1’s management while conducting its investigation or before publishing its findings.

While the exact number of Crowd1 members in South Africa is unknown, there are several local Facebook groups with members numbering in the thousands.

No one’s complaining 

Although other financial service regulators have taken action against Crowd1, the NCC said in a statement that there is currently no investigation into it.

Investigations are usually launched by the NCC when it receives a complaint from consumers, but the commission can start an investigation if it deems there is a “reasonable suspicion that there is possible contravention of the Consumer Protection Act”.

Under South African law, networking marketing, which is a form of tiered selling, is legal. However, pyramid schemes, where the business model is based on getting existing members to sign up new members, are illegal.

According to the Consumer Protection Act, the NCC takes the lead, ahead of the Financial Sector Conduct Authority, the South African Revenue Service, the Financial Intelligence Centre and the South African Reserve Bank, when it comes to dealing with pyramid or Ponzi schemes.

If the abovementioned financial authorities come across these schemes, they have to pass on their suspicions to the NCC.

Once the NCC concludes its investigation into a possible pyramid or Ponzi scheme, it passes it on to the commercial crime unit of the South African Police Service, which would then make an assessment on whether criminal charges should be made.

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