Pyramid scheme causes grief, hardship
Three businessmen have been ordered to pay $140,000 in fines and reparation for promoting a pyramid scheme to "unsophisticated and vulnerable" South Aucklanders.
Rangi Savage, Robert Rowe and Stewart Porter were found guilty in the Auckland District Court yesterday of breaching the Fair Trading Act for promoting a pyramid scheme called Fastrack90.
The Commerce Commission said the men promoted the scheme predominantly in South Auckland. They told prospective members that the potential return was "huge" - at least US$10,000 ($11,770) in 90 days, with a "minimum potential income" of US$160,000.
Commission consumer manager Stuart Wallace said it was not known how many people joined the scheme but it was believed to be at least 30, some paying more than $10,000 to join.
No members received any payment from Fastrack90 and all lost the money they paid to join.
The operation was a pyramid scheme because members could only make money by recruiting new participants to move up the pyramid.
If no new members were recruited no money was made.
Wallace said the scheme caused not only significant financial harm but also emotional damage.
"This scheme has caused untold grief and hardship for people who could little afford it," Wallace said.
"Not only have members lost their own money, but by convincing other family members and friends to join the scheme they have contributed to their loss as well. In some cases it caused the breakup of families and longtime friendships.''
Judge David Harvey said at the hearing that Fastrack90 targeted "hardworking average New Zealanders" who were "unsophisticated and vulnerable".
Because pyramid schemes are unfair, they are "deemed to be unlawful, involve misleading and deceptive conduct, and offend against ethical business practice".
Judge Harvey said if the defendants had the ability to pay, he would have imposed fines of $93,750 against Savage, $75,000 against Rowe, and $67,500 against Porter.
However, the fines were reduced because the men had no means to pay those amounts.
Savage was fined $40,000, and Rowe and Porter $20,000 each.
Judge Harvey also ordered them to pay reparation to the victims totalling $60,000.
Wallace said changes to the Fair Trading Act on June 17 would make the maximum penalty for committing this type of offence increase from $200,000 to $600,000.
People should be aware of the dangers of get-rich quick schemes, he said.
Fastrack90 is still registered with the Companies Office with Rowe listed as the sole director.