SECP notifies regulations defining Ponzi, Pyramid, deceptive marketing schemes

ISLAMABAD, Nov 3 (APP): The Securities and Exchange Commission of Pakistan (SECP) on Tuesday notified the Companies (Prohibition of Unlawful Activities) Regulations, 2026, establishing clear criteria to define and prohibit Ponzi schemes, pyramid schemes, deceptive multi-level marketing (MLM) and unlawful referral marketing.
The Regulations apply to all companies, including foreign companies, and cover schemes operating through physical and digital channels, including websites, mobile applications and social media.
The regulations identify prohibited practices such as deriving income primarily through recruitment rather than genuine product sales, using funds from new investors to pay earlier investors, promising unrealistic or guaranteed returns, imposing excessive joining fees or inventory purchases, and concealing the use of investor funds.
They also cover schemes involving 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 involving unclear contractual terms, unreasonable purchase requirements or multiple participation positions designed to generate recruitment-based rewards are also prohibited.
Bona fide direct selling, where compensation is primarily derived from actual sales to end consumers, remains permissible.
The Regulations extend to existing schemes exhibiting characteristics of unlawful activities, irrespective of whether they operate through physical or digital channels.
Companies are prohibited from promoting, conducting or facilitating such activities. Violations may attract penalties against companies, directors and officers under section 512(2) of the Companies Act, 2017, as well as 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,” said SECP Chairman Dr. Kabir Ahmed Sidhu while commenting on the notification,
The Regulations were finalized following consultation with professional bodies, business organizations and other relevant stakeholders.
SECP advised the public to exercise caution when approached with schemes promising unusually high or guaranteed returns, particularly those offering rewards for recruiting new participants, and to verify the legitimacy of companies before investing.