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Multi-Level Marketing on the Net

Anyone having an e-mail address will receive many invitations to join multi-level marketing schemes (however well disguised). Questions are raised about their legality in different jurisdictions, and also about difficulties in regulating such schemes, particularly where they operate internationally. The case of In Re Vanilla Accumulation Ltd and Others in the Times of the 24th of February 1998 provides answers to several questions.

The scheme was an exceptionally complicated scheme, involving what appeared to be the marketing of gold coins over the Internet. In essence the profit came to be made when having entered the scheme, the new member was able to provide further new members, each of whom were to contribute. The scheme appeared to be successful, for early members, and large sums of money were collected. The English Courts have managed to put an end to the scheme. It should be noted first that only one of the several companies involved was registered or had places of business in England. The English Court claimed jurisdiction on the basis that they were trading in our jurisdiction through sales and purchases made here over Internet. The Court found that it held the jurisdiction to make winding up orders for companies registered in Gibraltar and the Netherlands, as well as companies in the UK.

The Court was able also to hold that the nature of the scheme as a multi-level marketing scheme, meant that inevitably, as time went, on the chances of those who entered the scheme late recovering their money, or making a profit were so slim that the scheme, and presumably any similar multi-level marketing scheme would be declared to be a lottery under English law, and accordingly because of its nature an unlawful lottery. The defendants argued that since there were genuine sales and purchases of gold coins underlying the scheme, this was a genuine marketing scheme. The Court readily held that the scheme was "inherently objectionable in the public interest, principally because ... the returns held out to a buyer, under which the returns depended on continuing recruitment of new members, were bound to come to an end sooner or later".

If it needed to be said, and it must do, those seeking to participate in such schemes must include alongside the risks they face, the idea that the company itself will be wound up, with the resultant threat to their funds contributed. As always - stay entirely clear of any such business scheme.


An interesting point is that because the words 'multi-level marketing scheme now appear on our web-site, we now receive rather more invitations to join such schemes.

Important: Please note that our law-bytes are retained for archival purposes only. The law changes, and these notes are often, now, out of date. You must take direct advice on your own personal situation and the law as it currently stands.
All information on this site is in general and summary form only. The content of any page on this site may be out of date and or incomplete, and you should not not rely directly upon it. Take direct professional legal advice which reflects your own particular situation.
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Copyright and Database Rights: David Swarbrick 2012
18 October 2013 http://www.swarb.co.uk/lawb/intMLMInt.shtml 149 18 October 2013