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Commerce Commission cracks pyramid selling scheme

Commerce Commission cracks pyramid selling scheme

Issued 30 May 2014

Release No. 113

The Commerce Commission is urging people to be wary of get rich quick schemes after three businessmen were convicted and ordered to pay $140,000 in the Auckland District Court for promoting the Fastrack90 pyramid scheme, in breach of the Fair Trading Act.

Between March and October 2011 Rangi Savage, Robert Rowe and Stewart Porter promoted Fastrack90 to the public as a way of making money quickly. They promoted the scheme predominantly in South Auckland, and told prospective members that the potential return was “huge” – at least US$10,000 in 90 days, with a “minimum potential income” of US$160,000.

This was a pyramid scheme, as the only way members could make money was by recruiting new participants in order to move up the pyramid. If no new members were recruited, no money was made.

Almost 30 people joined the scheme, some paying more than $10,000 to join. None of the members received any payment from Fastrack90 and all have lost the money they paid to join the scheme.

Commerce Commission Consumer Manager Stuart Wallace says that while the promoters described their product as a multilevel marketing system, which are lawful, it was clear to the Commission that this was an unlawful pyramid selling scheme.

“There was no way to make money from the scheme – no “product” to sell – other than by recruiting new participants,” said Mr Wallace.

“It’s an old adage, but if it sounds too good to be true then it probably is. People need to be aware of the dangers of being drawn into get rich quick schemes like this.”

“This scheme has caused untold grief and hardship for people who could little afford it. Not only have members lost their own money, but by convincing other family members and friends to join the scheme they have contributed to their loss as well. This has, in some cases, caused the break-up of families and long-time friendships.”

At the hearing, Judge David Harvey described pyramid schemes as scams that “rely on promises of dreams rather than promises of reality.” Fastrack90 was targeted at “hard-working average New Zealanders” who were “unsophisticated and vulnerable.” Because pyramid schemes are unfair, they are “deemed to be unlawful, involve misleading and deceptive conduct, and offend against ethical business practice.” The offending in this case, he found, was deliberate.

His Honour noted that, if the defendants had the ability to pay, he would have imposed fines of $93,750 against Mr Savage, $75,000 against Mr Rowe, and $67,500 against Mr Porter. However, Judge Harvey reduced the fines because the men had no means to pay those amounts. Mr Savage was fined $40,000, and Mr Rowe and Mr Porter $20,000 each. Judge Harvey also ordered them to pay reparation to the victims totalling $60,000.

“This decision doesn’t just punish those responsible for this scheme but also sends a strong message to others that promoting and operating pyramid selling schemes will lead to severe consequences. And these consequences are about to get more severe. On June 17 when changes to the Fair Trading Act become law, the maximum penalty for anyone committing this type of offence will increase from $200,000 to $600,000,” said Mr Wallace.

ends

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