Australia’s ACCC sues Lyoness for being a pyramid scheme
It’s not exactly how I pictured easing myself back into blog coverage of the MLM world, but news broke last night that Lyoness are being prosecuted by Australian regulators.
As per their website, the Australian Competitor Consumer Association (ACCC)
promotes competition and fair trade in markets to benefit consumers, businesses, and the community. We also regulate national infrastructure services.
Our primary responsibility is to ensure that individuals and businesses comply with Australian competition, fair trading, and consumer protection laws – in particular the Competition and Consumer Act 2010.
So what’s their beef with Lyoness?
Lyoness International AG, Lyoness Asia Limited, Lyoness UK Limited and Lyoness Australia Pty Limited (together ‘Lyoness’) (are) operating a pyramid selling scheme and engaging in referral selling.
How totally not surprising.
BehindMLM first reviewed Lyoness back in 2012 and the discussion over the legitimacy of the company continues even today. Despite the mountains of smoke and mirrors Lyoness have armed their affiliates with, I’ve maintained that nothing excuses or justifies the Accounting Unit Ponzi scheme Lyoness has buried in its compensation plan.
Stopping short of referring to the scheme as an outright Ponzi (which it obviously is), here’s how the ACCC explain the problematic nature of Lyoness’ compensation plan:
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 (ACL), the ACCC alleges that the Lyoness scheme also offers commissions to members who recruit new members who make a down payment on future shopping.
“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,” ACCC Chairman Rod Sims said.
“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.”
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 mention of “down payments” is precisely the AU investment component of Lyoness’ compensation plan that functions as a Ponzi scheme.
Affiliates join Lyoness, invest money directly with Lyoness under the guise of shopping and then receive a >100% ROI once enough new investments have been made by their downline (recruited directly or indirectly via their upline).
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.
Despite Lyoness’ regulatory issues in several other countries, the ACCC’s action against the scheme is ‘ the first court action taken against Lyoness alleging that the Lyoness Loyalty Program constitutes a pyramid scheme.‘
Whether or not Lyoness was aware or co-operated with the ACCC in their investigation (supplying data etc.) is not clear.
I have heard unconfirmed rumblings from Lyoness affiliates that the AU investment scheme was to be dumped sometime later in 2014, but as of yet nothing has materialized from Lyoness itself.
If the rumblings are to be believed, whether or not they are a direct result of Lyoness being investigated in Australia is also unclear. Ditto whether they were aware of the investigation as to the best of my knowledge absolutely nothing about it has been communicated to Lyoness’ affiliates (Australian-based or otherwise).
What is clear however is the fact that Lyoness seemingly has no local Australian presence is not deterring the regulator:
As Lyoness International AG, Lyoness Asia Limited and Lyoness UK Limited are located overseas, the ACCC will be making arrangements for service on those entities.
The ACCC is seeking declarations, pecuniary penalties, injunctions, an order requiring the Lyoness website to link to the case report and costs.
The ACCC have a pretty solid track record against pyramid schemes and given it looks like they’ve done their homework on this one, I’m tipping this is the end of Lyoness in Australia.
Whether or not other jurisdictions (particularly the US, despite the small affiliate-base there), remains to be seen. Ditto Europe, which holds the bulk of existing AU investment funds but is not a growth market for Lyoness.
Lyoness have recently expedited efforts to break into India and greater Asia as launches in the US and Australia thus far haven’t gained the new investor fund traction they’d likely hoped for.
As for what happens next regarding the ACCC investigation,
The first Directions Hearing in these proceedings will be at 9.30am on 16 September, 2014 before Justice Flick in Sydney.
At this stage no mention has been made of any action taken against Australian Lyoness affiliate investors.
Meanwhile the silence from Lyoness regarding the ACCC investigation, in particular an explanation as to their failure to inform their affiliate base, is deafening.
Update 29th August 2014 – Since the publication of this article, Lyoness have responded to the ACCC’s lawsuit.
The ACCC have also clarified the current status of Lyoness affiliate investors and merchants caught up in the scheme:
Individual members and the retailers themselves — some of whom had been encouraged to recruit new members — would not be targeted by the ACCC.