SECP notifies rules banning Ponzi, pyramid and deceptive MLM schemes

The Securities and Exchange Commission of Pakistan (SECP) on Tuesday notified the Companies (Prohibition of Unlawful Activities) Regulations, 2026. The regulations set 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. They cover schemes that operate through physical and digital channels, including websites, mobile applications and social media. They also extend to existing schemes that show characteristics of unlawful activities.

Among the prohibited practices are earning income mainly through recruitment rather than genuine product sales, and using money from new investors to pay earlier investors. Promising unrealistic or guaranteed returns, imposing excessive joining fees or inventory purchases, and concealing how investor funds are used are also barred.

The rules also address schemes involving products with little or no genuine market demand, misleading income or product claims, and inadequate refund or buy-back arrangements. The sale of unregistered, unapproved or illegal goods is covered as well.

Pyramid schemes with unclear contractual terms, unreasonable purchase requirements, or multiple participation positions designed to generate recruitment-based rewards are prohibited. Bona fide direct selling, where pay comes mainly from actual sales to end consumers, remains permissible.

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, and other enforcement action, including winding up under section 301.

SECP Chairman Dr. Kabir Ahmed Sidhu said: "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."

The SECP said the regulations were finalised after consultation with professional bodies, business organisations and other stakeholders. It advised the public to be cautious about schemes promising unusually high or guaranteed returns, especially those rewarding the recruitment of new participants, and to verify a company's legitimacy before investing.