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.

Conclusion

If you have doubts about a particular scheme, or have unfortunately been caught in one, contact LegalVision and we will be able to assist you. As with all investment decisions, you should always seek independent advice before you make a decision. Call us today on 1300 544 755.

Lachlan McKnight
If you would like further information on any of the topics mentioned in this article, please get in touch using the form on this page.
Would you like to get in touch with Lachlan about this topic, or ask us any other question? Please fill out the form below to send Lachlan a message!

Privacy Policy Snapshot

We collect and store information about you. Let us explain why we do this.

What information do you collect?

We collect a range of data about you, including your contact details, legal issues and data on how you use our website.

How do you collect information?

We collect information over the phone, by email and through our website.

What do you do with this information?

We store and use your information to deliver you better legal services. This mostly involves communicating with you, marketing to you and occasionally sharing your information with our partners.

How do I contact you?

You can always see what data you’ve stored with us.

Questions, comments or complaints? Reach out on 1300 544 755 or email us at info@legalvision.com.au

View Privacy Policy