In a pyramid scheme, participants are often asked to make a payment, known as a ‘participation payment', to join and are promised payments for recruiting other investors or new participants.
The two payments often associated with a pyramid scheme are:
- a participation payment to join
- a recruitment payment, promised when a member recruits others.
These recruitment payments often help define a pyramid scheme – it may be the only or main reason for new member to join. The ‘payment' involved could equally be a financial or a nonfinancial benefit, given either to the new participant or to someone else.
These schemes inevitably collapse and new members can lose a lot of money. It is illegal for any business or person to participate in, or persuade others to participate in a pyramid scheme.
A court can consider several factors when identifying a pyramid scheme. The Australian Consumer Law does not limit the matters a court can consider however the following characteristics can be used to help identify a pyramid scheme:
- unrealistic claims in regard to future profits;
- the sales and/or promotional material push recruitment very hard;
- recruitment payments are a substantial reason to join.
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Information on copyright for the Office of Consumer and Business Affairs website is provided on behalf of South Australia Central http://www.sacentral.sa.gov.au/site/page.cfm?u=60
Disclaimer
Information on the disclaimer for the Office of Consumer and Business Affairs website is provided on behalf of South Australia Central http://www.sacentral.sa.gov.au/site/page.cfm?u=61
Privacy
The South Australian Office of Consumer and Business Affairs (OCBA) is committed to protecting your privacy and the confidentiality of your personal information, consistent with the South Australian Government's Information Privacy Principles. If you would like to view the full privacy statement please visit: http://www.ocba.sa.gov.au/privacy.html
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