Precedent case – promoting pyramid scheme costs $12,000
Published23 Jul 1997
The Christchurch District Court today fined [Concealed under the Criminal Records (Clean Slate) Act 2004] $10,000, plus $2,000 solicitor's costs, for breaching the Fair Trading Act by promoting a pyramid selling scheme known variously as "Black Magic", "Magic 95" and "Black Magic 95".
The Commerce Commission prosecuted [Concealed under the Criminal Records (Clean Slate) Act 2004] who admitted that Black Magic was a pyramid selling scheme and that he had promoted it. All pyramid selling schemes are prohibited by the Act.
[Concealed under the Criminal Records (Clean Slate) Act 2004] had argued that he should be found not guilty because he had made a reasonable mistake or that he had reasonably relied on information supplied by another person.
However, the Court decided that the defences did not apply to [Concealed under the Criminal Records (Clean Slate) Act 2004] who had continued to promote the scheme despite learning that the Commission considered it to be illegal.
Judge R.M.Kean said that [Concealed under the Criminal Records (Clean Slate) Act 2004] had made a deliberate decision to become involved, and made widespread and extravagant claims to promote Black Magic.
Judge Kean said that it is important that the fine imposed be a deterrent for others - penalties imposed on promoters of pyramid schemes must be significant.
He said [Concealed under the Criminal Records (Clean Slate) Act 2004] fine would have been considerably higher if he had been the originator of the scheme and had he not co-operated with the Commission in its investigation of the originator.
Commission Chairman Dr Alan Bollard said that the Court's decision sent an important message to people considering getting involved in pyramid selling: "you do not have to be the person who started the scheme to break the law; promoting it is illegal too".
Dr Bollard said that the person who allegedly started Black Magic is also being prosecuted by the Commission. That person is to appear in the Henderson District Court on August 27.
[Concealed under the Criminal Records (Clean Slate) Act 2004] dealt directly with the organiser. [Concealed under the Criminal Records (Clean Slate) Act 2004] included Black Magic in his full-time business offering network marketing. He produced promotional material, newsletters and an ordering system for Black Magic, and had 12 unpaid assistants promoting it.
Expert statistical evidence showed that irrespective of how many people are involved in a pyramid scheme, only a small group at the top can ever make money. Some people may recover their costs, but the biggest group at the bottom of the pyramid must lose money so that those at the top can make money.
In addition, pyramid schemes always collapse because of the huge numbers of people that must be involved.
"As well as losing money, people who participate in a pyramid scheme face the risk of prosecution. Anyone can take their own legal action under the Fair Trading Act, and the Court's decision in this case sets precedents that can be used by anyone in court action against any pyramid selling scheme," Dr Bollard said.
Note: The Commission's legal advice is that it should not release the name of the originator of Black Magic until his trial begins.
Media contact: Fair Trading Manager Rachel Leamy
Phone work (04) 498 0908, cellphone 021 662 773, home (04) 386 3110
