Pyramid Marketing

  1. In simple legal term, what is a pyramid scheme and how does it work?
  2. Under section 2 of the Multi-Level Marketing and Pyramid Selling (Prohibition) Act

    “pyramid selling scheme or arrangement” means any scheme or arrangement for the distribution or the purported distribution of a commodity whereby —

    (a) a person may in any manner acquire a commodity or a right or a licence to acquire the commodity for sale, lease, licence or other distribution;

    (b) that person receives any benefit, directly or indirectly, as a result of
    (i) the recruitment, acquisition, action or performance of one or more additional participants in the scheme or arrangement; or
    (ii) the sale, lease, licence or other distribution of the commodity by one or more additional participants in the scheme or arrangement; and

    (c) any benefit is or may be received by any other person who promotes, or participates in, the scheme or arrangement (other than a person referred to in paragraph (a) or an additional participant referred to in paragraph (b)).

    This can be referred to several decisions:

      i. In District Court in Public Prosecutor v Chua Hock Soon James, Harriet International Network Pte Ltd & Harriet Education Group Pte Ltd [2016] SGDC 71 (at [1])

      The first, second and third accused persons were convicted after a joint trial of offences under the Multi-Level and Pyramid Selling (Prohibition) Act (Cap 190, 2000 Rev Ed) (hereinafter referred to as “the Act”). The third accused, Harriet Education Group Pte Ltd (hereinafter referred to as “HEG”) was convicted of having, between December 2007 and September 2008 or around the said period, in Singapore, promoted a pyramid selling scheme or arrangement, namely the Global Eduprenenur Program scheme (hereinafter referred to as “the GEP scheme”), which scheme was not an excluded scheme or arrangement described in Paragraph 2 of the Multi-Level and Pyramid Selling (Excluded Schemes and Arrangements) (Amendments) Order 2001, which was an offence under Section 3(1), and punishable under Section 3(2) of the Act.

      ii. In the High Court in Tan Un Tian v Public Prosecutor [1994] 2 SLR(R) 729;
      [1994] SGHC 162
      (at [2])
      The appellant, the director of a company selling motivational programmes, was charged under s 3(1) of the Multi-Level Marketing and Pyramid Selling (Prohibition) Act (Cap 190, 1985 Rev Ed) (“the Act”) with promoting a pyramid selling scheme. The evidence showed that the company had two sources of income: one from the initial payments made by those who joined as distributors and one from the sales of the programmes by any of the participants to the scheme devised by the company. The franchise holders, whether sales associates, managers or distributors, did not have exclusive rights to sell in a defined territory. Although the product in question was worth very little, it was sold at a considerable price in order to churn up enough profits for distribution among the participants. Moreover, these participants were made to sign an agreement which obliged them to pay varying amounts of money as an initial investment. As a result, the capital was made available to the company cheaply and quickly, with the participants left with the burden of holding and disposing of the stocks. While the participants did not receive any direct reward for recruiting a new member, they benefited indirectly as they received a cut by way of commission whenever the new participant made a sale.

  3. Is pyramid scheme illegal in Singapore? Why?

  4. In the interest of consumer protection, the Government’s regulation effort is targeted at preventing the proliferation of such high-risk schemes.

    https://www.mti.gov.sg/Legislation/Legislation/Multi-level-Marketing-and-Pyramid-Selling

  5. How does one identify a pyramid scheme? What are the basic signs of the scam?

    Many pyramid schemes often disguise themselves as sellers collectors’ items, software, training programmes, etc, when all they are interested is to make a quick buck through recruitment. Members of the public who attend sales talks must be vigilant to such schemes.

    Illegitimate MLM schemes usually share the following characteristics:

    When the promoter hype about how easy it is to earn money, people can get very rich in a very short time and that the way to earn money is by recruiting others to join the scheme;

    The so-called product that you are supposed to sell is not something you would normally buy at its price; Participants are required to invest money into the scheme, whether in the form of a joining fee, or buying inventory.

    Remember – there is no easy money, you must believe in what you are selling and you should not put your money at unnecessary risk.

    https://www.mti.gov.sg/Legislation/Legislation/Multi-level-Marketing-and-Pyramid-Selling

  6. Is there a difference between pyramid scheme and multi-level marketing (MLM)?

  7. Under section 2 of the Multi-Level Marketing and Pyramid Selling (Prohibition) Act

    “multi-level marketing scheme or arrangement” has the same meaning as “pyramid
    selling scheme or arrangement” in this Act;

  8. Can one get in trouble for participating a pyramid scheme?

  9. The police advised members of the public that it is unlawful to promote or participate in a
    non-exempted multi-level marketing or a pyramid selling scheme.

    If found guilty under Section 3 of the MLM Act, one can face a fine of up to $200,000, up
    to five years’ jail, or both.

    https://www.straitstimes.com/singapore/3-held-for-promoting-illegal-mlm scheme#:~:text=The%20police%20advised%20m mbers%20of,years’%20jail%2C%20o

  10. How does one report about pyramid scheme in Singapore?

  11. The Commercial Affairs Department (CAD) investigates pyramid selling schemes. If you suspect a scheme has contravened the MLM Act, you may wish to lodge a Police report. A Police report can be lodged:

    – online via https://www.police.gov.sg/e services/report/police-report if you have a SingPass account or

    – at 391 New Bridge Road, #06-701 Block D, Police Cantonment Complex, Singapore 088762.

    https://www.mti.gov.sg/Legislation/Legislation/Multi-level-Marketing-and-Pyramid-Selling

  12. What is the punishment by law for those who *initiated*/*operates* the pyramid scheme?

  13. Under section 3(2) of the Multi-Level Marketing and Pyramid Selling (Prohibition) Act

    Any person who contravenes subsection (1) shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $200,000 or to imprisonment for a term not exceeding 5 years or to both.

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