SECP cracks down on Ponzi, Pyramid investment schemes

November 03, 2026 (MLN): The Securities and Exchange Commission of Pakistan (SECP) has issued the Companies (Prohibition of Unlawful Activities) Regulations, 2026, to prevent Ponzi, pyramid and other unlawful investment schemes, clearly defining prohibited activities and imposing restrictions on companies involved in such practices.

The regulations apply to all companies, including foreign companies, and cover schemes operating through physical means, digital platforms, social media, mobile applications and websites.

Under the new regulations, companies are prohibited from promoting or carrying out multi-level marketing (MLM), referral marketing, Ponzi and pyramid schemes.

The regulations prohibit MLM schemes in which income or benefits are primarily derived from recruiting new members rather than genuine sales of goods to end consumers.

They also cover schemes involving excessive joining fees, unreasonable inventory purchases, exaggerated income claims and products with little or no genuine market demand.

Ponzi schemes have been defined as arrangements in which returns to earlier investors are paid from funds contributed by new investors rather than profits generated through commercial or business activities.

The regulations also prohibit schemes offering high, fixed or guaranteed returns with little or no identifiable risk, operating without an identifiable underlying business or revenue-generating activity, or concealing information about the use of investors' funds.

Similarly, pyramid schemes involving rewards primarily for enrolling or recruiting new participants rather than selling genuine products have been prohibited. Schemes involving excessive product purchases, unclear contractual terms, inadequate refund policies or multiple participation positions to generate recruitment-based rewards are also covered.

The regulations further prohibit referral marketing schemes that offer commissions, rewards or benefits primarily for referring participants to schemes exhibiting characteristics of MLM, pyramid or Ponzi schemes.

Companies, directors and other officers who fail to comply with the regulations or violate their requirements will be punishable under Section 512(2) of the Companies Act, 2017. The SECP may also take action under other provisions of the Act, including winding up the company under Section 301.

The SECP has advised the public to remain cautious of schemes promising guaranteed or extraordinary returns and to verify a company's credentials before making any investment.

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