Four women have been warned by the Commerce Commission for likely breaching the law by promoting and operating a pyramid scheme in New Zealand.
Women’s Gifting Circles originated in the US and Bali, and the Commerce Commission considers that they are likely to be illegal pyramid schemes. Individuals typically join the scheme after being invited by a trusted friend or family member. They are asked to pay a “gift” of around US$5000 in return for empowerment, wisdom and sisterhood and the promise of US$40,000 should they reach the circle’s top status of leader or “Lotus”. The scheme involves the continual recruitment of new members to join and pay gifts in order to fill a circle’s 15-person structure and allow for the formation of new circles.
Commission Chair Anna Rawlings says in the Commission’s view, by organising and recruiting women to join the circles all four women likely breached the Fair Trading Act.
“The Commission considers that the Women’s Gifting Circle is likely to be a pyramid scheme operating under the guise of a personal growth network. Promoting a pyramid scheme is specifically prohibited by the Fair Trading Act because these schemes commonly mislead about the likely financial rewards of membership. Pyramid schemes require constant recruitment of new members to buy in and inevitably people lose out financially as recruitment dries up, and in this scenario, the circle collapses. This can often have significant financial impacts on the lives of individuals involved,” said Commissioner Anna Rawlings.
More than 200 letters will also be issued to other members of the Women’s Gifting Circle, advising them of the Commission’s warnings.
“We consider these circles to be scams and would urge any person who may find themselves associated with them to take the Commission’s concern with Women’s Gifting Circle seriously, and to stop any ongoing involvement immediately.”
The Commission is aware of other likely pyramid schemes, similar in nature to Women’s Gifting Circle, surfacing on various social media platforms and is advising all New Zealanders to avoid them, and encourage their family and friends to do so too.
“It is important to remember if the offer sounds too good to be true, it probably is,” says Ms Rawlings.
Any individual found to be promoting or operating a pyramid scheme may be breaching the Fair Trading Act and could be subject to criminal conviction and a fine of up to $600,000 per offence.
What is a pyramid scheme?
A pyramid scheme can take many forms, but has the following essential elements:
- it offers a financial return based on the payments made by new recruits
- the return is dependent primarily on the continued recruitment of new members, not sales of a product or service.
Pyramid schemes can come in many forms and the structure may not appear to be a classic pyramid shape. Do not assume a scheme is not a pyramid scheme just because any promotional diagram or image associated with the scheme does not look like a triangle. You can find more information on pyramid selling schemes on our website.
A warning explains the Commerce Commission’s opinion that the conduct at issue is likely to have breached the law. Only the Courts can decide whether a breach of the law has in fact occurred.
The purpose of a warning letter is to inform the recipient of the Commission’s view that there has been a likely breach of the law, to suggest a change in the recipient’s behaviour, and to encourage future compliance with the law.
You can read a copy of the Commission’s warning letters to the individuals on our Case Register.