Get this FREE Special
Report for more useful, accurate insights.
Section 61 of Australia’s Trade Practices Act was passed by the Federal Government to eliminate Pyramid
Selling schemes. The Australian Capital Territory, Victoria, Queensland, Tasmania
and Western Australia have all legislated against Pyramid Selling schemes1.
Successful prosecutions have been made against numerous people in recent years. The
following case was heard in the Federal Court. It provides an insight into the distinction
between illegal Pyramid Selling schemes and legitimate, ethical Multi-Level Marketing
reward plans.
In the case of the Trade Practices Commission v Arthur Martinus Pay and others2,
on the 30 January 1989 the Trade Practices Commission applied to the Federal Court,
Darwin, for injunctions restraining the three respondents from promoting a scheme
known as the “Orient Express”, alleging that it contravened the Pyramid Selling provisions
of Section 61 (2A) of the Trade Practices Act.
The scheme involved the recruitment of “passengers” on an imaginary train, each passenger
paying $125 to join. As each new passenger joined, those already on board moved to
higher levels – conductors, stewards and, finally, engine drivers. When each train
had eight passengers the “engine driver” collected $1000 and left the train, which
then divided into two, allowing the entire process to begin again.
There was no sale of product. Rewards were related solely to recruitment. The respondents
were convicted and fined, with costs awarded against them.
Other schemes were also successfully prosecuted under the legislation, including
the “Golden Aeroplane” scheme (same procedure, but based on an imaginary aeroplane
rather than a train). Some schemes even attempted to get around the legislation by
“selling” bogus seminars and other illusory “products”.
Latest Incarnation
— “Concorde”
A new incarnation of the old
“Golden Aeroplane” scam is doing the rounds (in Australia, at least), called “Concorde”
(yep, pretty imaginative. Really distances itself from the original!).
The differences this time around
are the name, the titles of the passengers and crew, and the price — a hefty $2,000
per person! That means the “Captain” leaves the Concorde with $16,000 in his
kitbag. It also suggests that, when the inevitable prosecutions occur, the consequent
fines will, as usual, reflect the extent of the rip-off.
This scam has all the hallmarks
of the current crop of illegal pyramid selling schemes and chain letters:
A copy of a letter from some
fictitious bureaucrat or government department confirming its legality (it’s invariably
a fake).
Lengthy documentation from an
equally fictitious lawyer or legal firm explaining why the scam is not in breach
of “relevant” anti-pyramid statutes.
The most cursory inspection of
this “documentary proof” usually reveals it to be either fraudulent or, if it purports
to be from genuine sources, an outright forgery. The stuff I’ve seen here in Australia
usually quotes foreign “legislation,” which has no relevance to this jurisdiction
anyway, even if it were not fake.
The legislation dealing with Pyramid
Selling is complex and difficult to explain in plain language. The former Chairman
of the Trade Practices Commission, Professor Robert Baxt3 wrote,
“The problem with the Australian
law governing pyramid selling, i.e. s.61 of the Trade Practices Act, is that it is
too technical.”
It’s hardly surprising, then,
that so much confusion exists over the distinction between Multi-Level Marketing
and Pyramid Selling. Professor Baxt went on to provide a succinct explanation of
the differences between the two. He said:
“In a Pyramid Selling scheme participants
are led to believe that they will get a right to receive rewards. These rewards
are related to recruiting other participants into the programme.What is inherently
wrong is that the rewards are quite unrelated to the sale of a product. It is basically
a ‘headhunting’ exercise. Pyramid Selling is an inherently unstable exercise
with its emphasis on recruiting participants to sell or buy what is often an illusory
right. Eventually growth must stop as the market becomes saturated. In a small economy
or country this can happen very quickly. We in Australia take a hard line against
this type of selling practice.
“Multi-Level Marketing, on the
other hand, is a legitimate way of doing business using a commission arrangement
in which the primary aim is sales to the consumer rather than recruitment of additional
persons into an endless chain.”4
There it is, folks… the official
verdict is in, and has been for a long time. MLM, or network marketing, is legitimate,
legal, ethical. To argue otherwise proves nothing except the ignorance of its
accusors.
Footnotes: 1. ACT Pyramid Selling Ordinance; QLD Pyramid Selling Schemes (Elimination) Act;
TAS Pyramid Selling Act; WA Pyramid Sales Schemes Act; VIC Fair Trading Act.
2. Trade Practices Commission Bulletin. Bulletin Numbers 45, 46/47 and 52.
3. Professor Baxt was also Professor of Law at Monash University. This quotation
is from his paper titled “How legislation does or does not work in protecting
consumers from pyramid schemes”, International Bulletin of the World Federation
of Direct Selling Associations, Issue 1, 1990, pp 8-10.
4. Ibid.
New VIRAL sponsoring system
How to find, approach, attract, educate, qualify, bond with and sponsor LOTS more people -- faster, better, easier and smarter -- using this powerful VIRAL system from The Profit Clinic. www.MyPearlMaker.com
from a JOB to a YOB
Gotta JOB (Just Over Broke)? Trade it in for a YOB (Your Own Business)! You'll love the money... and the boss is pretty nice, too: http://sfimg.com
How to spot Danger Zones!