As the Commerce Commission begins court action against two New Zealand based pyramid selling schemes, it is warning people that pyramid selling is illegal.
"Anyone involved can be prosecuted," Commission Fair Trading Manager Rachel Leamy said. "The Fair Trading Act prohibits pyramid selling and the Act allows anyone to take their own legal action against any person involved in a pyramid scheme."
The Commission has just published guidelines to help people check out a scheme for themselves and decide if they should get involved.
As well as including a list of questions to use to check out a scheme, the guidelines explain what is pyramid selling, why pyramid selling schemes do not work and how pyramid selling differs from legitimate multi-level marketing.
The key difference is that multi-level marketing relies on selling products, while pyramid selling relies on introducing more and more people into the scheme.
"There just aren't enough people to keep a pyramid selling scheme going," Ms Leamy said.
If a pyramid scheme requires a person to recruit 10 others, who each recruit 10 others, then after six levels 1 million people have to be involved. The next step requires 10 million people.
"There seem to be a lot of questionable schemes around at the moment," Ms Leamy said.
"We get many thousands of enquiries from people asking us if a scheme they are considering is pyramid selling, and should they invest in it?
"While we cannot advise people how they should or should not invest their money, these guidelines will be a big help to people."
One of the tactics used by promoters has been to falsely claim the scheme has been approved or checked by the Commission. The Commission never endorses business schemes of any kind.
Other claims often made that should alert people that a scheme is questionable are that the scheme is legal or that it complies with another country's law.
"Why would any business scheme need to promote itself as legal?" Ms Leamy said, "and so what if it complies with foreign law - it must comply with New Zealand law."
Copies of the Commission's guidelines are available free of charge from Commission offices and will be distributed through Citizen's Advice Bureaus, Ministry of Internal Affairs Link Centres, Ministry of Consumer Affairs Consumer Advice offices and other organisations.
Please note that the Commission's legal advice is that at this stage of court proceedings it cannot release the names of the people and the facts of the schemes it is prosecuting. Charges have been filed in the Auckland and Christchurch District Courts alleging breaches of section 24 of the Fair Trading Act, which prohibits pyramid selling.
