SECP outlaws Ponzi and pyramid schemes in rules covering apps and social media
Pakistan's securities regulator has drawn a legal line around recruitment-driven schemes, notifying regulations that define and prohibit Ponzi and pyramid schemes, deceptive multi-level marketing and unlawful referral marketing, and extending them to websites, mobile applications and social media.
The Securities and Exchange Commission of Pakistan said the Companies (Prohibition of Unlawful Activities) Regulations, 2026 apply to all companies, including foreign companies, and to existing schemes that show the characteristics of unlawful activity, whether they operate physically or online. The rules were finalised after consultation with professional bodies, business organisations and other stakeholders.
The regulations list the practices that mark a scheme as unlawful: income derived primarily from recruiting new participants rather than genuine product sales, funds from new investors used to pay earlier ones, unrealistic or guaranteed returns, excessive joining fees or inventory purchases, and concealed use of investor money. They also cover products with little or no genuine market demand, misleading income or product claims, inadequate refund or buy-back arrangements, and the sale of unregistered, unapproved or illegal goods.
Pyramid schemes with unclear contractual terms, unreasonable purchase requirements or multiple participation positions designed to generate recruitment-based rewards are prohibited too. Bona fide direct selling, where compensation comes mainly from actual sales to end consumers, remains permitted. Companies may not promote, conduct or facilitate such activities; violations can bring penalties against companies, directors and officers under section 512(2) of the Companies Act, 2017, along with other enforcement action including winding up under section 301.
"These Regulations strengthen safeguards against deceptive business practices and financial exploitation. Our objective is to promote legitimate business activities and protect the public, including from unlawful schemes operating through digital platforms," SECP Chairman Dr Kabir Ahmed Sidhu said. The regulator advised the public to be cautious about schemes promising unusually high or guaranteed returns, particularly those rewarding recruitment, and to verify a company's legitimacy before investing.
