Pyramid Selling

DOIhttps://doi.org/10.1108/eb025718
Pages266-268
Publication Date01 Jan 1996
AuthorRinita Sarker
Journal of Financial Crime Vol. 3 No. 3 Trade Fraud
TRADE FRAUD
Pyramid Selling
Rinita Sarker
The wake of the recession has witnessed a boom
in direct selling schemes also known as pyramid
selling, multi-level marketing or network market-
ing. Boasting annual sales of £200m, they provide
'gct-rich-quick' opportunities for thousands of
potential entrepreneurs. Alternatively, recent court
judgments have labelled such schemes 'a swindle
on the public', and 'an illegal lottery relying on
misleading literature to obtain subscriptions'. This
highlights how loopholes in Part XI of the Fair
Trading Act 1973, regulating pyramid selling, have
been flagrantly abused by unscrupulous promoters
to the financial detriment of an unsuspecting pub-
lic.
In a belated attempt to curb further exploita-
tion, the Department of Trade and Industry (DTI)
has published a consultation document1 outlining
amendments to the 1973 Act. However, it is debat-
able whether the new controls offer the public
effective long-term protection, or in fact, merely
shut the gate long after the horse has bolted.
WHAT IS PYRAMID SELLING?
Pyramid selling is a means of selling goods or
services through a trading scheme which operates
on more than one level. People who join ('partici-
pants') buy goods or services from the person or
company running the scheme (the 'promoter') and
then sell them to the general public, usually in
their homes. Apart from profits on selling, partici-
pants are offered other rewards including bonuses
for recruiting new participants, commission on
sales made by other participants, bonuses if the
participant is promoted to a higher level in the
scheme and payments for providing training or
other facilities to other participants in the scheme.
DRAWBACKS OF PRESENT CONTROLS
Under Part XI of the Fair Trading Act 1973, pyra-
mid selling is subject to two types of controls,
namely, criminal offences relating to recruitment,
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