Lithuania botch Lyoness investigation
There are two ways to analyse Lyoness.
You can either look at the giftcard and cashback of the business, totally ignore the Accounting Unit investment scheme and thus conclude Lyoness is about shopping…
Or you can follow the flow of money through the company, and realize that most of the commissions paid out are a result of deposits being made directly with Lyoness on the expectation of an eventual >100% ROI.
Guess which approach Lithuania adopted?
With an estimated 300,000 affiliates in the country, Lithuanian regulators
were suspicious that the Lyoness Loyalty can be a pyramid scheme because (when) someone else (is) recommended to join the community shopping, (the) Lyoness member receives a bonus of 0.5% of the purchase price of (the) new member (they recruited).
However, having considered the request of the Bank of Lithuania UAB Lithuania Lyoness’ activities, the State Consumer Rights Protection Authority did not see (Lyoness as a) pyramid.
“Users are able to receive first consideration for the purchase and use of the product, and not for the inclusion of other users to the Lyoness shopping international community” – holds service .
They said that neither the nor the other benefits for more people to join the loyalty scheme, Lyoness members do not.
Those last two paragraphs are key.
Firstly yes, it’s entirely possible to purchase products from third-party merchants who join the Lyoness network (often just to harass and pressure their own customers into joining the scheme). That however in no way negates or justifies the direct investment into account units that Lyoness offers affiliates.
And secondly, no benefit when affiliates join the scheme?
Quite obviously the State Consumer Rights Protection Authority did not bother to go over Lyoness’ compensation plan and make inquiries regarding the scheme’s Account Unit investment scheme.
Had they of done so, they’d have soon realized the money held in Lyoness’ Bank of Lithuania account has nothing to do with shopping.
I mean just stop and think about that for a second. Lyoness’ facade is that it’s about shopping and costs nothing to join. So why is affiliate money being deposited into Lyoness’ bank account?
And under the guise of running a cashback scheme, the AU investment money that flows into Lyoness’ Bank of Lithuania account is then used to pay out ROIs… when enough new money has flowed into the account (AU maturity).
If you sign up a Premium Lyoness affiliate, they have to make an upfront investment of around $3000. And if any of those funds triggers AU maturity for the recruiting affiliate, they receive a >100% ROI. Otherwise they find themselves one new investment closer to AU maturity.
Either way, there’s a direct benefit paid out to the recruiting affiliate (either in full (ROI) or partial (1 investment closer to reaching ROI), when a new Lyoness affiliate is recruited and invests in AUs (either as a Premier affiliate or otherwise).
“Shopping”, riiiiiiiiiiight. Money being deposited by affiliates into Lyoness’ bank account and the same being paid out once enough new deposits have been made bypasses the merchant network altogether.
Lithuania’s regulatory conclusion echoes that of Norway’s Gaming Board a few months ago. In their investigation, Norway’s Gaming Board also completely ignored the AU investment scheme and instead focused on Lyoness marketing spiels and logic-fail PR spin.
On one hand there’s no excuse for such regulatory failures. But then if you want an idea of what these guys are up against, this is the kind of rubbish they’re told when they contact Lyoness:
We predict that in 2015 at the beginning of Lithuania will have more than 60,000 members – over the past year, the number increased by 35%” – Paul counts Kibiša UAB Lithuania Lyoness CEO.
Mr. Kibiša suggests that the system may soon join utilities and telecommunications service providers.
That’s nice. But did anyone ask Mr. Kibiša how much, dollar for dollar, Lyoness Lithuania paid out in commissions via shopping over direct account unit investment?
(insert crickets chirping here)
If you’re going to investigate Lyoness you have to include their AU investment scheme, otherwise you’re just cherry picking and it’s a botched investigation.
Australia’s ACCC have been investigating Lyoness for some time. They didn’t ignore the AU investment scheme and recently concluded Lyoness are ‘operating a pyramid selling scheme and engaging in referral selling.’
The ACCC alleges that the Lyoness scheme also offers commissions to members who recruit new members who make a down payment on future shopping.
Honestly, if you’re going to half-ass your regulatory investigations – why even bother?