'Pyramid' schemes may number in the thousands

By Paul Yandall

The Commerce Commission's battle to shut what it says is a pyramid scheme has been dealt a blow through the courts.

The commission has failed to convince the High Court in Auckland to close the Alpha Club - a Portugal-based company that offers people discounts on goods and services in exchange for a fee.

In a ruling last month Justice Potter rejected an application by the commission to freeze the club's bank accounts and to stop it trading.

She instead ordered the club to put 26 per cent of its membership fees in a trust account until a hearing in April determined whether it was a pyramid scheme.

Commission spokesman Vincent Cholewa said the agency was reluctant to discuss the case, but highlighted Justice Potter's statement in her judgment that "there is a serious question to be tried" as proof of concern.

The Commerce Commission's fair trading manager, Ross McPherson, said the main characteristic of a pyramid scheme was that earning money and gaining promotion depended primarily on recruiting more people into the scheme.

He said the commission had had some success in closing pyramid schemes. Last year, the Napier-based organiser of the Joker88 scheme was fined $30,000 and ordered to pay $200,000 in refunds.

"The problem is that there are now hundreds, probably thousands, of them in operation. We do what we can here, but with our resources there's just no way we can stop them all."

And the Alpha Club has presented a special type of problem to the commission's investigators. Mr McPherson labelled it a "hybrid scheme" - one which hid behind a facade of goods and services but which was essentially about making money by recruiting others.

Alpha Club members Gordon and Deanne Stewart of Hamilton disagree. Mr Stewart paid $6750 to sign up last April, citing the club's extensive discount package as the main attraction.

He has since quit his real estate job and has earned more than $100,000 selling memberships for the club from home. For every sale he pockets a $2100 commission.

"The big thing is the package - that's what people are interested in. The savings, whether it be in travel, accommodation, insurance or just buying a car, are real.

"Talk of it being a pyramid scheme is just ridiculous. The club is nothing more than a closed buying group."

After starting as a travel discount group in Portugal in 1995, the Alpha Club's profile has exploded across Europe, with major sponsorship deals now in place with sports such as soccer and boxing.

The club's New Zealand spokesman, Stewart Baldwin, said that in five years membership had grown to about 120,000 in 15 countries around the world.

That growth could be put down to one basic need: "Everyone's interested in saving money and that's where we can help."

A Ministry of Consumer Affairs spokeswoman, Judy Cochrane, said even if the club was not proven to be a pyramid scheme, it was at least a warning of how complex the problem had become.

Scams were not only growing in number, they were becoming more complex and more difficult to police. Overseas schemes accessed via the Internet practically rendered NZ law agencies impotent.