Pyramid scam closed but owes $3m

By CHRIS DANIELS

A nationwide pyramid selling scheme has been shut by authorities, owing more than $3 million to 12,000 people.

Victims of the Tauranga-based operation, known as Maximus Intermediaries, are unlikely to get any of their money back, despite the seizure of $447,000 in gemstones and $340,000 in cash in bank accounts.

Liquidators will pay Inland Revenue and unpaid employees first from the money seized from the brother and sister who ran the company, Kerry Lindsay Paul and Coralee Ngaio Judson.

The gemstones, including emeralds and tourmalines (hard, glassy gems), were bought by a company associated with Maximus, Hot Ice International.

The commission believes the gemstones were to be cut and resold in New Zealand.

The High Court at Auckland yesterday imposed the highest order yet under the Fair Trading Act, ruling that Maximus was a pyramid scheme and entering judgment against the defendants, who are now liable to pay more than $3.1 million.

They are civil charges, not criminal, so Paul and Judson cannot be sent to prison.

Commerce Commission chairman John Belgrave said the collapse of Maximus sent the strong message that all pyramid schemes were illegal and they were "a good way to lose money."

He said the scheme was often pitched at Maori and Pacific Islanders, many of whom could not afford to lose money.

Maximus had also operated a finance company, which lent people the money they needed to buy into the scheme.

Short-term loans made by the company often carried a 40 per cent interest rate.

The scheme was pitched as an "upmarket way of making money through a unique system to increase spending money."

Tauranga resident Lynda Innes said she quickly realised that what was promoted as network marketing was actually a pyramid scheme.

She said Maximus had implied that it had business relationships with big firms such as The Warehouse and petrol station chains which issued vouchers to members.

But very few vouchers ever came her way and she later realised that Maximus was just buying gift vouchers from these companies and passing them on to members.

After becoming suspicious of Maximus, she began contacting other members, asking for reports of problems.

Maximus countered with a warning to stop circulating such correspondence, or risk legal action.

Lynda Innes said a friend had recommended Maximus, saying it was a good concept that offered good discounts on everyday shopping.

"When we saw this one we were reasonably impressed and thought it could be a really good thing.

"We were really quite keen and enthusiastic. We got paid for other members to join, which I believe is actually illegal."

While Lynda Innes did not end up losing much money, many others paid more than $500 to join and received nothing in return.

A lawyer representing Paul and Judson said yesterday that his clients had no comment to make on the matter.

The Commerce Commission says pyramid selling schemes are illegal under the Fair Trading Act because of the risk of consumers being misled about likely financial returns.

This is because any reward depends on recruitment of new people into the scheme.