Lyoness Scam Found Not A Pyramid Scheme In Australia

I reported on the case that the ACCC brought against Lyoness for being a Pyramid Scheme in Australia back in August of 2014.  It has been announce that the ACCC has lost their case against Lyoness. Modern product-based pyramid schemes have effectively been able to avoid being shutdown by not directly paying people for recruiting others.  They use product purchases to hide the recruitment payment.

Here is what the court had to say about why the ACCC case failed:

The Federal Court has found that a loyalty program operated by Lyoness Australia Pty Ltd does not contravene the pyramid and referral selling provisions of the Australian Consumer Law (ACL), following action by the Australian Competition and Consumer Commission.

The Lyoness program includes the ability for members to earn various rebates and bonuses from shopping. It also includes ways for consumers to earn bonuses if they introduce new members who also shop or make down payments on future shopping.

Whilst cash back offers themselves are not prohibited by the ACL the ACCC alleged that the Lyoness scheme also offers commissions to members who recruit new members who make a down payment on future shopping.

The Federal Court found that: “there can be no doubting the fact that inducements were held out to prospective Members that they would ultimately receive “financial benefits” other than the discounts they received on purchases made from Loyalty Merchants”.

However, the Court found that any entitlement to receive a benefit was occasioned – not by the introduction of the new Members – but from the pursuit of shopping activity by those new Members and the shopping activities of further new Members who, in turn, may have been introduced by such new Members. The ACCC also failed to establish that persons could become Members only by making down payments.

The Court made similar findings about “referral selling” conduct.

Justice Flick noted: “The manner in which pyramid selling schemes operate…is ‘complex and elusive.’ The present Lyoness Loyalty Program is no exception”.

ACCC Chairman Rod Sims said: The judgment echoed some of the concerns the ACCC had with the scheme, in particular its complexity and the inducements that were held to prospective members”.

“The ACCC will continue to investigate schemes that encourage consumers to recruit new members. We will take action where appropriate to ensure consumers are not drawn into schemes where the financial benefits held out to induce potential members to join up rely substantially on the recruitment of further new members into the scheme,” Mr Sims said.

The ACCC is carefully considering the judgment.

-Source Accc.gov.au

The median income of all Lyoness members is $0.04 and of all IBRs is $28.00. With many people spending $3000 to become a premium member, there are a lot of people losing money in this scheme. This high level of loses is common in product-based pyramid schemes. – Source Lyoness Income Disclosure

Conclusion

In my opinion, Australian law has not kept pace with the way current product-based pyramid schemes are run. It will take another country to hold Lyoness accountable.  This is a major victory for Lyoness.

Modem pyramid schemes generally do not blatantly base commissions on the outright payment of fees, but instead try to disguise these payments to appear as if they are based on the sale of goods or services. The most common means employed to achieve this goal is to require a certain level of monthly purchases to qualify for commissions. While the sale of goods and services nominally generates all commissions in a system primarily funded by such purchases, in fact, those commissions are funded by purchases made to obtain the right to participate in the scheme. Each individual who profits, therefore, does so primarily from the payments of others who are themselves making payments in order to obtain their own profit. – Source FTC Division of Marketing Practices James Kohm