Commission steps up action against pyramid selling
18 April 1999
The Commerce Commission is stepping up its enforcement action against pyramid selling schemes and more prosecutions are likely.
Commission Fair Trading Manager Rachel Leamy said that the Commission has two key messages about all pyramid schemes.
Firstly, all pyramid schemes are illegal in New Zealand and anyone involved, not just the person who started the scheme, can be prosecuted.
Secondly, all pyramid schemes are rip-offs. It has been proved mathematically that in all pyramid schemes most people must lose money and only the small number at the top can make money.
"Tragically, we have seen people lose their life savings - tens of thousands of dollars - in pyramid schemes," Ms Leamy said. "Some people have even borrowed money to put into pyramid schemes. They have lost the money and are paying interest on the loans."
Ms Leamy said that successful prosecutions just over a year ago followed by a surveillance and warning campaign appear to have reduced the spread of pyramid schemes in New Zealand.
"We aim to stop new pyramid schemes from starting by providing opinions that they are illegal," Ms Leamy said. "Existing pyramid schemes that are continuing despite warnings, and new ones that do start, will be targeted for enforcement action."
In 1997 courts convicted Leo van Dijk and Sean Robert Wright for their part in the Black Magic pyramid scheme and ordered them to pay a total of $29,000 in fines and costs. Mr van Dijk appealed to the High Court, which rejected his appeal.
Last year the Commission started court action against an alleged pyramid scheme, Joker 88. That prosecution is continuing in the Napier District Court.
The Commission is considering prosecutions against several other schemes. It has legal advice that it should not name those schemes before court action begins.
In the first eight months of the Commission's surveillance and warning campaign it discovered what it believes are 16 new pyramid schemes and warned 158 people that they risked breaching the Fair Trading Act by being involved in those schemes.
In the last six months the Commission has discovered what it believes are another seven new pyramid schemes and warned 45 people.
The pyramid schemes identified (including "clones" operating under different names) are: Barclays System, Charity Bond, David Stein, David Stevenson, Delta Direct, Direct Mail Network, Edward L Green, Envelope Stuffing, Equitynet, Global Gold Marketing, Homelend (also known as HomeNet), Mail Order 2000, New Inc, Perpetual Income Trust, Pony Express, Quantum, Telecard, Toward Ultimate Financial Freedom Programme (TUFF), Universal, Vanilla Gold Accumulation Plan, Vera Corp, Worldwide Wealth Creators Scheme, $7,000 in two weeks scheme and $50,000 scheme.
The Commission's free booklet, Pyramid Selling, aims to help people identify pyramid schemes. It is available from Commission offices and organisations like Citizens' Advice Bureaux. Examples of claims made about pyramid schemes include:
- "This is not a get rich quick scheme" or "this scheme is legal". People must ask themselves, if a scheme is legitimate, why are such claims needed?
- "Complies fully with US Postal Regulations 54/67." So what? Even if there are such United States regulations, it is New Zealand law the scheme must comply with.
- "The Commerce Commission has checked this scheme." The Commission NEVER endorses any business schemes. People should check claimed endorsements with the organisation or individual that supposedly gave the endorsement. Anonymous endorsements, and those that cannot be checked for other reasons, are worthless.
- "Make $100,000 a month legally." If it sounds too good to be true, it probably is.
Media contact: Fair Trading Manager Rachel Leamy
Phone work (04) 498 0908, cellphone 021 662 773
Communications Officer Vincent Cholewa
Phone work (04) 498 0920