Confirmed: Gaming Board failed to properly investigate Lyoness
Back in June the Norwegian Gaming Board announced they’d finished their investigation into Lyoness.
Somewhat surprisingly, the Gaming Board decreed that Lyoness ‘does not engage in illegal activities in Norway.‘
The initial announcement was just that, with a detailed report to be forthcoming. In the meantime statements made by Gaming Board staff suggested the investigation was half-assed.
As the Gaming Board’s Monica Alisøy Kjelsnes told Norwegian newspaper outlet VG,
Lyoness is not registered as a national business in Norway, (so) there are no accounts with the Company Registrar that the (Gaming) Authority can compare (Lyoness’ supplied) the numbers with.
Couple this with the Gaming Board revealing in their initial announcement that their investigation was
based on the information that the Gaming Board has about Lyonness operations in Norway today.
And it was starting to look like the Gaming Board had just gone over a few Lyoness marketing brochures before concluding their investigation.
Late last week, a detailed breakdown of the Board’s investigation was finally published.
Did the Gaming Board half-ass their investigation? Read on to find out.
Reaffirming their initial conclusion, the Gaming Board’s report begins in a similar fashion to their earlier summary:
The Gaming Board has investigated Lyoness to determine whether their activities in Norway constitute an illegal pyramid sales system, where the payment of compensation and ability to generate revenues is primarily because others are recruited to the system, with no sale or consumption of goods taking place, or the use of any other services or other benefits.
The Gaming Board’s conclusion is that Lyoness and its operations in Norway, as it stands at present, is not a
illegal pyramid sales system under the Lottery Act § 16 second paragraph.
This conclusion is based especially on information received from Lyoness showing that more than 50% of their income from Lyoness operations in Norway today comes from the sale of goods and services from businesses associated Lyoness loyalty in its trading network, and not from the recruitment of members.
That much we already knew, but then things start to get interesting:
After the Lottery’s assessment of Lyoness in the years 2012 and 2013, it found Lyoness fueled an illegal pyramid sales system in Norway because more than 50% of income during this period was from the recruitment of members.
Lyoness didn’t change their Accounting Unit centric business model between 2013 and 2014, so what changed?
And the even bigger question raised: In 2012 and 2013, did the Gaming Board exclusively rely on information supplied to them by Lyoness, or did they actually go out and investigate the company themselves?
After receiving numerous tipoffs from the general public with concerns that Lyoness was operating as a pyramid scheme, the Gaming Board commenced their investigation in Decmeber 2013.
On December 4th, the Gaming Board requested Lyoness send them documents related to the following:
- general information about the company
- articles of Association of the company
- the ownership and ownership structure
- updated accounting records for a specified period
- any advertising / information material about the business in Norway
- terms and conditions of participation
- enrollment costs and any other running costs for affiliates
- the difference between paid membership and free membership
- the number of total, paying and free affiliates
- Lyoness’ sales structure
- the bonus and commission system, including the turnover of the company split between the revenue types
- information about the products sold
- list of member benefits
- cash Back – conditions and use of the card
- name and contact information of the loyalty businesses involved
- evidence that the turnover of the company in Norway in particular due to the sale of products and not recruiting members
Two points alone should have sunk the investigation from the get-go. Namely that Lyoness itself doesn’t sell any products, and that revenues from Accounting Unit investment decimates whatever trickle is brought in via legitimate shopping through the merchant network.
Lyoness responded to the Gaming Board’s request on January 22nd. Pertinent to the two major criteria identified above, Lyoness sent no information about any products they might have (they couldn’t of course, because they have none).
As for the revenue split between Account Unit revenue (investment) and legitimate merchant shopping, Lyoness did send information regarding this back to the Board. A month later however a second request had to be made, because the Board concluded that the information they had been sent was a “sheltered version” that failed to adequately explain ‘the flow of money in the business‘.
That Lyoness were playing games and trying to mask the flow of revenue through the business should have set off alarm bells.
A second account of revenues passing through the company was provided to the Gaming Board on the 3rd of March.
A few weeks later on March 21st, Lyoness’ attorney Karl Rosén flooded the Gaming Board with various marketing materials and reports that painted Lyoness in a positive light.
This information was not requested by the Gaming Board, and obviously was supplied in an attempt to overwhelm investigator with information (Lyoness’ compensation plan is notoriously confusing enough on its own).
Lyoness’ attorney continued communications with the Gaming Board throughout April and May, culminating in his giving of a Lyoness marketing presentation to the Board on the 15th of May.
Three weeks later the Gaming Board concluded their investigation and filed a preliminary report.
In the preliminary audit report it was concluded that Lyoness and its operations in Norway, as it appeared for the Gaming Board at the time of the report, was not an illegal pyramid sales system under the Lottery Act § 16.
During the assessment, decisive weight was given to information received from Lyoness which showed that more than 50% of proceeds to Lyoness in Norway for the period January to May 2014 came from sales of goods and services and not recruiting members.
What goods and services Lyoness sold during January to May 2014 is a complete mystery, given that the company itself sells no products and services to the general public.
Requests for detailed receipts and inventory reports of sales of products Lyoness claims to have made, matched up against total revenues flowing into the company for the specified time-period would have easily confirmed something fishy was going on.
Why the Gaming Board did not request this information is a mystery. Had the Board pressed the company on their claims that goods and services were being sold, perhaps the outcome of the investigation might have been different.
Also questionable is the use of terminology by the Board such as “proceeds… came from sales of goods and services”.
Statements like this are straight out Lyoness’ own marketing material. These statements are often parroted by Lyoness affiliates in attempts to discredit the fact that affiliates are able to invest in the company directly with no shopping taking place.
The Gaming Board’s explanation as to why for the years 2012 and 2013 Lyoness in Norway was a pyramid scheme, but in 2014 they aren’t, cements the fact that, unfortunately, this time around the Board was swayed by Lyoness marketing material – rather than actual facts and logic that had previously been used in their analysis.
In the preliminary audit report, it was found that Lyoness ran an illegal pyramid sales system in Norway for the years 2012 and 2013 because more than 50% of revenues generated in this period came from the recruitment members and not the sale of goods and services.
The decision was made on the basis that payment of N$ 16,000 was made by Lyoness affiliates to achieve the status of “premium member”, was regarded as income from recruiting members, and that the received sales figures showed that more than 50% of proceeds from the Lyoness business in Norway in the years 2012 and 2013 came from such duties income and no sales of goods or services.
Logically speaking, for the Gaming Board to arrive at a different conclusion in 2014, one would assume Lyoness either got rid of their account unit investment scheme.
Or for the first time in the company’s decade long history, revenues from the merchant network eclipsed that of direct AU investment.
Lyoness’ attorney Karl Rosén’s response to the audit report was to flood the Gaming Board with even more marketing materials and reports.
The end result?
The Gaming Board modified their definition of what constitutes the sale of goods and services.
Lyoness’ attorney Karl Rosén was given until 17 June 2014 to give a statement to the initial audit report.
The Gaming Board received a response to the preliminary audit report within the requested deadline. The response emphasized that the Gaming Board’s conclusions in the preliminary audit report were based on incorrect actual and legal reviews (Ozedit: otherwise known as Lyoness marketing material).
In particular, the response claimed that the Gaming Board’s review was insufficient where the Authority had not considered whether Lyoness and its revenue system had a pyramid effect.
It was also specifically claimed that the payment of $ 16,000 to become a premium member were not regarded as participant payment.
It was also suggested that the Gaming Board shouldn’t restrict the audit to only look at Lyoness’ turnover in Norway, but that they had to look at Lyoness sales total in the world.
It was also emphasized to the Gaming Board that in any case they would not be able to assume that the Lyoness was operating illegally in Norway in 2012 and 2013, because this was an atypical transition that is not affected by the Lottery Act § 16.
In the past the Gaming Board have held fast against the typical nonsense schemes feed it in response to their findings. Remarkably in this instance, the Gaming Board tossed any resemblance of logic and sense out the window and took Lyoness’ suggestions on board.
Just how much of an influence did Lyoness’ attorneys have over the Gaming Board’s investigation?
In their provided summary of Lyoness’ business model, provided by Lyoness themselves, at no point does the Gaming Board address the issue of cash being invested with Lyoness with nothing being bought or sold in the process.
Similarly, no mention is made of the >100% cash ROIs paid out at every Accounting Unit level, subject to a pre-determined amount of new investments being made with the company.
Nor is the fact that affiliates, upon maturity of their AU investments, roll their initially deposited funds into more accounting units (re-investment).
Infact of the twenty-seven pages that make up the Gaming Board’s report, the vast majority focus on the merchant shopping network.
Just as the case was in 2012 and 2013, in 2014 investment from Lyoness affiliates still forms the bulk of revenue going into the company:
When it comes to the number of premium members who have become premium member by paying £ 20,000 the Lyoness where £ 4000 constitutes payment in full of gift cards and $ 16,000 represents partial payment of gift cards, Lyoness stated that the number of such members total 1 751.
This is made up of 175 premium members in 2012, 1402 premium members in 2013 and 174 premium members from January to May 2014. In April 2014 only one such payment was made.
Left out are the figures detailing how many regular Lyoness affiliates have invested in account units outside of the Premium membership option.
But in any event, here’s the kicker:
Approximately 1900 premium members total means this is that most have become premium members by paying £ 20,000 to Lyoness.
Affiliate investment in Lyoness in Norway, just as it is in any market they operate in, is still primarily all about account unit investment and the eventual realization of a >100% ROI, paid out of subsequent investment amounts.
A received example shows that a premium member must pay between $ 250,000 and $ 530,000 before the gift certificate can be considered as full paid and can be triggered.
The Board does not receive data from Lyoness showing how much members receive the membership benefits in the form of payment of bonuses and recognition of receivables as a result of this payment alone, but according Lyoness will be limited.
Instead of cold-hard facts and figures (such as the triggering of AU maturity with results in cash ROIs being paid out (the only reason anyone invests in Lyoness), we get concessions like the above indicating cherry-picked information was sent to the Gaming Board.
Hell, the Gaming Board even acknowledge that affiliates only invest in Lyoness to participate in the AU investment scheme (and eventually collect >100% ROIs):
The payment of $ 16,000 and other partial payments on the gift card is being done to become a premium member.
Ultimately all that changed from the Gaming Board’s perspective was the acceptance that direct investment with Lyoness in accounting units on the expectation of a >100% cash ROI somehow now constitutes “sales of goods and services”.
Naturally this in turn skewers the revenue source figures, with the Gaming Board having to conclude, using their new definition of sales of goods and services, that Lyoness primarily do not generate revenue via AU investment (indirect recruitment).
Clear as mud?
Why the Gaming Board, who previously have a robust track-record of investigating MLMs using methodology grounded in logic, have dropped the ball on their latest investigation I can’t say.
They were right in their analysis of 2012 and 2013, but then by changing the definition of what constitutes the sale of goods or services, decree a different outcome for 2014. Effectively giving Lyoness a free-pass to continue with the exact same business model they were using for 2012 and 2013.
How is this justified? I have no idea. But under no circumstances does money invested directly with Lyoness as part of the accounting unit scheme constitute the sale of products and services.
This money is held by Lyoness, and is only released upon maturity of existing account units, subject to enough new units being invested in over time.
Honestly, if you’re going to permit a company to redefine the definition of the sale of goods and services – why even bother investigating them to begin with?
From a regulatory standpoint analysis of Lyoness is simple. Do affiliates get paid a >100% cash ROI if they invest in an account unity (regardless of whether said investment is made as part of Premium membership or not), and is said ROI paid out of money invested in subsequent account units.
A secondary concern should arise in analysis of Lyoness’ revenues, with accounting unit investment revenue (again, regardless of whether it is made by regular affiliates or those joining as Premium members), weighed up against actual shopping taking place (fees received from merchants as a direct result of shopping and/or their participation in the merchant network solely as merchants).
In conducting their investigation of Lyoness, quite obviously the Norwegian Gaming Board has failed massively on both accounts.
I suppose if it’s any consolation, the Norwegian membership figures provided by Lyoness, if accurate, reveal that the scheme is well on its way to a local collapse.
Perhaps once affiliates who rushed to invest in 2013 find their accounting unit ROIs stalling, because not enough
recruitment of new investors “sale of goods and services” is taking place, subsequent complaints might see the Gaming Board re-visit their decision.
Here’s a translation of the Danish part (page 13).
EU Court C515/12 (Case number).
Some text in Danish can also be found in page 12/13, 16, 19 and 23. All are short quotes from UCP Directive, Rule 14, and from the C515/12 court document.
Australian ACCC (and others) may be interested in the translated report, because of some factual information. I’m not talking about the country specific one, but about some general info.
Documents requested partly missed the target. It was a “standard request”. They probably asked some follow up questions, but SOME information seems to be missing.
“Number of members” types of question will partly miss the target. Lyoness simply isn’t organized around members but around “units”.
As far as I can understand, the report can be highly useful if someone points out something. I’m not sure what that “something” is, but I know it’s there.
Thanks for that. I’m looking forward to comparing the Australian court decision with Norway’s when the time comes.
I somehow don’t think they’re going to swallow the “AU investment = shopping” argument so readily.
To answer a question from the article …
Information has to be requested / collected from “correct sources”, usually from the party itself but also from official sources (entity registry, etc.).
Third party information can’t be used in a report, so it doesn’t make much sense to “collect evidence”. Information about where to FIND material can be used to something, e.g. I could point to the article containing the “Dragon’s Den” video and to another article containing “Rik Wahlrab draws and explains why Lyoness is a Ponzi scheme”.
I could of course have SENT those articles too, they’re not “evidence” (but if they had been evidence, it would normally have been better to send information about WHERE and WHAT to find).
Information from 2012, 2013 and 2014 were most likely collected in the same request (in 2 or more portions, e.g. for updated information from 2014). Agencies in general don’t collect information on a regular basis from companies. Some specific agencies do collect specific information, e.g. tax authorities will collect a lot of information.
In the Lyoness case, Lyoness Norway is defined to be a “service company”, e.g. dealing with merchants.
The pyramid scheme part is organized through the company Lyoness Europe AG (Switzerland?). So the potential illegal part is organized in a different geographical jurisdiction. It also mean they haven’t been able to collect all the required information.
Imagine if the SEC/HSI only used first-party information from TelexFree in their investigations…
Either the company in question comes up with all the requested information (none of this “they decided not to send us…” crap), or the agency shuts them down for non-compliance.
I should probably have specified “as evidence, in vital parts of reports”. They can clearly USE information.
“Request for additional information about cash flow, February 25 2014”:
Even SEC will need to collect evidence itself (or use another agency). The different Youtube videos used as evidence against top promoters (Sloan, etc.) were presented as evidence in the form of an affidavit by special agent something.
The major difference is that SEC has enforcement powers, more comparable to the “Economical and Environmental Crime Unit” (ØkoKrim) than to a Lottery authority. ØkoKrim is the one investigating Ponzi schemes, via local police authorities in different districts.
M_Norway do you think someone may be prosecuted for driving or participating illegal scheme in Norway during 2012/2013?
I have tried to check different sources. The answer is no.
I’m not the right person to ask about that, since I don’t follow that market closely. A couple of others do that, “more or less”.
so , introducing consumers is not wrong , promising returns is not wrong AS LONG AS 50% of the revenue is from some economic activity ie ‘Sale of Products’.
so, the products can be third party , and there is no binding about ‘WHO’ these sales are made to .
so, even if lyoness was running a purported ponzi in 2012/2013, their subsequent changes [whatever those are] are acceptable and their past is forgivable .
hmmm, norway is really chilled out in its MLM tolerance.
There were no changes.
Lyoness’ lawyer sent mountains of marketing documents to the Gaming Board and instead of applying logic as they’d done in the past, they accepted that investing money with Lyoness = the sale of goods and services.
Technically under the modified definition “sales of goods and services”, Lyoness wasn’t legally a Ponzi scheme for 2012 and 2013 in Norway either (hence why no action was taken).
Had Lyoness of actually changed something (such as totally abolishing the AU investment scheme altogether), then I might see where the Gaming Board is coming from.
The fact of the matter is unfortunately that someone over there totally dropped the ball.
if norway has been dealing with ponzis/MLM with wisdom and logic in the past, and we don’t have other glaring examples of norway ‘dropping the ball’ regularly in their investigations , we should not rush to conclusions about their thoroughness.
the list of questions and information the gaming board asked of lyoness is pretty exhaustive, and we are not privy to the information that exchanged hands. i have no idea how exactly norway defines ponzi/pyramid schemes, what it defines as ‘products’ or ‘services’ , or what rules it has on private investments. in the absence of such details , we cant really know what transpired between lyoness and the gaming board.
today, internationally, the atmosphere relating to MLM is highstrung , with lots of public debate. norway as a developed nation , will definitely be concerned about what reports it is putting out for public consumption regarding its absolving an MLM of illegality . this is not a one off report , it sets precedent , so norway must have been extra careful .
i wish , someone from lyoness corporate or their legal team could share some info about how they proved their case to the norway gaming board . that would be a real life education .
^^ Great example of why you don’t pull comments out of your ass without first reading the source-material.
Correct, “the products can be third party and there is no binding about ‘WHO’ these sales are made to”. Both those arguments can be completely rational. But that doesn’t mean your arguments will be the same. 🙂
In short, you haven’t managed to convince me about the rationality in your words. There must be some missing parts there?
Your focus on details in laws is, from my POV, not very rational. You’re trying to bend the rules to support some ideas you have. That won’t work very well in reality, you will only be misleading yourself.
Why the idea of bending rules (in your own head) is irrational is because the reality will not easily adjust itself to match them. There will be conflicts upon conflicts between your ideas and the world around you. And that isn’t very rational.
We should probably try to solve that problem first?
Then I can jump to one of your other comments …
Why do you want that (corporate or legal team to share some info)? Do you need some specific version of that info, something that only can be shared by those, or may some other sources cover your needs and wants?
My point is that the main part of that quote is completely rational, but your condition about sources isn’t.
The attorney, Karl Rosén, isn’t a corporate lawyer, i.e. he didn’t use Lyoness’ ideas but his own. He’s neither an “MLM guy” nor a “Lyoness guy”, so he can’t be motivated by that type of arguments. You don’t “talk the right language” if you’re trying to communicate with him, you will most likely be asking the wrong types of questions.
Lyoness’ legal team is usually vague or absent in communication. I’m not sure they exist. They have some hired “legal experts” they use to produce “legal opinion reports”. I can probably offer you one of those (legal opinions)?
Hey, guys, I’m not really sure what is the level you dissscus on now, however my understanding of the report is that applying 50/50 rule Lyoness is a Ponzi scheme.
If you look at Premium Partners fraction from 2013 and 2012 and begining 2014, when asked about numbers they’ve answered Premium Partners amound in population went down as much that they are below “illegality limit”.
But this logic is false, because AU’s can be (and are) purchased by non-premiums as well and there’s no way to verify if what Lyoness claims is true.
It is also somehow disturbing that you as a company can drive a Ponzi scheme with bunch of pimps knowing exactly where comes their biggest profit from, and this is acknlowledged to the public but nobody is to be punished for that, isn’t it?
Here’s a part of the answer. It doesn’t look very relevant, but ignore that.
From Gaming Board’s own description in English:
It’s PRIMARY function is to supervise a state-owned lottery (Norsk Tipping), Horse Gambling, and various other lotteries, bingo, etc.
From memory, the size of the organization is 70 people (both Gaming Board and Foundation). Gaming Board: 30 people (government lawyers, etc.). Market Control (the ones checking potential pyramid schemes): 5 people (lawyers).
Information like that may help you to put info into the correct context.
The part where they made the decision was on the “50% rule”. It isn’t a rule in itself, but one of the criteria in a test to determine whether or not a company can be classified as a pyramid scheme. The logic for that decision was “follow the rules”. But to understand what “follow the rules” mean for a government lawyer then you will need a short description of how they think.
This is why I still continue to wind up marking some 99% of Anjali’s comments as spam.
She either doesn’t read or intentionally “misunderstands” what’s written and then writes an essay full of arguments against what she thinks she’s read.
Ain’t nobody got time for that.
um, if i dont focus on the laws should i focus instead on your personal ideas?
now, oz doesnt agree with the norway gaming board , is he supporting some ideas he has ?
keep it short norway, why has Norway cleared lyoness? it’s definitely NOT their high retail! so, what is it? i can hardly believe the gaming board blatantly dropped the ball in full public view!
SIMPLE. to see how they explain their scheme. don’t turn everything into a psychological evaluation 🙂
How many times do you have to be told?
Lyoness flooded them with unsolicited marketing material and the Gaming Board subsequently accepted “investing money directly with Lyoness” as constituting the “sale of goods and services”.
It’s right there in their report.
For reasons known only to them, they adopted the logical position that investments in AU units aren’t the sale of goods and services for 2012 and 2013. In 2014 however they adopted a new definition and so “Lyoness is not a pyramid scheme”.
Somebody there definitely dropped the ball as the decision makes no sense. The AU investment ratio is still the primary source of revenue, only that in 2014 new investment fund dried up after the 2013 recruitment bubble.
that’s JUST IT. what are these reasons that are known to the gaming board? these reasons will definitely be known to lyoness corporate or their legal team.
this cannot be some ad hoc decision by the gaming board, there will be some reasoning and logic behind it .hence my polite invitation to lyoness to clear the air. you know what happened but not WHY it happened.
Lyoness’ lawyer sent them mountains of unsolicited marketing material. Y’know, the same crap their affiliates parrot about how AU investment is downpayments on sales that have nothing to do with collecting ROIs.
There’s no mystery here. That’s what happened as per the Gaming Board’s report.
Yeah it’s ridiculous, why do you think I wrote about it?
When Troy Dooly tried to report on Lyoness, their lawyers sent him eleventy billion pages of marketing jargon too. He published it verbatim on MLM Helpdesk.
Made no sense and was just dismissed as garbage.
The only time they’ve been honest about their business model is in that video with Friedl going about accounting unit positions. They clearly show AU positions having nothing to do with shopping, with ROIs paid out only once enough new AU investments have been made.
I gave her a constructive answer. If she want to change MLM laws in India then she should focus on the PEOPLE (legislators) and what THEY can accept of changes (rather than on what SHE want of changes).
of course the entire focus is on communicating with legislators and govt ministries,norway. how else can anything happen?
besides the idea is to introduce MLM regulation for the first time, there are currently no regulations, hence it’s not about changing anything.
and india will follow whatever best rules they find internationally, its not about mine or anyone’s personal ideas.
Here’s the link to VG (newspaper, in Norwegian) where Monica Alisoy Kjelsnes (Gaming Board) gives a direct answer.
I also talked to her on phone in June, but I didn’t focus on that part. I asked about facts (the gift cards) rather than laws.
Most people will consider that to be a major change?
No regulation –> new regulation
An alternative solution to new MLM regulations could of course be specially designed MLM prisons? 🙂
The Norwegian prison system has some attractive ideas. You can try to google “Halden prison Young Turks” (it will lead to a short Youtube video)
so, what did she SAY ??
I do not think all of you Did Better investigate Lyoness/Lyconet Better than the whole gaming board of Norway…. They have the facts all of which where needed to investigate. They are proffesionals. It is not their first MLM incestigation neither their first piramid investigation.
How do you want to get a profit if you do not have consumers in the beginnig of lyoness in any countries? Its MLM so profit thru shopping comes with a larger amounts of shoppers.
So Premium members are the ones who garantee revenue. Lyoness does not pay leaders out of the down payments. Downpayments are uses to buy further gifcards from merchants. Period.
(Ozedit: Offtopic derail attempts removed)
Don’t be thinking too often then, you might give yourself a headache.
AU investment does not equal product sales, so the Gaming Board have buggered up their investigation. That they didn’t apply this flawed definition for 2012 and 2013 is somewhat revealing.
Not through account unit investment.
AU investment are funds directly deposited with Lyoness, with a cash ROI paid out subject to enough new investments being made directly with Lyoness. Lyoness themselves pay out the ROI.
Accounting unit ROIs have nothing to do with giftcards. Period.
Sure OZ you know Better than all the goverment organs that approved Lyoness in EVERY country it has Been investigated….:)
do you have the balance sheets of lyoness ? Your giving a self based opinion. Have you the necessary documentation to proof your opinion? Or does for ex. The gaming board of Norway has the documentation to give a fact and analised based GOVERNEMENT opinion?
But maybe ur just a genius and all the goverment organs should hire you to shut down Lyoness! Yess and than you actually would have something to do besides sitting infront of your screen 😉
Lyoness refused to provide the Gaming Board with Accounting Unit revenue vs. shopping unit revenue. They acknowledged that in their report.
What makes you think they’ll give it to me?
Anybody who has ever made any significant money in Lyoness has done so via investment in AUs and recruiting others who do the same. This is the meat and bones of the compensation plan.
Using regular shopping habits, the generation of account units takes far too long to render Lyoness a viable MLM opportunity.
Logical conclusion = most AU ROIs are paid out as a result of direct investment.
Now either front up some proof Lyoness’ MLM revenue is not majorly derived from AU investment, with said revenue used to pay out ROIs on existing investments (no other revenue sources exist in the AU scheme), or stop wasting my time.
Nothing of interest to you (in the phone call). It’s relevant for some other reasons.
The correct short answer is “the 50% rule”. It will be verified in the VG interview. Here’s that specific part (from VG):
The short answer won’t make much sense, but it’s the correct one. It will require more information to make sense, but people will first of all need to THINK differently.
I will provide more information, but it will not be designed for you. It will be more useful if I design it for ACCC / government lawyers, for people already familiar with which types of rules government agencies will need to follow in a supervisory case, both in general and when some information is incomplete.
in which countries has lyoness been investigated and cleared?
besides australia is lyoness under investigation anywhere else currently?
They had incomplete information, but “legally acceptable” for the type of case. It was a supervisory case, not an investigation. “Legally acceptable” mean they CAN use it in a conclusion, but it will not meet other standards (e.g. evidence rules).
When it comes to laws, they’re much more qualified than we are.
Lyoness’ own incomplete information showed that more than 50% of the revenue in the first months of 2014 came from other sources than down payments. The figures for 2012 and 2013 showed something different.
A part of the conclusion is that Lyoness operated as a pyramid scheme in 2012 and 2013, based on incomplete information, but “legally acceptable for a conclusion”.
“Legally acceptable” are my own words, they’re not mentioned in the report. “Incomplete information” is mentioned in the report, but it’s mentioned indirectly in the details (documents requested versus documents received). It’s reflected indirectly in the METHOD, they used “legally acceptable” calculations where they preferrably should have used exact data.
All those points there should be understandable for government lawyers, even if I don’t use exact legal terms. I’m indirectly trying to identify TYPE of authority, TYPE of case, TYPE of rules, etc.
As far we know about Austria, Switzerland, Poland where authorities are talking about Ponzi schemein Lyoness in open manner(and LyoLiderPL knows that very well;)
List of known countries / dates. I don’t think anyone have a complete list (because of multiple jurisdictions and languages).
(Analysing the final report)
I will focus on a main logic here, not on exact details. There will be no final conclusion in this post.
The final report focused on the organization Lyoness itself, rather on the potential illegal “system”. That logic may fail.
Simple pyramids are organized like this:
Organizer (person, entity, group)
—- “System” —-
* Positions (members invest directly in positions)
Lyoness is organized like this:
Lyoness = main organizer
Lyoness Europe AG = direct organizer (as described in the report)
——- The “system” ——–
Multiple accounting programs
* each with 5 accounting cathegories (matrices)
** each with multiple units (“positions”)
WHERE THE REPORT’S LOGIC FAILED
It applied the logic “the down payment is a consideration for Premium membership”. That’s how a single matrix pyramid scheme is organized, but Lyoness is organized differently.
The membership itself is free. The down payment is a consideration for multiple positions in multiple matrices.
WHY IT FAILED?
Probably because of too literal interpretation of the text:
1. A chain recruitment system
2. where participants gives consideration
3. for the opportunity to earn financial gains
4. which primarily derives from other participants being introduced into the system (rather than from sale or consumption of products or services)
I haven’t used the exact text, but it has exactly the same logic as any other definition for promotional pyramids. It should be recognizable as correct.
That’s how pyramid systems are being described graphically too, with members joining other members in a pyramid structure. But a description like that will not necessarily reflect the reality.
not seeing any major signs of lyoness entry into india yet . shopping via pre paid gift cards is not the common normal way to shop in india – its all cash and some credit .i haven’t seen a lot of local retailers having the gift card system at all , so wonder how lyoness is planning to create a merchant network .
any big brand, which has the gift card service, will run a mile , if they even smell any recruitment based scheme.
oz may remember Nmart , a shopping / referral scheme with some initial investment and promised ROI , which was launched from gujarat in india a couple of years back . the CBI/EOW halted that scheme very quickly .
there are some similarities in the idea behind lyoness and that scheme, it wont get a warm response at all from indian police.
i find the idea of a network of merchants and consumers in a loyal symbiotic relation intriguing, cashback and friendship bonus a few levels deep would be just lovely . what was the need to ruin it all with complex accounting units investments and shit ! stooopid lyoness !
Having had ten years to drop the AU investment scheme, one can only assume an alternative business model without is not viable.
Just look at how Lyoness enter new markets. It’s always via huge front-end AU investment and when you call affiliates out on it, they claim “the system” needs the initial investment to get kickstarted.
Sort of exposes what’s really driving AU maturity then doesn’t it.
the norway gaming board has found that most of the cash flow thru lyoness in norway in the first few months of 2014, is generated from ‘product sales’.
now, on maturity of an accounting unit of 75$ due to completion of 35 binary units below you , you get 675$ ‘WORTH” commission which can be redeemed ONLY via product purchase.
only 198$ loyalty bonus is redeemable in cash .
i am very poor in accounting , but can this set up make it appear, that funds flows are product sale related rather than cash recruitment commissions?
if you remember, in burnlounge ,selling the lower packages returned rewards in the form of music products and not cash , and the SEC did not consider that part of the program to be a pyramid.
That’s a 264% ROI, paid out of newly invested funds with no shopping involved. The only payout criteria is that enough new investments are made after the initial one.
And the loyalty credit can be rolled back into new AU investment. As such one can (and most earners in Lyoness do) bypass the merchant network altogether.
The only reason they found that was because they redefined “product sales” to include “investment in accounting units”.
in a populated country like india , if you offer people cashback and bonus a few levels deep , just for their regular shopping needs , it will BLAST!
because of the low population in european and other countries , these AU may be needed to make the offer exciting, in india sheer numbers will generate revenue , no need for investment units at all .
Well by rights Lyoness should have taken off in India when they were pushing it a few months back.
But it didn’t.
Shopping portal MLMs are nothing new (Lyoness lanched a decade ago). If there was money in it purely on the cashback side somebody would have launched a successful one by now.
Losses with a lower population only scale up if you increase the number of participants (population). The “bonuses” have to come from somewhere… and merchants (usually retail) are already operating on tight margins.
You do the math.
Here’s a link to the C515/12 case, the one cited in the report in Danish.
It’s simply a decision from the EU Court. It’s about how to interpret the pyramid scheme rule. The case was about “pay to play” fee.
1] in lyoness the customer CAN make commercial profit [cash back] without being a part of the AU system at all . question : how many members out of 3 million lyoness participants are only free members. if this number is well over 50%, say 70%,we need to see the math before making ANY conclusions .
2]ALL the realization of profit does NOT depend introduction of new members. once again the question arises as to how many lyoness members are investing in lyoness units[ inventory loading]
3]in point 3, i find a difference in US law [koscot] and the EU view.
under koscot the sine qua non is : the right to receive in return for recruiting other participants into the program rewards which are unrelated to the sale of the product to ultimate users.”
in EU, the directive proposes: the ‘greater part’ of the revenue to fund the compensation promised to consumers does not result from a real economic activity
hence under EU directives, almost HALF of the compensation for recruitment Can be from participant investments .
also ,under pyramiding rules , compensation must be financial , rewards in the form of products will probably not be defined as pyramid compensation, because exchange of real products generates ‘economic activity'[ product sale AND consumption]
in lyoness on completion of an AU, approx 600$ of reward is provided in the form of product purchase . only approx 200$ is paid in cash . by EU directives HALF of this is allowed via investor funds.thus, only 100$ remains to be accounted for .
maybe maybe maybe shopping by millions of members CAN generate this 100$ , if the number of affiliates is not very high .maybe maybe maybe lyoness is taking high cash back from merchants, and forwarding only a little to its free members?
first norway , then lithuania ,both following EU directives , find lyoness OK. i genuinely feel we’re missing something .
Not true. “Reward” can be re-invested in more AU units. That’s what top-earners do.
From an AU investment opportunity perspective, shopping actually loses you money.
yes , it may be reinvested , but can be REALIZED how ? thru HIGHER product Consumption [economic activity] and HIGHER cash payment , but the ratio 600:200:100 will remain the same .
norway, what do you say , speak now or hold your tongue forever 🙂
Well the cash ROI paid out is higher than the initial investment in the AU unit. The loyalty credit re-invested is just a bonus towards the next ROI.
You put in $75, get paid a 100%+ ROI and re-invest whatever bonus they pay you. No actual product consumption takes place.
And you just keep doing this till you’re sitting on a bajillion AU investment positions. This pretty much sums up the core path of any top-earner in the company.