SECP notifies rules banning Ponzi and pyramid schemes

The Securities and Exchange Commission of Pakistan has notified regulations prohibiting Ponzi schemes, pyramid schemes, deceptive multi-level marketing and unlawful referral marketing, the regulator said, extending its reach to schemes run through websites, mobile applications and social media.

The Companies (Prohibition of Unlawful Activities) Regulations, 2026 apply to all companies, including foreign companies. They bar business models in which earnings come mainly from recruiting new participants rather than from genuine product sales, and models in which money collected from new investors is used to pay earlier participants.

The regulations also prohibit promises of unrealistic or guaranteed returns, excessive joining fees, compulsory inventory purchases and concealment of how investors' funds are used. They 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 banned as well. The SECP said existing schemes showing the characteristics of unlawful activity fall under the regulations whether they operate physically or online, and companies may not promote, conduct or facilitate them.

Legitimate direct-selling businesses, in which compensation is generated primarily through actual sales to end consumers, remain permissible.

Violations may bring penalties against companies, directors and officers under Section 512(2) of the Companies Act, 2017. The regulator may also start other enforcement proceedings, including winding up companies under Section 301.

SECP Chairman Dr Kabir Ahmed Sidhu said the regulations would 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," he said.

The regulations were finalised after consultations with professional bodies, business organisations and other relevant stakeholders.

The SECP advised the public to be cautious when approached with investment schemes promising unusually high or guaranteed returns, particularly those offering rewards for recruiting new participants, and urged investors to verify a company's legitimacy before committing funds.