ACCC Takes Action Against Alleged Pyramid Scheme Operator
Tuesday 2 September 2014 @ 9.33 a.m. | Trade & Commerce
The Australian Competition and Consumer Commission (ACCC) has instituted proceedings against Lyoness International AG, Lyoness Asia Limited, Lyoness UK Limited and Lyoness Australia Pty Limited (together “Lyoness”) for operating a pyramid selling scheme and engaging in referral selling.
Company Background
Lyoness is an Austrian company founded in 2003, and operates a “cashback” scheme which provides rebates to members who shop through a Lyoness portal, use its vouchers or present their Lyoness card at participating retailers.
Although Lyoness has been investigated by regulators for conduct in other countries, this is the first court action taken against Lyoness alleging that the Lyoness Loyalty Program constitutes a pyramid scheme.
According to an article in news.com.au, a number of large brands participate in the Lyoness Loyalty Program, including Vintage Cellars, Overland, Oakley, Microsoft, First Choice Liquor, Liquorland, DealsDirect, Tyrepower and Barbeques Galore.
Definition of a Pyramid Scheme
Pyramid schemes involve new participants providing a financial or other benefit to other existing participants in the scheme. New participants are induced to join substantially by the prospect that they will be entitled to benefits relating to the recruitment of further new participants.
Pyramid schemes may also offer products or services, but making money out of recruitment is their main aim, and often the only way for a member to recover any money is to convince other people to join up. In contrast, people in legitimate multi-level marketing schemes earn money by selling genuine products to consumers, not from the recruiting process.
Under Australian Consumer Law(ACL), it is illegal not only to establish or promote a pyramid scheme, but also to participate in one in any capacity.
Allegations against Lyoness
The ACCC alleges that Lyoness has operated the scheme in Australia from mid-2011 and that it continues to operate the scheme. The scheme offers “cash back” rebates to members who shop through a Lyoness portal, use Lyoness vouchers or present their Lyoness card at certain retailers.
Whilst cash back offers themselves are not prohibited by the Australian Consumer Law, the ACCC alleges that the Lyoness scheme also offers commissions to members who recruit new members who make a down payment on future shopping.
The ACCC Chairman Rod Sims commented:
“Pyramid schemes are often sophisticated and may be operated under the guise of a legitimate business. Although these schemes can appear to be legitimate, the most significant inducement for new members to get involved is to earn ‘residual’ or ‘passive’ income from new members signing up … The concern with pyramid schemes is that the financial benefits held out to induce potential members to join up rely substantially on the recruitment of further new members into the scheme. For these schemes to work so that everyone can make a profit, there would need to be an endless supply of new members … Under the Australian Consumer Law, it is illegal not only to establish or promote a pyramid scheme, but also to participate in one in any capacity."
The ACCC also alleges that the conduct by Lyoness breached the ACL prohibition on “referral selling”, where a consumer is induced to buy goods or services by the promise of a commission or rebate contingent on a later event.
The ACCC is seeking declarations, pecuniary penalties, injunctions, an order requiring the Lyoness website to link to the case report and costs.
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Sources:
ACCC Release MR 217/14
Lyoness, cashback loyalty card operator, taken to court by ACCC over allegedly operating a pyramid scheme – news.com.au
