Skip to content

Are consumers protected for Pyramid Selling Schemes?

The Australian Consumer Law contains prohibitions against participation in or attempting to induce another person to participate in a pyramid scheme. Also known as a ‘get rich quick’ scheme, promoters of pyramid schemes make their money by having others join the scheme.

Courts can impose civil pecuniary penalties of $1.1 million for corporations and $220,000 for natural persons for running a pyramid scheme. The Australian Competition and Consumer Commission has instituted proceedings against a number of organisations and firms for operating a pyramid selling scheme and engaging in referral selling. If you are uncertain as to whether or not you have inadvertently participated or even initiated a pyramid scheme, it is a good idea to seek legal advice.

What is a pyramid scheme?

A pyramid scheme is where participants make money by recruiting other businesses or people rather than selling a real and legitimate product or service. The principal economic activity of a pyramid scheme is the recruitment of new members and any product associated with the scheme is often of secondary importance.

This ‘participation payment’ to join is often tied with a promised payment to recruit and induce other investors or new participants. The payment itself must be in relation to the introduction and it must be the predominant inducement. Evaluating ‘inducement’ requires an objective inquiry into what persuades or influences the relevant person. Notably, under Australian Consumer Law, it is also illegal to participate in a pyramid scheme in any capacity, as well as to establish or promote a pyramid scheme.

Multilevel Marketing System

Care must be taken to distinguish an illegal pyramid scheme from a legal multilevel marketing system (MLMs). Genuine MLMs are supported by genuine economic activity and their participants earn money through the sale of products that have commercial value.

An MLM business involves a central corporation creating a product and then convincing other people to pay a fee in exchange for the right to sell its product. This can be seen in cosmetics, cooking implements and fashion accessories. Thus, the distinction here is that people in legitimate MLM schemes earn money by selling genuine products to consumers and not from the recruitment process.

LegalVision cannot provide legal assistance with this topic. We recommend you contact your local law society.

Register for our free webinars

ACCC Merger Reforms: Key Takeaways for Executives and Legal Counsel

Online
Understand how the ACCC’s merger reforms impact your legal strategy. Register for our free webinar.
Register Now

Ask an Employment Lawyer: Contracts, Performance and Navigating Dismissals

Online
Ask an employment lawyer your contract, performance and dismissal questions in our free webinar. Register today.
Register Now

Stop Chasing Unpaid Invoices: Payment Terms That Actually Work

Online
Stop chasing late payments with stronger terms and protections. Register for our free webinar.
Register Now

Managing Psychosocial Risks: Employer and Legal Counsel Responsibilities

Online
Protect your business by managing workplace psychosocial risks. Register for our free webinar.
Register Now
See more webinars >
Lachlan McKnight

Lachlan McKnight

CEO | View profile

Lachlan is the CEO of LegalVision. He co-founded LegalVision in 2012 with the goal of providing high quality, cost effective legal services at scale to both SMEs and large corporates.

Qualifications: Lachlan has an MBA from INSEAD and is admitted to the Supreme Court of England and Wales and the Supreme Court of New South Wales.

Read all articles by Lachlan

About LegalVision

LegalVision is an innovative commercial law firm that provides businesses with affordable, unlimited and ongoing legal assistance through our membership. We operate in Australia, the United Kingdom and New Zealand.

Learn more

We’re an award-winning law firm

  • Award

    2025 Future of Legal Services Innovation Finalist - Legal Innovation Awards

  • Award

    2025 Employer of Choice - Australasian Lawyer

  • Award

    2024 Law Company of the Year Finalist - The Lawyer Awards

  • Award

    2024 Law Firm of the Year Finalist - Modern Law Private Client Awards

  • Award

    2022 Law Firm of the Year - Australasian Law Awards