Report Of The Taskforce On Pyramid Schemes

Report of the Taskforce on Pyramid Schemes

REPUBLIC OF KENYA

MINISTRY OF CO-OPERATIVE DEVELOPMENT AND
MARKETING

Report of the
TASKFORCE ON PYRAMID SCHEMES

CHAIRMAN
HON. FRANCIS NYENZE

PRESENTED TO:

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HON. JOSEPH W. N. NYAGAH, EGH, M.P.
MINISTER FOR CO-OPERATIVE DEVELOPMENT AND MARKETING
24TH JUNE, 2009

Report of the
Taskforce on Pyramid
Schemes

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Taskforce on Pyramid Schemes,
NSSF Building,
Block ‘B’ 10th floor,
P.O. Box 40811-00100
NAIROBI

17th June, 2009

Hon. Joseph W. N. Nyagah, EGH, MP
Minister for Co-operative Development
and Marketing,
P.O. Box 30547,
NAIROBI

Dear Sir,

RE: REPORT OF THE TASKFORCE ON PYRAMID SCHEMES

Sir, you appointed us as members of the Taskforce on Pyramid Schemes to
investigate the operations of Pyramid Schemes and establish the extent of their
impact in the country.

We have completed our task in accordance with the terms of reference and now
have the honour to submit this report to you. The report contains our unanimous
conclusions and recommendations.

We take this opportunity to thank you for the honour and trust which you have
bestowed on us.

Accept the assurances of our highest regard.

Yours faithfully,

Hon. Francis Nyenze, EGH –

Chairman…………………………..

Amb. John Mukuriah,EBS – Vice Chairman

……………………

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Mr. David Oduol Odhiambo, CPSK, Advocate – Member…..……………………

Mr. Harold Rurigi Mwai –

Member………………………………

Mrs. Sakina Adan –

Member………………………………

Mrs. Emily Manga Mwachoo –

member……………………………

TABLE OF CONTENTS

FOREWORD…………………………………………………………………… ix
LIST OF ACRONYMS………………………………………………………… xii
EXECUTIVE SUMMARY……………………………………………………… xiv

PART 1
INTRODUCTION AND HISTORICAL OVERVIEW

CHAPTER 1……………………………………………………………………… 3
INTRODUCTION………………………………………………………………. 3
1.1 Background and Introduction…………………………………………………… 4
1.2 Constitution & Appointment of Task force…………………………………. 4
1.3 Terms of Reference…………………………………………………………………. 4
1.4 Methodology…………………………………………………………………………… 6
1.5 Challenges and Limitations………………………………………………………. 10
1.6 Organization of the Report………………………………………………………. 12

CHAPTER 2…………………………………………………………………… 13
HISTORICAL BACKGROUND…………………………………………….. 13
2.1 Introduction ………………………………………………………………………… 13
2.2 Definition and Historical background of Pyramid Schemes………… 13
2.3 Pyramid schemes and Multi-level Marketing…………………………… 14
2.4 The Kenyan Situation……………………………………………………………. 15
2.5 Factors responsible for spread of Pyramid Schemes…………………. 16
2.5.1 Economic factors…………………………………………………………………… 17
2.5.2 Religious factors…………………………………………………………………… 18
2.5.3 Legislative Factors……………………………………………………………….. 19
2.5.4 Social Factors……………………………………………………………………… 20

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2.5.5 Co-operative Factors……………………………………………………………. 20

PART 2
PYRAMID SCHEMES: A DETAILED ANALYSIS OF THE KENYAN
PERSPECTIVE

CHAPTER 3…………………………………………………………………….. 24
PYRAMID SCHEMES IN KENYA…………………………………………… 24
3.1 Introduction………………………………………………………………………….. 24
3.1.1 Legal Nature…………………………………………………………………………. 24
3.1.2 Operational Nature………………………………………………………………… 25
3.2 Number of Pyramid Schemes in Kenya……………………………………… 29
3.3 Directors of Pyramid Schemes………………………………………………… 29
3.4 Financial Indebtedness to Investors…………………………………………… 32
3.5 Pyramid Schemes Victims Initiatives………………………………………….. 39
CHAPTER 4…………………………………………………………………… 43
PUBLIC HEARINGS…………………………………………………………. 43
4.1 Introduction………………………………………………………………………….. 43
4.2 Issues raised by Provincial Administration………………………………… 44
4.2.1 Nairobi Province……………………………………………………………………. 44
4.2.2 Meru……………………………………………………………………………………. 44
4.2.3 Embu…………………………………………………………………………………... 44
4.2.4 Nyeri…………………………………………………………………………………… 45
4.2.5 Muranga……………………………………………………………………………… 45
4.2.6 Thika………………………………………………………………………………….. 46
4.2.7 Kisii……………………………………………………………………………………. 46
4.2.8 Kakamega…………………………………………………………………………… 46
4.2.9 Bungoma…………………………………………………………………………….. 47
4.2.10 Kisumu……………………………………………………………………………….. 47
4.2.11 Nakuru……………………………………………………………………………….. 47
4.2.12 Eldoret…………………………………………………………………………………. 47
4.2.13 Mombasa……………………………………………………………………………… 48
4.2.14 Malindi…………………………………………………………………………………. 48
4.3 Concerns raised during Public Hearings…………………………………… 48
4.4 Taskforce Observations…………………………………………………………… 49

CHAPTER 5…………………………………………………………………… 52
FUNDS & OTHER ASSETS………………………………………………….. 52
5.1 Introduction…………………………………………………………………………… 52
5.2 Identification of Bank Accounts………………………………………………… 52
5.2.1 Category 1: Bank Accounts in Institution Names………………………… 52
5.2.2 Category 2: Bank Accounts in Personal Names…………………………… 59
5.2.3 Category 3: Frozen Bank Accounts……………………………………………… 61
5.3 Conclusion……………………………………………………………………………… 62

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5.4 Other Assets…………………………………………………………………………. 63
5.4.1 Identification and Status of Other Assets…………………………………… 63
5.5 Constraints…………………………………………………………………………… 65
5.6 Recommendations……………………………………………………………….. 66

CHAPTER 6…………………………………………………………………… 68
EFFECTS OF PYRAMID SCHEMES…………………………………..…… 68
6.1 Introduction………………………………………………………………………….. 68
6.2 Economic effects……………………………………………………………………. 68
6.3 Security effects……………………………………………………………………… 70
6.4 Socio-Economic Effects ………..……………………………………………….. 71
6.5 Religious Effects……………………………………………………………………. 73

CHAPTER 7……………………………………………………………………. 74
ROLE OF GOVERNMENT INSTITUTIONS AND AGENCIES………… 74
7.1 Introduction………………………………………………………………………… 74
7.2 Government Institutions…………………………………………………………… 74
7.2.1 Ministry of Finance………………………………………………………………….. 74
7.2.2 Office of the President, Provincial Administration &
Internal Security……………………………………………………………………. 76
7.2.2.1 N.S.I.S…………………………………………………………………………….. 76
7.2.2.2 C.I.D………………………………………………………………………………… 76
7.2.2.3 Banking Fraud investigation Unit…………………………………………… 77
7.2.2.4 Provincial Administration………………………………………………………. 77
7.2.2.5 Attorney General………………………………………………………………… 78
7.2.2.6 Judiciary……………………………………………………………………………. 78
7.2.3 Ministry of Co-operative Development & Marketing …………………… 79
7.2.4 Ministry of Lands …………………………………………………………………… 82
7.2.5 Ministry of Social Services…………………………..…………………………. 82
7.2.6 Government Agencies……………………………………………………………. 82
7.2.7 Recommendations ………………………………………………………………….. 85

PART III
THE WAY FORWARD

CHAPTER 8……………………………………………………………………… 89
PUBLIC EDUCATION AND AWARENESS………………………………… 89
8.1 Introduction……………………………………………………………………………. 89
8.2 Channels for Awareness Creation………………………………………………. 89
8.2.1 Government Agencies……………………………………………………………… 89
8.2.1.1 Office of Government Spokesman…………………………………. 89

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8.2.1.2 Provincial Administration………………………………………………. 90
8.2.1.3 Regulatory Bodies……………………………………………………….. 90
8.2.1.4 Relevant Government Ministries……………………………………. 90
8.2.2 Churches………………………………………………………………………………. 90
8.2.3 Representative Bodies…………………………………………………………… 91
8.2.4 Electronic and Print Media………………………………………………………… 91
8.2.5 Billboards, Posters and Pamphlets…………………………………………… 91
8.2.6 Mobile Phones………………………………………………………………………… 92
8.2.7 Panel Interviews……………………………………………………………………… 92
8.2.8 Arts……………………………………………………………………………………… 92
8.2.9 Seminars………………………………………………………………………………. 93
8.2.10 Internet………………………………………………………………………………. 93
8.2.11 Others………………………………………………………………………………….. 93
8.3 Conclusion……………………………………………………………………………… 94
8.3.1 Resource Mobilisation…………………………………………………………… 94
8.4 Recommendations…………………………………………………………………….. 95

CHAPTER 9…………………………………………………………………… 96
LEGAL FRAMEWORK IN KENYA………………………………………… 96
9.1 Introduction…………………………………………………………………………… 96
9.2 Analysis of Relevant Existing Legislation……………………………………… 96
9.2.1 Companies Act……………………………………………………………………… 96
9.2.2 Business Names Act………………………………………………………………… 97
9.2.3 Co-operative Societies Act……………………………………………………… 98
9.3 Steps taken by Ministry of Co-operatives & Marketing……………… 98
9.4 Offences under Existing Legislation……………………………………………. 100
9.5 Shortcomings of Existing Legislation………………………………………… 101
9.6 Recommendations ………………………………………………………………….. 102

CHAPTER 10……………………………………………………………………. 104
SUMMARY RECOMMENDATIONS……………………………………. 104

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FOREWORD

O n 14th January, 2009 the Hon. Minister for Co-operative Development and
Marketing appointed a Taskforce to look into the operations of pyramid
schemes. The appointment of the Taskforce by the Government was a
reaction to the hue and cry from victims of pyramid schemes and other related
schemes.

The Taskforce held public hearings countrywide where views from the victims
were received. A lot of data regarding the particulars of the investors, directors
and promoters of pyramid schemes was received during the registration exercise.
Interviews were also held to provide opportunities to directors of pyramid
schemes, individuals and groups to give information on the role they may have
played in the pyramid schemes saga. Our findings therefore, are a reflection of
what Kenyans especially the investors think about pyramid schemes.

The Taskforce wishes to express their gratitude to Hon. Joseph W. N. Nyagah,
EGH, MP Minister for Co-operative Development and Marketing for his
commitment, cooperation, advice and unfailing support.

The Taskforce recognizes Hon. Uhuru Kenyatta, E.G.H, M.P Deputy Prime
Minister, and Minister for Finance for his commitment in dealing with the
pyramid schemes menace.

The Taskforce would not have accomplished its mandate without the logistical
support from the Permanent Secretary, Ministry of Co-operative Development and
Marketing Mr. Seno Nyakenyanya, CBS, and his staff.

We acknowledge the institutional support from Mr. Fredrick F. Odhiambo, MBS,
the Commissioner for Co-operative Development (CCD) and the logistical support
provided by the Provincial Co-operative Officers (PCOs), District Co-operative O
fficers(DCOs), and their staff who tirelessly coordinated the pyramid victims’
registration exercise. In particular, Taskforce acknowledges Mr. J. Kenduiywa,
Mr. S. Ongeti, Mr. P.K.Wanjohi and Mr. P. Koremo of CCDS office for providing
information on Cooperative Societies associated with pyramid schemes and ICT
Department headed by Mr. Alwanga Mbeche for ICT support. Special mention to
Mr. G. Njangombe, R Maseki, F.M. Maina,Ms. D. Ouma, R. Mwithiga, J.

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Muchembe, J.K. Maina and J. Kamau for providing information on Cooperative
Societies under liquidation and inquiry.

We are grateful to Mr. Joseph Kinyua, CBS, Permanent Secretary, Ministry of
Finance (MoF) and Dr. Geoffrey Mwau, Economic Secretary for finding time to
consult with us. We greatly benefited from their views and proposals.

The Taskforce also acknowledges the overwhelming support received from Mr.
Francis Kimemia, CBS, Permanent Secretary Provincial Administration and
Internal Security, Provincial and District Commissioners (DC) during the public
hearings.

The Taskforce wishes to express its gratitude to the pyramid schemes victims for
turning up in large numbers during the public hearings countrywide and sharing
real life experiences with the Taskforce. We also thank them for turning up during
the registration exercise.

We acknowledge individuals, professional bodies and institutions who offered
their views to the Taskforce. In particular, we wish to thank Mr. Apollo Mboya,
Deputy Secretary, Law Society of Kenya(LSK) and Morris Kimuli an Advocate of
the High Court of Kenya, for providing valuable information on proposed legal
reforms which included a draft on Anti-pyramid schemes Legislation. We also
acknowledge support given by Mr. J. K. Wanyela, Executive Director, Kenya
Bankers Association (KBA). We express our gratitude to Mr. C. Ademba, HSC,
Managing Director Kenya Union of Savings and Credit ( Kuscco) ltd, for
providing insightful proposals.

We wish to acknowledge the fruitful discussions held with Kenya Anti Corruption
Commission (KACC) officials namely; Mr. Peter Mwangi, Principal Officer
incharge of operations, Mr. Olga Sewe, Principal Attorney, Crime Litigation and
Asset Recovery, Mr. Patrick Owiny, Data Collection and Mr. Kennedy Bosire ,
Principal Forensic Investigator.

The Taskforce acknowledges the discussions held with Central Bank of Kenya
(CBK) team. Special mention goes to Ms Rose Ndetho, Director Banking
Supervision and her team of Mr. Fredrick Pere, Mr. Michael Owour, Mr. Paul

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Mugo, Ms Elizabeth Njogu and Mr. Paul Ndambuki of Banking Fraud
Investigation Department (BFID).

We also benefited from discussions held with Mr. Gedeon M. Kimilu, MBS,
Senior Assistant Commissioner, Criminal Investigation Department (CID), and
Mr. Henry Otieno Ochido of NGOs Coordinating Board.

We wish to acknowledge information provided by Ms Faith Kabata, Assistant
Executive Director incharge of complaints and investigations at the Public
Complaints Standing Committee (PCSC).
We also acknowledge Mr. Kanyangi of Kanyangi and Company Advocates and
Onyango Bonyo, lawyer and private consultant who provided valuable
information regarding the operations of pyramid schemes.

We are grateful to the print and electronic media for highlighting the plight of the
pyramid schemes victims, Mrs Wangui Mugo, Public Relations Officer, Ministry
of Cooperative Development & Marketing and Ms Eunice Ajwang for offering
hansard services to the Taskforce.

The Taskforce wishes to thank the following for raising the plight of Kenyans and
availing valuable data to the Taskforce. Pastor Samuel Kariuki, Bishop W.
Mamboleo, Eliud Thuku, Joseph Kinyua and Bishop Kinyanjui all of National
Pyramid Victims Initiative. We also acknowledge valuable information provided
by Mr. Benson Kiamba, Rev. Margaret Prem and Bishop Erastus Njoroge of Mt.
Kenya pyramid schemes initiative group.

The Taskforce wishes to express its gratitude to the Taskforce Secretary, Mr.
Philip Gichuki who worked tirelessly to enable the Taskforce complete its task.
Special thanks to Mrs. Roselyne Ragama, Mr. Allan Githaiga and Mr. Fredrick
Kaduka for their research, technical and logistical support without which the
Taskforce would not have completed its task satisfactorily.

We also wish to appreciate the secretarial and support staff for their commitment
and support. We are grateful to the following; Miss Beatrice Ochieng, Mr.
Andrew O. Makokha and Mrs. Edith Mwaniki for secretarial services. Mrs. Anne
Marwa for ensuring the Taskforce was comfortable throughout the period. Ms
Mercy Muchina for coordinating transport, Mr. James Njoroge and Janet Kamanga

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for being able drivers, Cpl. Evans Morara and Cpl. Benson Mariga for the security
arrangements.
The Taskforce chairman would like to especially acknowledge all the Taskforce
members individually for their devotion and resilience during the entire period.
The Taskforce members’ commitment to duty especially during the critical phase
of report writing is highly acknowledged.

The Taskforce is pleased to submit this report to Hon. Minister for Co-operative
Development and Marketing with respect and humility. It is the hope of the
Taskforce that the recommendations will be found useful in dealing with issues
associated with the pyramid schemes saga.
…..............................................
Hon. Francis Nyenze
Chairman,
Taskforce on Pyramid Scheme

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LIST OF ACRONYMS
A.S.K Agricultural Shows of Kenya
ACID African Christian in Development
A.G Attorney General
AIC African Inland Church
BFID Banking Fraud Investigation Department
C.C.D Commissioner for Cooperative Development
CBK Central Bank
CBOs Community Based Organizations
CBS Conqueror of the Burning Spear
CEO Chief Executive Officers
CID Criminal Investigation Department
CMA Capital Markets Authority
DCOs District Cooperative Officers
DCs District Commissioners
DECI Deci Capacity Building Entrepreneur
DOs District Officers
GNLD Golden Neo-Life Diamond
HSC Head of State Commendation
KBA Kenya Bankers Association
KACC Kenya Anti-corruption Commission
KBC Kenya Broadcasting Cooperation
KUSCCO Kenya Union of Savings and Credit Cooperatives
LSK Law Society of Kenya
MFI Micro-Finance Institutions
MBS Moran of the Burning Spear
MLM Multi-Level Marketing
MP Member of Parliament
MOCD & M Ministry of Cooperative Development and Marketing

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MOF Ministry of Finance
NACOS National Cooperative Organizations
NCCK National Council of Churches of Kenya
NGOs Non Governmental Organizations
NSIS National Security Intelligence Service
OGW Order of the Golden Worrier
OP Office of the President
PCEA Presbyterian Church of East Africa
PC Provincial Commissioner
PCO Provincial Co-operative Officer
PCSC Public Complaints Standing Committee
RBA Retirement Benefits Authority
SACCO Savings and Credit Co-operative
SDA Seventh Day Adventist
SUPKEM Supreme Council of Kenya Muslims
T.O.R Terms of Reference

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EXECUTIVE SUMMARY

A: Background

The Taskforce on Pyramid Schemes was appointed by the Hon. Minister of
Co-operative Development on the 14th January 2009 and launched on the
9th February 2009 upon which it commenced business. Its mandate was to
inquire and investigate into the operations of pyramid schemes and pyramid
related schemes.

The Pyramid Schemes camouflaged as co-operative societies in the last
phase of their operations. This left the Hon. Minister for Co-operative
Development with the responsibility of dealing with the crisis as all queries
were directed to the ministry. It prompted the minister to appoint a
Taskforce to investigate the pyramid schemes saga to help avert a looming
crisis and resolve the plight of many Kenyans affected by the schemes.

This report is organized into three parts and ten chapters. Part I consisting
of two chapters contains the introduction and history of pyramid schemes.
Part II has five chapters and looks into the nature and number of pyramid
schemes in Kenya, pinpoints the masterminds of these schemes,
investigates the funds and other assets held by the schemes, analyses the
public hearings, looks at role of Government institutions and Agencies and
the effect of pyramid schemes in Kenya. Part III consisting of three
chapters addresses the way forward in terms of legal reforms, public
awareness and recommendations.

This report presents on analysis of the views of the Kenyans especially the
victims and other critical stakeholders. The Taskforce believes that these
recommendations will initiate the process to address the problems created
by the emergence and collapse of pyramid schemes.

B: Findings and Conclusions

(i) Investors’ data

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The Taskforce conducted a countrywide registration exercise from
the 24th February to 30th April 2009 where data on the number of
pyramid schemes, investors and the total amounts invested was
compiled.

From the above data, 270 pyramid and other related schemes were
identified and 148,784 investors registered as having invested a total
sum of Kshs. 8,178,737,402. This figure reflects the principal
amount invested and does not include the expected returns.

While the registration was successful, we observe that our figures
are not conclusive since investors were still presenting themselves
for registration after the closure of the exercise.

The top ten institutions in terms of amounts invested are as follows;

NAME OF SCHEME NUMBER OF AMOUNT
INVESTORS
1 DECI 93,485 2,405,518,832.00
2 Clip Investments Sacco Ltd 5,846 1,993,866,422.00
3 Kenya Business Community Sacco 921 780,698,218.00
Ltd
4 Sasanet Investment Sacco Ltd 629 739,948,412.00
5 Jitegemee Investment Sacco Ltd 3,828 494,401,600.00
6 Circuit Investment 1,392 348,943,103.00
7 Family In Need Organisation 4,580 157,280,553.00
(FINO)
8 Global Entreprenership 9,206 139,006,632.00
9 Spell Investment 544 120,326,860.00
10 Mont Blanq Afrique 774 82,834,000.00
Totals 121,205 7,262,824,632.00
Source: Registration of claims data

(ii) Effects of Pyramid Schemes

The collapse of the schemes had adverse effects to the investors.
They ranged from loss of earnings, family and matrimonial

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breakups, suicides, depression and illnesses like diabetes and high
blood pressure.

The Taskforce identified reasons that contributed to the spread of the
schemes as a desire for economic empowerment, lack of awareness
and greed.

(iii) Frozen Accounts

During the public hearings, it was alleged that a sum of Kshs. 5b
was held up by Central Bank of Kenya (CBK) in frozen accounts.
According to CBK, the law forbids it from sharing information on
bank accounts with 3rd parties. Consequently, the Taskforce could
not establish the amounts held in the frozen accounts.

(iv) Other Bank Accounts

The Taskforce conducted investigations with a view of establishing
the identity and status of accounts operated by the schemes. These
accounts were held in the names of the schemes or directors and
were characterized by numerous deposits and huge withdrawals.

It was established that a majority of the accounts were closed with
nil balances. Due to the lengthy procedures of establishing the status
of accounts and the high number of schemes involved which stood at
270, the Taskforce was not able to establish the current status of all
the accounts.

(v) Response by Government Agencies (Central Bank of Kenya)

The Taskforce noted that the CBK took measures aimed at
addressing the issue of pyramid schemes.

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a) The CBK issued two press notices in February and May 2007
urging the public against investing in pyramid schemes.
These statements were negatively received by the public who
viewed them as government interference to otherwise
legitimate investments.

b) CBK directed commercial banks to conduct due diligence on
the accounts exhibiting characteristics of pyramid schemes
and not to accept deposits into such accounts and to act
decisively in closing them.

c) CBK spearheaded the formation of a multi-sectoral team to
develop and recommend a strategy for sustained public
awareness campaign on pyramid schemes.
(vi) Directors

The report has documented the identities of individuals who were
behind these schemes. In some cases, the directors controlled the
schemes by proxy. Due care has been taken to verify the accuracy of
these information. The directors were afforded an opportunity to
appear before the Taskforce and ascertain the truth regarding the
claims made against them but regrettably a majority failed to appear.
A sampled list of the masterminds of the major schemes is as
follows; (Note: a complete list of the directors is highlighted in
chapter 3)

INSTITUTION DIRECTORS/PROPRIETORS/OFFICIALS
DECI George Odinga Donde

Tujibebe Sacco George Odinga Donde - Chairman
Godfrey Kamanda Gakure (Bishop)
Ann Zawadi - (Advocate)
Ambassador Mary Odinga
CLIP Investment Peter Ndakwe - Chairman
Cooperative Soc. ltd Meshack Gachago - V/C
Didycus Shyamwama - Treasurer
Festus Kizisa - Secretary
Kenya business Francis Omurwa- Chairman
community Sacco, Angelo Mung’ri M’inoti - V/Chairman

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Ltd. Elias Kathurima Rutere - Treasurer
Barnabas Mwangangi - Secretary
Sasanet Investment Michael Chege - Chairman
cooperative Dorothy Wangui - Hon. Secretary
Ronald Ouma - Treasurer
Job Nyamao - V/chairman
Sasanet ltd. Michael Chege and Sammy Gitau
Jitegemee Sacco/ Jackson Kinyoho Mburu - Chairman
Mont Blanq Afrique Patrick Nyoike Maina - Member
Ltd Florence Wambui Busiega - Vice Chairman
James Mate Njeru - Treasurer
Elizabeth Ngoiri Mwangi - Secretary
Family in Need John Leonard Wanyoike
Organization Winfred Gatakaa Kiria
(FINO) Rahab Maimutie Wanuoike
Global Patrick Ayisi Ingot - Chairman
Entrepreneurship Christopher Mweresa Livunda - V/Chairman
Florence Nzoeva Mulama - Secretary
Edward Murithi Matu - Treasurer
Spell investment Boniface Anderson Ngosia - Chairman
Faith Ayoti - V/Chairman
Consolata Nabwire - Secretary
Eunice Negesa - Treasurer
Amity Investment Charles Murithi Kirigua
Due to shortage of time the taskforce did not invite all parties
involved for interviews especially Regional promoters.

(vii) Restitution

The Taskforce suspects that investors’ funds were diverted by the
directors to acquire properties for their own selfish interests. It was
observed that some of the properties had been transferred to other
parties with a view of defeating justice. Some highlights are as
follows;

Scheme Director Properties
Clip Peter Ndakwe Peter Ndakwe is alleged to have bought plots in Runda
Investments worth Kshs.200m and transferred the property to
Sacco Ltd Pakinstar Ltd of Sun Jopskin SA Pentinkson, Panama for
Kshs.25m each. Transfers effected on 11.7.2006 and
20.4.2007. The L.R are 14970/15, 14970/14, 14970/7
and 14970/6. The transfers were made at the height of
complaints by investors

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It was alleged that Ndakwe may own a lot of property in
Canada
Sasanet Michael Chege 30 units of flats worth Kshs.60m in Sunrise estate.
Investment 11.5 acres in Nyari Estate, Nairobi. Deposit of Kshs.
Ltd 40m paid for the land
4 flats along Chaka road, Milimani
32 flats in Imara Daima.(Swara Flats) each sold for
Kshs.2.5m
All properties sold through his advocate Ajaa
Olubayi of Ajaa & Co. Advocates
Spell Boniface Account held in Stanbic Bank with Kshs. 200m
Investments Anderson transferred to his mother upon death.
Ltd Ngosia Houses formerly belonging to Teleposta Pension
(deceased) Scheme worth approx. 11m
A 23m property in Lavington

(viii) Legal Framework

The Taskforce observed that the current legal framework is
inadequate. This contributed to the spread of the schemes that
exploited the legal loopholes.

C. Recommendations

The Taskforce notes with concern the negative effects that the pyramid
schemes saga has caused on investors and the general public and views
it as a matter of national concern. In view of the foregoing, the
Taskforce recommends that the Government commits itself to the
following;

(i) Criminal prosecution

The Attorney General (AG), under the existing legal system,
institutes immediate criminal prosecution of all directors
/proprietors/officials who were engaged in pyramid schemes
activities.

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(ii) Civil proceedings

Institution of civil proceedings against the directors/ proprietors
/officials of the pyramid schemes to recover the funds.

(iii) Amnesty from prosecution

Amnesty from criminal prosecution be considered for directors/
proprietors /officials or other persons willing to refund back
investors’ funds within one hundred and twenty (120) days.

(iv) Legal Framework

Strengthening of the legal framework to provide for;

(a) The immediate amendment of the Penal Code (Cap 63) so as
to make provisions for the prohibition of promotion or taking
part in pyramid schemes.
(b) The enactment of an Anti-Pyramid Schemes Act within one
year to outlaw all aspects relating to pyramid schemes.
(c) Enactment of The Proceeds of Crime and Anti-Money
Laundering Bill 2008 within six months. This proposed
legislation has good provisions on assets recovery.

(v) Investigations/ restitution;

a) The CID to undertake and complete investigations on Bank
Accounts within six (6) months.
b) The CID to undertake and complete tracing of assets
acquired from proceeds of pyramid schemes operations
within one year with a view of recovery and restitution.

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c) The government to enlist the assistance of foreign missions
/governments where the perpetrators may have invested
proceeds from pyramid schemes activities.
d). Parliament to fast-track the enactment of Mutual Legal
Assistance Bill that was published on 18th May, 2009, in (c)
above.

(vi) Standing Committee

The immediate setting up of a Standing Committee under the
Ministry of Co-operative Development and Marketing comprising of
relevant government ministries/agencies and private sector. This
committee will be responsible for the following;

a) Monitoring the implementation of the necessary legal
framework.
b) Setting up and administration of the Trust Fund.
c) Overseeing the investigation of accounts and tracing of
assets.
d) To be responsible for the restitution of recovered assets, if
any.

(vii) Trust Fund

A trust fund be set up under the Ministry of Co-operative
Development and Marketing to manage funds and properties
recovered. The members of the said fund should include other
relevant government ministries/agencies and reputable Kenyans.

(viii) Judicial Commission

Formation of a judicial commission to undertake further
investigations aimed at tracing funds and assets for restitution to
investors.

(ix) Frozen Accounts

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The CBK issues a public statement on the current status of all
frozen accounts related to pyramid schemes.

(x) Anti-Pyramid Schemes Authority

An Anti-Pyramid Schemes Authority be created under the proposed
Act. The Authority will take up the functions of the proposed
Standing Committee once the Act is enacted and operationalised.

(xi) Operationalisation of the Sacco Societies Act

The SACCO Act which is yet to be operationalised be fast-tracked by
the Minister for Co-operative Development and Marketing by
gazetting the commencement date and establishing the SACCO
Regulatory Authority. This will ensure strict supervision of the
SACCOs. This is in recognition of the fact that out of 270 institutions
involved, 17 of them were registered under the Cooperative Societies
Act.

(xii) Public awareness campaign

Conduct an aggressive public awareness campaign on the negative
effects of pyramid schemes through a multi-sectoral approach
involving both public and private sector be conducted.

(xiii) Strengthen supervision

All government agencies charged with the registration of institutions
whose activities were associated with pyramid schemes should
institute stringent measures to strengthen their supervision
mechanism by being more vigilant in invoking their investigation
and supervisory powers to ensure that such institutions operate
within their prescribed objects.

(xiv) Enforcement Agencies

Law enforcement agencies to exercise vigilance in their duty to avert
occurrence of pyramid schemes operations in future.

23


PART 1
INTRODUCTION AND HISTORICAL
OVERVIEW

24


25


CHAPTER 1

INTRODUCTION

1.1 Background and Introduction

Generally, a pyramid scheme is an unregulated financial scam that relies on
a pyramid of investors who contribute money to a fraudulent scheme on the
promise of phenomenal returns. The investors are driven by the
phenomenal returns more than the understanding of the commercial
purpose of the transaction and how the returns are generated.

In Kenya, there was a proliferation of these pyramid schemes in the years
of 2006 and 2007. However it is instructive to note that some of these
schemes emerged before 2006. The schemes purported to offer attractive
returns on money ‘invested’ with them. Later they collapsed and sunk with
billions worth of investors’ money.

Investors in collapsed pyramid schemes suffered huge financial losses. As a
result, there were numerous complaints filed with various government
agencies. These complaints took the forms of memorandum, filing of suits
at the courts and filing complaints. The investors were seeking avenues
through which they would be able to recover money lost in the schemes.
Most queries were directed to the Minister for Co-operative Development
and Marketing as the main institutions that operated pyramid schemes
activities registered as Co-operatives in their last phase of operation.

Given the nature and complexity of the problem and the huge pecuniary
losses suffered by the investors, the Government constituted the Taskforce
on pyramid schemes to investigate the operations of the schemes with a
view of presenting recommendations which would guide subsequent action.

26


1.2 Constitution and Appointment of Taskforce on pyramid schemes.

The Government of Kenya through the Minister for Co-operative
Development and Marketing Hon. Minister Hon. Joseph W. N. Nyagah,
E.G.H, M.P, appointed a Taskforce to investigate pyramid schemes and
make recommendations thereon that will guide subsequent action.

In a gazette notice dated 16th January 2009 and a subsequent Corrigendum
dated 24th April 2009, the Minister for Co-operative Development and
Marketing, Hon. Joseph W. N. Nyagah, E.G.H, M.P, appointed a 10 man
team as members of the Taskforce. (See Annex 1: Gazette Notice No. 264
& 4068 of 2009)

The Taskforce was officially launched by the Hon. Minister on the 9th
February 2009 after which it commenced its sittings. During the launch, the
Minister noted the herculean task facing the Taskforce. He added that
pyramid schemes had affected people from all walks of life and that the
socio-economic effects were immense. Further, he addressed the impact of
pyramid schemes on the co-operative movement where he noted that co-
operatives had lost a lot of money through members who had borrowed
loans to invest in the schemes. The Minister highlighted the terms of
reference (TOR) for the Taskforce and urged all stakeholders with
information that may help in achieving the TOR to submit the same to the
Taskforce. He appealed to the directors who may be willing to refund the
victims who lost their money, to come forward and do so.

1.3 Terms of Reference.

The following were the TORs of the Taskforce;

(i) To establish the number and nature of pyramid and other related
schemes in existence and the identities of their directors- This involved
identification of the number and perpetrators of schemes operating in
Kenya. The nature of the schemes involved looking into the legal and
operational nature of the schemes with a view of understanding how
they were registered and their modes of operation.

27


(ii) To inquire into and investigate the amount and whereabouts of funds
invested into pyramid and other related schemes- the Taskforce was
tasked with establishing the total sums of money invested in the
schemes. This T.O.R also involved establishing the location of these
funds in whatever form that they may be held.

(iii) To formulate and recommend strategies to apprehend operators of
pyramid and other related schemes with a view of recommending
prosecution- This involved a research on the laws applicable and the
formulation of means through which the operators of the schemes
would be held accountable.

(iv) To recommend mechanisms for recovery of funds invested with a
view of recommending restitution of money and/or property
recovered, if any, to the investors- This term of reference as read
together with TOR (ii) requires the Taskforce to provide
mechanisms through which money recovered from the pyramid
schemes operators can be returned back to the investors.

(v) To make recommendations on legal measures that may prohibit
illegal deposit taking by pyramid and other related schemes- This
involved making proposals on legal measures that may deter the
emergence of pyramid schemes in future.

(vi) To advise and recommend regulations to guide financial institutions
in dealing with pyramid & other related schemes- This term tasked
the Taskforce to make recommendations that will guide or enable
financial institutions identify pyramid schemes.

(vii) To formulate and recommend strategy for public awareness
campaigns on pyramid and other similar schemes with a view of
sensitizing members of the public on such schemes- The Taskforce
was mandated to make proposals with a view of raising the level of
awareness amongst the investors.

28


(viii) To carry out any other exercise that may be necessary to accomplish
any matters incidental thereto- the Taskforce was given the liberty
to address other issues which may in the opinion of the members be
relevant to pyramid schemes.

1.4 Methodology

The Taskforce used several methods to collect data in order to compile a
comprehensive report. These included Public hearings, review of
memoranda and desk research on various legislations which were of
relevance to the Taskforce. It consulted and received advice from experts
and various stakeholders on various aspects of its terms of reference.

1.4.1 Literature Review

This involved analyzing of literature, journals, legislations and
research papers which contained information pertaining to pyramid
schemes. The information obtained was used to make
recommendations on legal measures to prohibit illegal deposit
taking, proposals on regulations to guide financial institutions and
public awareness strategies.

1.4.2 Interviews.

Interviews involved summoning and inviting persons or institutions
who may have been linked to pyramid schemes. The idea behind this
approach was to enable the Taskforce interrogate these persons with
a view of establishing their level of participation in the schemes.

These persons or representatives of institutions had been adversely
mentioned in the course of the public hearings or identified by the
Taskforce in the course of its investigations. All the interviews were
done face to face and the questions were structured in a manner to
ensure that there was no bias in the way they were asked.

29


In relation to interviews, the report contains the following
information; (See Annex 2: Interviewees)

i. A list of the institutions invited via newspaper
advertisements.
ii. List of persons who responded or appeared before the
Taskforce.

In addition to the Directors/Advocates invited for interviews, the
Taskforce contacted the following persons/institutions to appear
before it;

Name Reasons Comments
1 National Pyramid Victims representatives Representatives appeared
Scheme Initiative in person
2 Mt. Kenya Pyramid Victims representatives Representatives appeared
Scheme Initiative in person
3 Hon. Njeru Ndwiga Was minister for Failed to appear
cooperative during
pyramid scheme saga
4 Hon. Andrew Alleged to have Failed to appear
Ligale promoted DECI.
5 Bishop Siribaleka Director -ACID Failed to appear
6 Pastor Jamleck DECI-Center Manager Appeared in person
Mutheka - EMBU
7 Gideon Mwiti Associated with new Did not appear
Akiba Micro Finance personally- represented
and Kenya Business by advocate
Sacco
8 Esther Bongo DECI- Center Failed to appear
Manager- Kisumu
9 Bishop Peter DECI- Center Attended in person
Ndegwa Manager- NYERI

Due to limitation of time and unreliable contacts provided by the
investors during the public hearings, the Taskforce did not manage
to invite some promoters/individuals allegedly associated with
pyramid scheme activities. (See Annex 22 list of
directors/promoters mentioned during the public hearings).

30


1.4.3 Media

The Taskforce used the media to publicize its activities. This method
was used to inform members of the public on public hearing venues
and, registration centers for claims and invitations for persons and
institutions to appear before the Taskforce.

The Taskforce was able to use the print media thrice through the
Daily Nation and once in the Standard Newspaper. In addition
announcements were made through KBC Radio station and severally
through vernacular radio stations.

1.4.4 Public hearings

Public hearings were held in various provinces1 where the Taskforce
obtained views from affected investors. These were the areas most
affected by the pyramid schemes. As will be highlighted elsewhere
in this report, North-Eastern province was not visited due to the
minimal spread of the schemes in that region. (See Annex 3:
Schedule of Public hearings)

The main purpose of this hearings was to enable the Taskforce have
a first hand appreciation of the socio-economic effects of pyramid
schemes in Kenya and gather information for investigation. The
public hearings commenced on 24th February 2009 at the Railways
Club in Nairobi. In order to guide discussions during the public
hearings, the Taskforce presented the public with a checklist that
sought to address the following issues;

(i) Name of investor and amount of money invested.
(ii) Manner of introduction to the schemes and reasons for
investing.
(iii) How the investor has been affected as a result of investing in
the schemes.
(iv) The identity of directors and their area of operation.
(v) Name of institution invested in.

1
Nairobi, Central, Rift Valley, Western, Nyanza, Eastern and Coast

31


(vi) The expectations of the investors.
(vii) Views from the investors on the recommendations and the
way forward.

As has been mentioned elsewhere in the report, the members of the
public were notified of the public hearings through the media.
The Taskforce appreciates the efforts by the Hon. Minister for Co-
operative Development who was at the forefront in sensitizing
members to turn up for the public hearings.
The Taskforce received representations from people of all walks of
life; students, civil servants, the clergy, self employed people,
entrepreneurs, general members of the public, private pyramid
scheme Initiatives, organizations representing the youth and women.

The Taskforce was able to meet the local and provincial
administration who gave insightful information as to the operations
of these schemes. In addition data and information from investors
which has been used in the compilation of this report was gathered.

1.4.5 Registration of Claims

In order to establish the number of investors affected and amount
involved, the Taskforce conducted a registration exercise from the
24th February to 30th April 2009. The investors were required to
present themselves at the nearest District Co-operative Offices
countrywide. This process of registration involved filling of forms
and attaching copies of National Identity Cards and receipts. In some
few cases, registration of claims was conducted at the venues of the
public hearings.

In addition to establishing the number of investors affected, the
Taskforce using the information obtained was also able to identify
the names of the various schemes involved, and the Directors.

32


1.4.6 Written Submissions

The Taskforce received written memoranda and briefs from
government agencies members of the public, churches, private
pyramid initiatives and other related institutions. Written briefs were
also submitted by the parties which responded to the summons by
the Taskforce.

The written submissions contained proposed recommendations on
recovery and restitution of funds, the expectations of the investors,
lists of investors, names of directors and promoters of schemes,
court proceedings and status of court cases and other information
that was relevant to the Taskforce. (See Annex 4: List of Written
Submissions).

1.4.7 Investigations

These were conducted in order to obtain information which could
otherwise not be obtained using the aforementioned methods of data
collection. This methodology was confined mainly to the
investigation of bank accounts and tracing of assets.

1.4.8 Visits and Consultative Meetings

The Taskforce held consultations with members of the local and
provincial administrations and a host of associations. These were
necessary to allow for effective engagement with the Taskforce.
Some of the associations and bodies visited include; KACC, CBK,
MoF, LSK, CID and National Security Intelligence Services
(N.S.I.S).

1.5 Challenges and Limitations

(i) The Taskforce experienced challenges as it endeavored to fulfill its
mandate. One of the major challenges was the perception by the general
public that the recommendations of various Taskforces and
Commissions are never implemented.

33


The general public argued that the Taskforce may be a public relations
exercise where the report will be left to gather dust without due
consideration of its recommendations.

(ii) The other challenge that arose was criticism by some private initiative
groups who were dissatisfied with the manner in which the Taskforce
was constituted. They argued that the composition of the Taskforce did
not include the investors who were the worst affected by the schemes.
To this end, they challenged the ability of a government constituted
Taskforce to deliver a credible and legitimate report.

(iii) The fourth challenge related the limited time within which the
Taskforce was to complete its task vis a vis the terms of reference. Most
of the TORs were labour intensive and the time needed to
comprehensively address all the concerns was not adequate. The sheer
magnitude of the task required more time.

(iv) The Taskforce faced a huge challenge in trying to fulfill some of the
TORs due to the lengthy and complicated legal mechanisms. This
situation mainly arose as far as tracing assets and bank accounts was
concerned. The limited tenure of the Taskforce could not enable it to
conduct thorough investigations in this area.

(v) The sixth challenge faced by the Taskforce was that some institutions,
private initiatives and persons connected with pyramid schemes were
unwilling to volunteer information which may have been beneficial to
the Taskforce.

(vi) Lack of a collaborative effort from some government agencies due to
their failure to appreciate the magnitude of the pyramid schemes.

(vii) The Taskforce also faced a challenge due to the perception that it does
not have the powers to compel attendance. This may have affected the
turnout of the people and institutions summoned.

34


(viii) Finally, the Taskforce faced logistical problems due to the magnitude of
the workload. These included the transportation of various claim forms
from the respective District Co-operative Offices countrywide and
insufficient staffing at the secretariat level for registration of claims.

1.6 Organization of the Report

The report is organized into three parts and ten chapters. Part I consisting of
two chapters contains the introduction and a history of pyramid schemes.
Part II has five chapters and looks into the nature and number of pyramid
schemes in Kenya, pinpoints the masterminds of these schemes,
investigates the funds and assets held by the schemes, analyses the public
hearings, role of Government agencies and the effect the pyramid schemes
in Kenya. Part III consisting of three chapters addresses the way forward in
terms of legal reforms, public awareness and recommendations.

35


CHAPTER 2

HISTORICAL BACKGROUND

2.1 Introduction

This chapter attempts to provide a more detailed definition of the term
‘pyramid schemes’. The definition will include the concept of pyramid
schemes and the key identifiers of the schemes. The chapter also documents
a brief history to facilitate a wider understanding of pyramid schemes.

The chapter also seeks to distinguish pyramid schemes and Multi-level
Marketing (MLM) or Network Marketing. As will be discussed later in the
chapter, some pyramid schemes attempted to present themselves as MLMs.
To remove this confusion, the chapter analyses the salient features of
pyramid schemes and MLMs. It also advises potential investors on how to
read between the lines and distinguish between the two.

Finally, the chapter traces the emergence of pyramid schemes in Kenya. A
discussion into this issue cannot be complete before analyzing the factors
that contributed to the emergence and spread of these schemes in Kenya.

2.2 Definition and Historical Background of Pyramid Schemes.

Pyramid schemes are unregulated financial investments that involve an
operation whereby a person or institution holds out a promise to another
person that upon payment of a specific sum of money, that person shall
become entitled to receive a sum of money or an amount of valuable
security which, given all commercial considerations, is greater than the
money or valuable security invested.

The schemes are linked to Charles Ponzi an Italian who was born in Italy in
1882 but later immigrated to the United States in 1903. Pyramid schemes
are dependent on attracting a growing number of new entrants whose funds
are used to pay attractive returns to previous investors.

36


These are schemes in which a hierarchy is created by new entrants joining
under those who joined previously. Pyramid schemes rely on the continual
recruitment of fresh or new investors in order to continue operating.

The idea behind pyramid schemes is that the investor makes one payment
but is promised to somehow receive exponential benefits. Success of the
scheme rests solely on the exponential growth of new members hence the
name ‘Pyramid’ indicating the increasing population at each successive
layer.

The Taskforce also noted that pyramid schemes may distinguish themselves
in the form of chain letters. A chain letter is merely a letter, an e-mail
message or some other communication which asks the recipient to send
copies of it to several other people. Chain letters are not illegal per se but
can be very annoying and wasteful of whatever medium is used to carry
them.

However, when a chain letter asks the recipient to send money to people
through whom the letter passed before, with the promise that the recipient
will receive money from those that the letter reaches after he sends it, then
it becomes a form of a pyramid schemes.

2.3 Pyramid and Multi-Level Marketing.

Multi-level Marketing (MLM) also known as Network Marketing is a
method of selling products directly to consumers. Products are sold through
a network of distributors or salespersons set up to resemble a pyramid
Because of this pyramidal structure, MLM companies may sometimes be
mistaken for pyramid schemes.

The Taskforce has identified features to distinguish pyramid schemes and
MLMs as follows;

(i) The emphasis of pyramid schemes is on recruitment of members
while MLMs focus on the sale of products and services that have
some inherent value.

37


(ii) The commissions earned from MLMs are based on the sales of
products and services. Pyramid schemes participators are paid
primarily using money received from new investors.

(iii) MLMs are sustainable as they are based on the continued sale of
goods or services to consumers. Recruitment of new members is
secondary. Pyramid schemes are doomed to collapse once
recruitment of new members ceases.

The Taskforce established that there are a number of MLMs which operate
in Kenya. These include Forever Living Products, which specializes in
skincare products and supplements, GNLD International and Tianshi
Health products which deal with health products, Angel Fashion
Accessories that stocks jewellery, bags, watches and wallets and Oriflame.
These companies have been in operation for a long time and have a huge
client base

2.4 The Kenyan Situation.

The Kenyan landscape was not spared from the emergence of pyramid
schemes. In an attempt to attract investors, the schemes operated under the
guise of registered legal entities or MLMs.

The Kenya Winners Circle Inc. Co. Ltd2 was a pyramid scheme which hit
Kenya in 1998. The nature of its business was to purportedly sell products
such as cruise ship tickets and holiday and tour packages at discounted
prices. Each package promised a rewarding financial return. As a marketing
strategy, some early investors were paid but barely one year after it was
launched, the company wound up resulting in huge losses to the investors.

In 2005, a company called Kenya Akiba Micro Finance Ltd was the subject
of complaints from members of the public who were enticed into depositing
money with the institution in the pretext that they would be advanced loans.

2
The Kenya Winners Circle Inc. Ltd was registered as a Kenyan subsidiary of the Winners Circle
Inc. which had its headquarters in the U.S.A. The company was launched in Nakuru on the 30th March
1998.

38


The company was receiving deposits from members of the public in
contravention of the Banking Act.3 The company was only licensed to
conduct Hire Purchase business but it proceeded to take deposits from
members of the public in contravention of the said Act.

In 2006 and 2007 there was a proliferation of schemes in the country. This
may have been attributed to the boom in the stock market and a multiplicity
of other factors discussed later in this chapter. In the stock market, investors
were making huge profits through high share prices and Initial Public
Offers. The promoters of the schemes took advantage to mislead victims
that the returns were being obtained from the stock market and off-shore
investments.

There are cases where pyramid schemes had disguised themselves as
MLMs. One instance involved a company called Better Life where
members would pay Kshs. 2,500 as registration fee and were required to
recruit other members who would pay a similar amount for purposes of
sales of fictitious or non existent products.

Most of the schemes collapsed in the last quarter of 2007. This led to losses
running into billions of shillings and other impacts as has been discussed
elsewhere in the report.

2.5 Factors responsible for the spread of pyramid schemes in Kenya

Pyramid schemes gained a lot of popularity and quickly spread amongst the
populace who could not resist the allure of quick returns. The euphoria was
further fuelled by the success stories of investors who had ‘harvested’
which spread quickly and acted as a marketing tool for the schemers.

3
Section 16 (cap 488) prohibits any unauthorized persons from soliciting deposits from the general
public.

39


The reasons for the spread of the schemes have been categorized as follows;

2.5.1 Economic Factors.

The Taskforce noted that investors were keen to take advantage of
opportunities that promise quick economic gain. With the increase in
the poverty levels across the country more and more Kenyans were
willing to take a chance with these schemes either out of desperation
or as a means of accumulating more wealth. As Sophie Kiwelu
pointed out4;

“As poverty levels continue to surge in Kenya where the
majority is living on less than a dollar per day, many are
tempted to join schemes that will help them achieve financial
freedom. On the other hand, Kenyans frustrated with long
queues in banks and peanut interest rates have been
withdrawing their savings in banks and even going further to
sell their shares in order to invest in what is known as
pyramid and merry-go-round schemes. These schemes
promise very high interest rates of up to 10 to 20 per cent a
month compared to bank savings whose returns is 5 per cent
or less per year. Moreover, others offer twice the principal
amount invested within five weeks. These deals being too
good to resist, many people took the risk hoping to make
money and improve their lifestyles.”

During the Taskforce public hearings held in various venues5
between 24th February 2009 and 2nd April 2009, revelations were
made by investors on how they deposited their money in the
schemes with the belief that they would be financially endowed
within a short period of time.
The investors recounted how the allure of the schemes was
irresistible due to their desire to improve their lives economically.

4
Sophie Kiwelu: Kenyan Politics and the Pyramid Saga.
5
Nairobi, Meru, Embu, Nyeri, Muranga, Thika, Kisii, Kakamega, Bungoma, Kisumu, Nakuru,
Eldoret, Mombasa and Malindi.

40


The promoters of these schemes were made to believe that the
schemes were established in an effort to assist the poor.
The appetite for investments is proof of a strong desire by the low
income earners to participate in financial markets with appropriate
products. However it should be noted that the continued engagement
with unregulated informal schemes may lead to loss of savings and
earnings.

2.5.2 Religious Factors

Kenya is a religious country which is predominantly Christian. The
Presbyterian Church of East Africa (PCEA), Anglican Church,
Roman Catholic Church, African Inland Church (AIC) and the
Seventh Day Adventists (SDA) constitute the mainstream Christian
churches in Kenya. In addition there are a number of other
evangelical and Pentecostal churches.

The Taskforce notes that the religious approach by the schemes
targeted Christians. This is attributed to the fact that the Muslim
faith does not allow the faithful to profit by way of ‘earning interest’
on money.

Documented cases were recorded during the public hearings where
religious leaders were used to recruit investors. As an incentive some
were promised commissions based on the number of investors
recruited. Biblical teachings and Christian literature were used as a
tool of convincing the religious leaders that the schemes would
benefit members both economically and in their Christian faith.

The Taskforce wishes to highlight that the schemes took advantage
of the ‘prosperity gospel’ by the Pentecostal/Evangelical churches.
Many investors were duped into joining the schemes after being
convinced by their religious leaders that they would prosper.

Examples of schemes that used the religious approach were CLIP
through sale of Christian literature and DECI where investors were
convinced that they were planting a ‘seed.’

41


It is worth noting that although the religious leaders were mostly
from Pentecostal/evangelical churches, the investors were drawn
from both mainstream and Pentecostal churches.

2.5.3 Legislative Factors

Kenya does not have a legal regime expressly outlawing pyramid
schemes. This vacuum provided a forum which led to a proliferation
of these schemes. In comparison, other jurisdictions outlaw these
schemes. These include United States of America, the United
Kingdom, France, Germany, Canada, Romania, Colombia, Malaysia,
Norway, Bulgaria, Australia, New Zealand, Japan, Italy, Nepal,
Philippines, South Africa, Singapore, Sri Lanka, Thailand, Iran,
China and Mexico. It is notable that most of these countries which
have enacted laws against pyramid schemes have had incidences of
pyramid schemes related activities in the past.

The schemes were presented to the investors as legal entities.
Certificates were conspicuously displayed to the unsuspecting
investors. In the course of the public hearings, many pastors and
investors argued that they were persuaded to invest by the presence
of registration certificates. The presence of government security
agents and the local administration during functions organized by the
schemes gave the reassurance that the schemes were operating with
the knowledge of the Government.

The effect of lack of a legal regime was compounded by inadequate
supervision of the schemes which had been registered under
different legal regimes. However it is noted that lack of adequate
capacity and resources may have contributed to the inadequate
supervision.

42


2.5.4 Social Factors

Social factors contributing to the spread of the schemes were diverse
and ranged from greed, lack of awareness to trust.

The majority of persons who participated out of greed were aware
that the returns were beyond what can be achieved through
traditional investments but were nevertheless attracted by the quick
money. They participated hoping that the scams will last long
enough for them to make a profit. However the end result is that a
few people walked away with a lot of money while the majority of
investors suffered losses.

Pyramid schemes were presented attractively as “investment clubs”
or “gift programs.” The investors were duped that the schemes were
savings plans, multi level marketing, merry-go-rounds and revolving
funds investments. The investors flocked to these informal
investment schemes without the knowledge that they were falling
prey to pyramids.

The pyramid schemes targeted close knit groups such as religious
and social groups, retirees and retrenchees. There is a lot of trust and
an idea introduced by a member will be easily adopted by the rest.
The members in these groups are also under pressure to participate
in any activity adopted by the members so that the group may
remain united.

The element of trust was also evidenced by investors who joined the
schemes on the basis of personal relationships like relatives, friends
and religious leaders. These investors relied more on emotion than
reason.

2.5.5 Co-operative Factors

A number of institutions that were carrying out pyramid scheme
related activities transformed into Cooperative Societies on realizing
that they were not sustainable and were facing apparent collapse.

43


Upon registration as Cooperative Societies these institutions
acquired a legal status which they used to lure unsuspecting Kenyans
to invest with them.

This change of status from pyramid schemes to cooperative societies
registered under the Cooperative Societies Act gave the public the
assurance that they were dealing with legitimate organizations but
the business carried out by the new outfits was in contravention of
the Cooperative principles.

44


PART 2
PYRAMID SCHEMES: A DETAILED
ANALYSIS OF THE KENYAN
PERSPECTIVE

45


46


CHAPTER 3

THE NATURE OF PYRAMID SCHEMES IN KENYA

3.1 Introduction

The information contained in this chapter in regard to the number of
pyramid schemes and their financial indebtedness to investors was obtained
via registration of claims. Using this method, registration centers were
opened in all operational District Co-operative Offices (DCOs)
countrywide where an elaborate data recording format was designed to
capture the particulars of the investor, amounts invested and in which
scheme and the particulars of directors.

The chapter further analyses the modes of operation of the schemes. It also
contains information on the particulars of directors who were the
masterminds of the schemes. Finally, it seeks to look into the role of Private
Scheme Victims Initiatives.

3.1.1 Legal Nature

It will be appreciated that in order to operate the schemes attempted
to disguise themselves as legal entities to avoid arousing suspicion.
To the public they were genuine outfits out to promote the economic
and social wellbeing of the investors. The Taskforce was able to
classify the legal nature as follows;

(i) Savings and Credit Societies- these are institutions registered
under the Co-operative Societies Act
(ii) Non Governmental Organizations (NGOs)
(iii) Companies- registered under the Companies Act
(iv) Sole Proprietorship- these are business names registered
under the Registration of Business Names Act.
(v) Welfare Organizations- these organizations are registered
under the Ministry for Gender and Social Services.

47


Some of the schemes were registered under different legal regimes but
operated by the same people. These schemes that were concurrently
registered as Saccos and Companies include;

(i) CLIP Investment Sacco Society Ltd and Kings Script
Publishers Ltd.
(ii) DECI and Tujibebe Sacco Society Ltd
(iii) Jitegemee Entrepreneurs Sacco Ltd and Mont Blanc Afrique
Ltd
(iv) Kenya Business Community Sacco and Kenya Multipurpose
Business Ltd
(v) Sasanet Investment Sacco Society and Sasanet Investment
Ltd.

3.1.2 Operational Nature

The operational nature of the schemes varied. The distinguishing
feature of their operational methods is that they focused on the
recruitment of members. This was because the higher the numbers,
the more successful the scheme was perceived to be.

3.1.2.1. Branch Networks

The major pyramid schemes started their operations in
Nairobi and later established branch networks in other towns.
Depending on the magnitude of investors and projected
patronage, some pyramid schemes opened branches as far
down as District and Divisional offices.

Branches were operated to cater for the ever growing number
of investors. Mostly the branches were manned by center
managers who were assisted by a network of promoters in
recruiting more investors.

48


3.1.2.2 Return on Investment

The major reason why pyramid schemes were unique and
why many Kenyan invested in them was the abnormally high
return on investment over a very short period.

To lure investors, the following approaches were used;

(i) Guaranteed returns of between 2.5 times and 3 times of
the principal invested within a period of a few weeks.
(ii) Payment of monthly interest at the rates of 10-20% and
thereafter refund of the principal investment after expiry
of the contractual period.

(iii) Incentives which included offers to pay school fees and
advances of loan on attractive terms to purchase
vehicles.

3.1.2.3 Promotion strategy

Most pyramid schemes especially the major ones had a well
structured marketing/promotion strategy. Policy decisions
were made by the directors while the execution was done by
the managers and marketers. In the context of the major
pyramid schemes, marketing which basically meant
recruitment of investors was done through an elaborate
network of promoters.

3.1.2.4. Legal Contract

A number of pyramid schemes engaged lawyers to draw
contract agreements between the investor and the pyramid
scheme. The agreement provided an assurance on the
promised returns thus making the whole transactions look
legitimate. (See Annex 23-Sample of Contract Agreements)

49


3.1.2.5. Organizational Structure

The organizational structure of the various schemes may have
varied depending on the size and coverage of the particular
scheme. However the Taskforce noted that most of the
scheme had a standard organizational structure which guided
their operations.

The following is an expression of this structure;

DIRECTORS

C.E.O

CENTRE CENTRE
MANAGER MANAGER

PROMOTERS PROMOTERS PROMOTERS PROMOTERS

The Directors were the policy makers. The Chief Executive Officers (CEO)
issued directives on the day to day running of the schemes. The Director
and the CEOs were the main signatories of the bank accounts.

The Centre managers were in charge of the day to day running of the
branches and remitting the funds received to the head offices. The
promoters were in charge of the recruitment of new investors and were paid
on a commission basis.

50


The examples below express the mode of operation of selected pyramid
schemes.

(i) Kenya Business Community Co-operative Society

a) Registration- Sacco Society and affiliate Company (Kenya
Multipurpose Ltd)
b) Membership- local investors
c) Recruitment- through a marketing team
d) Coverage- countrywide
e) Network- Headquarter in Nairobi with 14 branches spread in
Nairobi, Coast, Rift Valley, Eastern, Nyanza and Coast.

(ii) CLIP Investment Co-operative Society

a) Registration- Sacco Society and affiliate company (Kings
Script Publishers Ltd)
b) Membership- open to investors
c) Objects- to promote the economic welfare of members
d) Coverage- countrywide but mostly in Nairobi and environs
e) Returns- Investment amount attracted interest at the rate of
10% p.m for five months. On the 6th month principal amount
is returned.

(iii) DECI

a) Registration- Limited liability company
b) Later registered as Tujibebe Sacco
c) Membership- targeted low income people
d) Recruitment- through the church and a network of promoters
e) Coverage- countrywide with headquarters in Nairobi.
f) Returns- investors contribute to a ‘revolving fund’. Investors
are classified into groups of 8 to make a series of 64. The 64
‘members’ are put in a revolving system that facilitates the
payment of all members of that group.

51


3.2 Number of Pyramid Schemes in Kenya
At the close of the registration exercise 270 institutions were identified as
pyramid schemes or pyramid related schemes. The list was drawn from
investors’ data captured all over the country. (See Annex 5: List of
Pyramid Schemes in Kenya and Amount invested)

A sampled list of the top twelve institutions in terms of amount invested
were;

NAME OF SCHEME NUMBER OF AMOUNT
INVESTORS
1 DECI 93,485 2,405,518,832.00
2 Clip Investments Sacco Ltd 5,846 1,993,866,422.00
3 Kenya Business Community Sacco Ltd 921 780,698,218.00
4 Sasanet Investment Sacco Ltd 629 739,948,412.00
5 Jitegemee Investment Sacco Ltd 3,828 494,401,600.00
6 Circuit Investment 1,392 348,943,103.00
7 Family In Need Organisation (FINO) 4,580 157,280,553.00
8 Global Entreprenership 9,206 139,006,632.00
9 Spell Investment 544 120,326,860.00
10 Mont Blanq Afrique 774 82,834,000.00
11 Amity Investment 979 81,838,656.00
12 Smart Welfare 1,125 68,903,070.00
Totals 123,309 7,413,566,358.00

3.3 Directors of Pyramid Schemes

These were the executive administrators of the schemes. They were in
charge of policy matters and the day to day running of the schemes. The
directors were the major benefactors of the scheme and signatories to the
bank accounts.

The list of directors is based on searches conducted by the Taskforce at the
Ministry of Co-operative Development and Marketing MoCD&M, NGO
Coordination Board and the Registrar of Companies. It is not conclusive as
the Taskforce only relied on authenticated searches obtained from the three
institutions. (See Annex 6: List of directors).

52


In some cases, the Taskforce could not establish from the information
availed by the victims under which legal regime a scheme was registered to
enable it make a search at the appropriate government office.

The search conducted revealed the following;

Mode of Registration Number
Companies 19
Co-operative Societies 17
Businesses 19
NGOs 3
Total 58

The searches had not been finalized since not all files had been traced by
the time the tenure of the Taskforce ended.

53


The key directors/proprietors/officials of top twelve pyramid schemes were;

INSTITUTION DIRECTORS/PROPRIETORS/OFFICIALS
DECI George Odinga Donde

Tujibebe Sacco George Odinga Donde - Chairman
Godfrey Kamanda Gakure (Bishop)
Ann Zawadi - (Advocate)
Ambassador Mary Odinga
CLIP Investment Peter Ndakwe - Chairman
Cooperative Soc. ltd Meshack Gachago - V/C
Didycus Shyamwama - Treasurer
Festus Kizisa - Secretary
Kenya business Francis Omurwa- Chairman
community Sacco, Angelo Mung’ri M’inoti - V/Chairman
Ltd. Elias Kathurima Rutere - Treasurer
Barnabas Mwangangi - Secretary
Sasanet Investment Michael Chege - Chairman
cooperative Dorothy Wangui - Hon. Secretary
Ronald Ouma - Treasurer
Job Nyamao - V/chairman
Sasanet ltd. Michael Chege and Sammy Gitau
Jitegemee Sacco/ Jackson Kinyoho Mburu - Chairman
Mont Blanq Afrique Patrick Nyoike Maina - Member
Ltd Florence Wambui Busiega - Vice Chairman
James Mate Njeru - Treasurer
Elizabeth Ngoiri Mwangi - Secretary
Family in Need John Leonard Wanyoike
Organization Winfred Gatakaa Kiria
(FINO) Rahab Maimutie Wanuoike
Global Patrick Ayisi Ingot - Chairman
Entrepreneurship Christopher Mweresa Livunda - V/Chairman
Florence Nzoeva Mulama - Secretary
Edward Murithi Matu - Treasurer
Spell investment Boniface Anderson Ngosia - Chairman
Faith Ayoti - V/Chairman
Consolata Nabwire - Secretary
Eunice Negesa - Treasurer
Amity Investment Charles Murithi Kirigua

54


3.4 Financial Indebtedness to Investors.

The financial indebtedness of the schemes to investors compiled at the
close of the registration exercise was Kshs. Kshs.8,178,737,402, from
148,784 investors. (See Annex 5: list of pyramid schemes and amount
invested)

Although the exercise was largely successful the figures expressed above
are not conclusive due to the following reasons;

(i) At the close of registration exercise, many investors were still
streaming to the various registration centers

(ii) Some investors failed to register as they had already registered
with Private Pyramid Initiatives. In addition some initiatives
advised investors not to register with the Taskforce.

(iii) Related to the above, there were investors under the
misconception that previous registration with the Private Pyramid
Initiatives was sufficient, despite the Taskforce advising and
encouraging all victims to register with it.

(iv) Prominent personalities who participated in the schemes may
have failed to register because of their social status in society.

(v) Some investors were unable to register due to loss of documents
during the 2008 post election violence.

(vi) Despite the publicity by the Taskforce, some investors were not
aware of the registration processes.

(vii) Some victims appeared after close of registration exercise
claiming the period given was too short.

55


Recommendation

A Pyramid Scheme Information Center be set up where victims who have
not registered their claims can get opportunity to do so, to enable them be
considered should recovery be made from the property of
directors/proprietors’.

The Pie-charts below present a graphical representation of the data gathered
during the registration exercise.

56


Figure 1: Number of pyramid schemes per province

Source: Registration of claims data.

Notes
(i) Nairobi province recorded the highest number of schemes with North
Eastern being the least affected.

(ii) The figures represented in the chart indicate the number of schemes in
a particular province. It is to be noted that some of the schemes
operated in more than one province.

57


Figure 2: Number of Investors per province

Source: Registration of Claims data
Notes:
(i) Pyramid schemes recruited investors from all parts of the country
but the epicenter was Nairobi province.

(ii) Nairobi province with the highest number of schemes also
experienced the highest number of investors.

(iii) North Eastern province was the least affected by the schemes
recording 15 investors in one scheme.

58

Report Of The Taskforce On Pyramid Schemes

Report Of The Taskforce On Pyramid Schemes

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