International Law

Is ACN a Pyramid Scam?

At the scam.com forum, there is considerable debate about whether ACN is a pyramid scam.

One poster cites, in support of his theory that ACN is an illegal pyramid scam, two Government announcements, one from Australia and the other from the Canadian Competition Bureau.

In the Australian Federal Court,

"On 15 November 2004 the ACCC instituted proceedings against Australian Communications Network Pty Ltd, a seller of telecommunications services, for alleged breaches of the pyramid selling scheme provisions of the Act.

On 23 March 2005 Justice Selway found that ACN participated in, promoted and induced or attempted to induce persons to take part in a pyramid selling scheme in contravention of section 65AAC of the Act, and that Mr Martin Paech, an ACN director, aided and abetted and was knowingly concerned in those contraventions.

The court also found that Mr Keith Janke and Mr Jonathon Gibbs, two ACN Independent Representatives, were knowingly concerned in and aided and abetted the contraventions, and Gibbschade Pty Ltd participated in the pyramid selling scheme, and attempted to induce other persons to participate in the scheme, in contravention of the Act."

And according to the Competition Bureau,

"The Competition Bureau alleges that ACN Canada, as it is known, and its participants, through its web sites and at public meetings, recruited new participants by exaggerating income expectations without disclosing the income of a typical participant. Under the Competition Act, it is illegal to make reference to earnings in a multi-level marketing plan without disclosing a typical participant's income. In addition, operators of a multi-level marketing plan must ensure that any income representation made by a participant in the plan includes disclosure of a typical participant's income."

There is a significant problem with relying on these two cases: the Australian Federal Court's decision was overturned, and the Competition Bureau's case did not survive the preliminary hearing. For the latter, you would have had to gone to Corey Lewis's website, a Manitoba Lawyer, to find this information out as it does not appear on the Competition Bureau's website.

I think that these decisions are probably correct, the deception in most modern MLM's relate to the level of average compensation, the number of drop-outs, and the losses that those drop-outs on average have sustained, concepts related to earnings claims. The usual criminal definition of a pyramid should by applied to concepts like Skybiz.

Notwithstanding that these cases no longer can be relied upon, a number of independent consumer watch sites continue to rely upon these two cases to show that ACN is a pyramid scam. For example, over at mlmwatchdog.com there is a report purporting to show that ACN is a pyramid scam - but it has not been updated to reflect the status of these two competition cases.

Does this mean that I think ACN is not employing deceptive marketing practices? Well, this commentator certainly believes that ACN is employing deceptive marketing practices.

But, my own view is that a proper analysis of ACN's marketing practices should start with the proposed 26 new deceptive marketing practices, proposed by the FTC in April, 2006. Tell me what you think.

Full post as published by Misleading Advertising Law on February 12, 2008 (boomark / email).