Nine convicted of multi-million pound pyramid promotional scheme
Following a Competition and Markets Authority (CMA) prosecution, over three trials, nine people have been convicted at Bristol Crown Court of organising and/or promoting a pyramid promotional scheme involving over £20 million pounds.
Alex Chisholm, CMA Chief Executive, said;
‘As the convictions make clear, pyramid selling schemes where money is generated primarily by recruiting new people to join in, are illegal and criminal. Anyone thinking of organising or promoting such a scheme risks a criminal record and a spell in prison.
‘The case will be a warning for consumers. The vast majority of consumers stand to lose their money from such schemes. The adage remains, that if it sounds too good to be true, it probably is.’
Sarah Davey, Principal Trading Standards Officer, Bristol City Council, South West Scambusters, said:
‘I welcome these convictions. Pyramid promotional schemes, such as ‘Give and Take’, are intrinsically unsustainable and doomed to collapse, resulting in significant loss of money for the vast majority. Rightly, such schemes are banned outright and the convictions have confirmed that Give and Take was an illegal scheme.’
The so called ‘Give & Take’ scheme (G&T) began in 2008 and was an unsustainable money pyramid promotional scheme that needed ever increasing numbers of new members – each paying £3,000 -to keep it alive. It involved around 10,000 people - mainly from the South West of England and from South Wales – with the majority losing their money.
The scheme was brought to a close between January and April 2009 with the arrest of committee members from the Bristol area, who ran the G&T scheme, and of other significant promoters of the scheme. Charges were subsequently brought by, the CMA’s predecessor, the Office of Fair Trading (OFT), against eleven defendants.
Bristol City Council’s trading standards service first referred the case to the OFT in 2008. A detailed investigation followed, with the OFT working closely with enforcement partners, including the South West Scambusters Team (a specialist regional trading standards team) and Avon & Somerset Constabulary. The case saw almost 300 witness statements taken and over 5,000 items of material seized and examined.
The prosecutions were the first brought by the OFT under the Consumer Protection from Unfair Trading Regulations 2008. Under these regulations, pyramid promotional schemes in which the money for payments is derived primarily from introducing or enrolling others into the scheme, are automatically deemed to be unfair commercial practices. Establishing, operating and promoting such practices are a criminal offence punishable by up to two years imprisonment.
The defendants were split into three trials – the first taking place between April and July 2012, the second taking place between May and October 2013, and the third was due to commence in September 2014 – with the results subject to a reporting ban until the conclusion of the third trial.
At the first trial, the Chair of the committee and figurehead of the scheme, Laura Fox, and two other committee members, Carol Chalmers and Jennifer Smith Hayes, were convicted unanimously by a jury and each sentenced to nine months in prison.
At the second trial, a jury were unable to reach full verdicts. Before the start of the third trial, a further three committee members - Susan Crane, Mary Nash and Hazel Cameron - pleaded guilty to the offences of promoting and operating the scheme, bringing the prosecution to a conclusion. Sentencing of these defendants has been adjourned to 13 October 2014.
A further three defendants, Sally Phillips, Rita Lomas and Jane Smith, pleaded guilty before the start of their trials to offences of promoting the scheme, and were sentenced to prison terms of three, four and four-and-a-half months respectively, suspended in each case for two years.
A further two defendants, Tracy Laurence and Rhalina Yuill, were acquitted.
The G&T scheme relied on existing members recruiting others to join. It was organised into a series of small pyramids of 15 people. When eight new members signed up they were placed on the bottom row of the pyramid and paid their £3,000 joining fee to the person at the top, who was referred to as the ‘Bride’. The Bride received £23,000 (the remaining £1,000 went towards purported administration costs and to a charity of the Bride’s choosing). The pyramids would then be split with the two people below the Bride, the ‘Bridesmaids’, becoming the new Brides, with eight new people needed to join each pyramid. The scheme expanded exponentially this way so that, in theory at least, each member had the chance to rise to the top of a pyramid and net £23,000. The scheme had expanded to over 900 pyramids by the time it was closed.
Participants were encouraged to invite their family, friends and colleagues to large promotional events where the cash payouts were awarded to the Brides. The events were designed to generate excitement around the scheme and give the impression that people would lose out if they did not join.
The scheme was promoted as being within gambling laws. Although some of the organisers sought legal advice they did not reveal the full nature or changes made to the scheme when obtaining that advice. The organisers nevertheless continued to claim that the scheme had full legal backing.
Although the scheme was targeted at women and promoted as being open to women only, men were allowed to join once the numbers began to dry up, as long as they used a woman’s name.
The CMA is also continuing with action to confiscate defendants’ criminal assets under the Proceeds of Crime Act 2002.
1. The CMA is the UK’s primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law. From 1 April 2014 it took over the functions of the Competition Commission and the competition and certain consumer functions of the Office of Fair Trading, as amended by the Enterprise and Regulatory Reform Act 2013.
2. Pyramid promotional schemes are those where the ‘compensation’ for participants is derived primarily from introducing others, rather than from the sale of a product or service. Such schemes are automatically unfair commercial practices under the Consumer Protection from Unfair Trading Regulations 2008. They are distinct from promotional arrangements under which compensation payments are derived from the sale of a product or service. Unlawful pyramid promotional schemes may involve products or services but these will generally be overpriced and have no real resale value, the primary source of the compensation for participants being derived from introducing others to the scheme.
3. Found guilty of ‘promoting’ and ‘operating’ a pyramid promotional scheme under the Consumer Protection from Unfair Trading Regulations 2008, were:
- Laura Fox - Chairman of G&T
- Jennifer Smith-Hayes - Treasurer of G&T
- Carol Chalmers - Venue Organiser.
4. Pleading guilty to ‘promoting’ and ‘operating’ a pyramid promotional scheme under the Consumer Protection from Unfair Trading Regulations 2008, were:
- Mary Nash – Charts Coordinator of G&T
- Susan Crane– Committee Secretary and Sub Treasurer of G&T
- Hazel Cameron – Games Coordinator for G&T.
5. Pleading guilty to ‘promoting’ a pyramid promotional scheme under the Consumer Protection from Unfair Trading Regulations 2008 were non-committee members:
- Sally Phillips
- Jane Smith
- Rita Lomas.
6. Acquitted by a jury of ‘operating’ and ‘promoting’ a pyramid promotional scheme under the Consumer Protection from Unfair Trading Regulations 2008 was non-committee member:
- Rhalina Yuill.
7. Following two trials at which separate juries each failed to reach a verdict, no evidence was offered in relation to charges of both ‘operating’ and ‘promoting’ a pyramid promotional scheme under the Consumer Protection from Unfair Trading Regulations 2008 in respect of a further non-committee member, who was therefore acquitted:
- Tracy Laurence.
8. South West Scambusters targets rogue trading and scams across England and Wales, supporting all local authority areas in England and Wales. There are separate arrangements in place in Scotland.
9. Members of the public if they think they have identified a dodgy pyramid scheme or been a victims of an illegal pyramid promotional scheme should report it to Action Fraud: www.actionfraud.police.uk or call 0300 123 2040. Victims or groups of victims should consult a lawyer or other legal representative, including those at Citizens Advice, for help getting money back.
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DATE: 18 September 2014