The ACCC’s case against Lyoness
Back in August we reported that the Australian Competition and Consumer Commission (ACCC) had filed a lawsuit against Lyoness.
As with our own Lyoness review, a press-release from the ACCC indicated that they had taken issue with Lyoness’ accounting unit investment scheme.
Today we take a closer look at particulars of the ACCC’s case.
The ACCC’s Statement of Claim was filed on the 28th of August in the Federal Court of Australia (NSW).
It lists four respondents:
- Lyoness Australia
- Lyoness Asia
- Lyoness UK and
- Lyoness International
The Statement of Claim briefly covers the cashback component of Lyoness’ compensation plan, before getting into the logistics of the AU investment scheme.
Lyoness affiliate downpayments are targeted, which the ACCC content offer no benefits outside of the Lyoness compensation plan and in limited circumstances, recovery of the funds used to pay for downpayments.
The ruse pushed to cover up affiliate investment in accounting units is that AU investments were “downpayments on shopping”.
Yet as the ACCC reveal downpayments made can be switched willy-nilly among Loyalty Merchants. The downpayments aren’t tied to any specific merchant.
How is this possible?
Well, as I’ve pointed out many times before, AU investment funds are deposited with Lyoness. They are external to the merchant shopping network.
The vouchers were in effect “Lyoness vouchers”, which were only converted to shopping credit with a particular merchant upon accounting unit maturity.
As to the particulars of the AU investment scheme, Lyoness affiliates are required to invest in a specific number of units to qualify for commissions. They also need to recruit at least four affiliates into the scheme (who also invest in accounting units).
With all accounting unit investment funds retained and paid out by Lyoness, naturally they can’t pay out ROIs without new money being invested.
The amount of Loyalty Commission payable to a member depends wholly on the number of units they’ve invested in and what levels those units are on. An affiliate can maximize their position leverage by investing in units adjacent to eachother (stacking).
An affiliate earns 18.75% of the total Loyalty Commission paid out to any directly recruited affiliates and 6.25% paid to any of their recruited affiliates (level 2 downline and beyond).
The Loyalty Credit is of particular note here, as many Lyoness investors market the legitimacy of the program based on the fallacy that Loyalty Credit must be spent within the merchant network.
Rather, Loyalty Credit is able to be re-invested in Accounting Units to increase an affiliate’s investment portfolio.
In addition to this credit, there’s also the creation of bonus units, subject to a specific number of units being invested in a given Accounting Unit Category.
With no membership fees, the creation of bonus units yet again demonstrates the willingness with which Lyoness shuffles actual invested funds to existing members.
Finally, the ROI itself. Lyoness’ Account Unit ROIs pay out once a specified number of units have accrued under their invested position(s).
Simply put, you get paid your >100% cash ROI once enough new investments have been made after your own.
Being a Premium member entitles an affiliate to 3 units in AC3, 3 units in AC2 and 7 units in AC1 – it also qualifies them for a volume commission.
Qualification for the volume commission required a recruited downline who had invested at least $7500 in AUs. Qualification for Loyalty Commission, as stated earlier requires the recruitment of four affiliates who in turn invest in at least one unit themselves.
As more affiliates are recruited and invest in accounting units, so too do the commissions paid out to a Lyoness affiliate.
Shopping? What shopping?
Hard numbers in the Statement of Claim reveal that actual cashback payments made to Lyoness affiliates in the first half of 2013 were just 0.2% of the AU ROI liability. This is calculated assuming all AU investment was made at Accounting Level 1. If one considers a spread over multiple Account Unit levels (categories), the margin of difference only increases.
No wonder Lyoness CEO Herbert Freidl tells affiliates Lyoness “is all about positions!”
And where does all this money come from? Well for an accounting unit to mature, new investments must be made… this isn’t rocket science.
An affiliate is only paid out when downpayments (investment in AUs) occurs by recruited affiliates (a downline). Or in other words, it’s sourced from subsequent investors.
The cash ROI alone is higher than the cost of a single account unit investment at any Accounting Unit level.
Called out are the marketing efforts of “Global Go Getters”, an Australian Lyoness group of affiliates led by Andy and Wendy Hansen and Phil and Sally Watts.
Lyoness themselves are also accused of promoting the AU investment scheme on the merits of a >100% ROI rather than anything to do with shopping.
This resulted in Global Go Getters holding affiliate workshops where they marketed Lyoness on the merit of making downpayments and the resulting potential ROIs.
Sign up, make your investment and once enough new investments have been made you get paid “significantly greater than the value of” your initial investment.
In these workshops, there was no mention made of any benefits through the merchant shopping network.
Nobody who makes any money in Lyoness does through the shopping network. “It’s all about positions!”
In conclusion, the ACCC sum up that Lyoness has been operating in Australia as a pyramid scheme.
The ACCC charges that Lyoness are in breach of Australian Consumer Law, specifically as it relates to “pyramid selling” and “referral selling”.
The ACCC have asked that an injunction against Lyoness be granted, which effectively restrain them from operating in Australia for at least five years.
Should the ACCC succeed, Lyoness in Australia will cease to exist.
In addition to the injunction sought, the ACCC also request that the Federal Court fine Lyoness a pecuniary penalty, the amount of which will be determined at a later date.
Lyoness has since filed a response to the ACCC’s lawsuit in court but I haven’t as of yet seen a copy of it.
In the meantime, a recent news report revealed that ‘a directions hearing was held last month and the matter will resume in February next year.‘
Footnote: The ACCC’s Statement of Claim can be obtained from the Federal Court of Australia for a nominated admin fee.