PLEASE NOTE: Information in this article is correct at the time of publication, please contact DFA Law for current advice on older articles.
Pyramid Selling Schemes
Ask most people to name any of the organisations to which the Government has given the power to enforce the law by raiding premises and the Office of Fair Trading (OFT) is not likely to be mentioned, let alone near the top of the list. However, the OFT does have such powers, granted under the Consumer Protection from Unfair Trading Regulations 2008, and used them for the first time recently.
OFT officers raided businesses in the Bristol area in connection with a suspected ‘pyramid selling’ scheme. Broadly speaking, these are schemes whereby money is made primarily from recruiting other people to take part, rather than from the sale of goods and services.
“Pyramid selling schemes, such as chain-gifting schemes, are always in the ascendant when times are hard,” says Nigel Martin. “They operate by persuading people to take part with the promise of making easy money. Typically, a potential member is asked to pay a joining fee and rewards are based on recruiting new members to the scheme. In reality, there would need to be an endless supply of new members in order for every participant in the scheme to make money.”
Since the introduction of the Gambling Act 2005, it is an offence for a person to invite someone to join a chain-gift scheme or for them knowingly to participate in the promotion, administration or management of a chain-gift scheme. If you are offered membership of such a scheme, do not be tempted to accept. Only the people at the very beginning of the ‘chain’ make money.
For more information on pyramid selling schemes, see http://www.consumerdirect.gov.uk/watch_out/scams/pyramids-chains/.