The Norwegian Gaming Board put out a press-release today, advising that they have launched an investigation into Lyoness.

Tipped off by members of the Norwegian public, the Gaming Board plans ‘to assess whether (Lyoness) is an illegal pyramid‘.

Among other things, the Authority received information that it costs 20,000 dollars to join Lyoness. We also learned that members’ commissions mainly come from recruiting members and not from the sale of goods and services.

With Lyoness being free to join, it appears the Gaming Board are going to target the accounting unit investment scheme Lyoness run parallel to their cashback network.

This is the same major red flag I identified in my BehindMLM review of Lyoness, as the scheme mechanically functions like a Ponzi scheme.

New affiliates join and invest in account units, hoping to earn a >100% cash ROI after enough new units have been invested in. A small percentage of the required units are created through the shopping network, but by and large it is affiliate investment in units that appears to sustain the MLM business side of Lyoness.

As for a lack of the sale of good and services, that much is a given seeing as Lyoness themselves merely provide access to third-party discounts. Beyond affiliate membership, access to these discounts and investment in account units, Lyoness offers no additional products or services to its affiliates.

It would seem the Gaming Board has already laid the groundwork for the investigation, revealing in a letter to Lyoness that they’ve been selected for investigation ‘after a risk and materiality assessment‘ was carried out.

In the Gaming Board’s letter, the regulator requests Lyoness supply it with specific documentation, so that the Board can ‘make an assessment of whether Lyoness is an illegal pyramid scheme or an illegal pyramid sales system under the Lottery Act § 16‘.

Of particular note are the requests from the Board that Lyoness provide

– The difference between being paid membership and free membership

– The number of members in total, paying and free members

– Bonus and commission system , including the turnover of the company split the revenue types

– Information about the products being sold

– Evidence of how that the turnover of the company in Norway in particular is due to the sale of products and not referral (of new members)

Points one to three will be interesting if the Gaming Board can define “paying member” as a Lyoness affiliate who has invested in account units. No doubt Lyoness are going to trot out the “it costs nothing to join Lyoness’ line, but it’s a hard argument to make when the majority of your affiliates who earn commissions have invested in account units.

Another question mark that the Gaming Board might be able to answer, depending on what information is provided to them, is whether or not the majority of commissions generated within the Lyoness opportunity are via invested in or shopping units.

Points four and five I imagine will be difficult for the company to answer, and a lot would seem to hinge on the Gaming Board accepting the third-party discounts Lyoness provides access to as a product.

Either way the Gaming Board’s response should be an interesting read, as they have a track record for making their findings wholly public.

Back in 2010 the Gaming Board released a damning assessment of Wealth Masters International’s business model, revealing that

between 59 and 71 % of the payment for the products will end up as commission or in the bonus pool when sold by an Elite Consultant.

More than 50% of the income is derived from enrollment.

Our conclusion is that WMI is a business model similar to a pyramid scheme where a payment is required to achieve income mainly deriving from enrolling new members, and not from retail sale of wares or services, according to second part of § 16.

Again Lyoness are likely to try to play the “but it’s free to join Lyoness” card, so it’ll be interesting to see whether or not the Gaming Board takes into consideration what the majority of Norwegian Lyoness members are actually doing, as opposed to what the company claims about its opportunity.

From the sounds of it, the Gaming Board appear to be of the opinion that joining for free and investing in account units constitutes paid membership to Lyoness.

Technically the affiliate membership is free however if a ridiculously low percentage of Lyoness affiliates generate no income without unit investment, then it’s a clear indication of what an affiliate has to do to generate commissions. That being to invest themselves and then convince others to do the same.

Wealth Masters was ultimately deemed a pyramid scheme by the Gaming Board and subsequently banned. With no products or services offered by Lyoness themselves and the dodgy account unit investment scheme they run, how the Gaming Board classify the company will be of interest.

Also the shedding of light on Lyoness’ internal revenue flow will enlightening, particularly the ratio of maturing accounting units that have been directly invested in versus those that have been generated by shopping.

Naturally whatever is happening in Norway is likely to be similar to how Lyoness effectively operate in other countries they’re active in.

Lyoness have been given three weeks to respond to the Board’s request for information, which puts us at exactly Christmas Day on December 25th (the letter was sent out on the 4th of December).

Note that the after receiving the information the Gaming Board then takes some time to reach a decision. In the Wealth Masters case the Board started their investigation in early 2010 and concluded it in December of the same year.

Let’s hope Lyoness’ lawyers don’t bore the Gaming Board to death with mountains of irrelevant marketing drivel, as they did when Troy Dooly contacted them with some concerns.

My thanks to the BehindMLM reader who sent in this news tip and, as always, stay tuned…