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Trading and Pyramid Schemes in UK

Trading and Pyramid Schemes in UK

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Published by Aditya Trivedi
According to Part XI of the Fair Trading Act, as amended by the Trading Schemes Act 1996 and
the Trading Schemes Regulations 1997. The Gambling Act 2005 pyramid scheme is illegal in UK
According to Part XI of the Fair Trading Act, as amended by the Trading Schemes Act 1996 and
the Trading Schemes Regulations 1997. The Gambling Act 2005 pyramid scheme is illegal in UK

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Published by: Aditya Trivedi on Sep 24, 2010
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09/28/2010

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Trading Schemes, Pyramid Selling Quick Facts
Subject:
Trading Schemes, Multi-level marketing, Pyramid Selling, Chain Letters,and Gifting Schemes
Relevant or Related Legislation:
 Part XI of the Fair Trading Act, as amended by the Trading Schemes Act 1996 andthe Trading Schemes Regulations 1997. The Gambling Act 2005.
Current Position:
 • There are no immediate plans to review the trading schemes legislation.• There is precedent for schemes operating as chain letters being subject to theLotteries and Amusement Act 1976. However, under the Gambling Act 2005 (whencommenced) it will be an offence for a person to invite someone to join a chain-giftscheme or for them to knowingly participate in the promotion, administration ormanagement of a chain-gift scheme. The Department for Culture, Media and Sport(DCMS) have policy responsibility for the Gambling Act 2005.
Recent Relevant Campaigns or Consultation:
 The Office of Fair Trading (OFT) Scams Awareness month in February 2005 and the jointly produced booklet ‘How to Recognise a Scam’ included some relevantwarnings, including:• What am I being asked to pay for?• Can I afford to lose the money?• Does it look to good to be true? (If it does, it probably is)
Key Facts:
 • The Department for Business, Enterprise and Regulatory Reform (BERR) hasenforcement responsibility for Trading Schemes legislation and will investigateschemes which appear to be breaking the law.• Trading schemes can be a legitimate opportunity for people to operate a businessfrom home and are not illegal in the UK.• Trading schemes become illegitimate and illegal if, while purporting to offerbusiness opportunities, the sole purpose of the scheme is to make money byrecruiting other participants, rather than trading in goods or services. This form ofbogus scheme is sometimes referred to as "pyramid selling".• There are also a wide range of bogus schemes which do not claim to trade ingoods or services but which are known as "pyramid schemes". Schemes operatingas chain letters or games are common examples.• All these bogus schemes need an infinite supply of new participants for everyone tomake money. Since the supply will always be finite, the pyramid must collapseeventually and most participants will lose their money.• All schemes where money changes hands are subject to the general criminal lawon fraud, theft, and deceit and the police are responsible for enforcement of the lawin these areas.
Frequently Asked Questions (FAQs)
 
 
Trading Schemes, Pyramid Selling Quick Facts
Q1. Can you advise me on whether I should join a trading scheme?Q2. Can you advise me on how to start up a trading scheme?Q3. I have lost money participating in a trading scheme. What can I do?Q4. I believe a certain Trading Scheme is operating illegally. What can I doabout it?Q5. I have been invited to join a trading scheme and make a lot of money.Should I put money in it?Q6. I have been asked to join a chain gifting scheme. Should I get involved?Q7. I have lost money in a chain gifting scheme. Can I get my money back bygoing to the Small Claims Court?Q8. Why do chain gifting/pyramid schemes not work for most people?
 -----------------------
Q1. Can you advise me on whether I should join a trading scheme?
 BERR cannot give legal advice about individual schemes nor can we approveschemes. The legality of a particular scheme would be a matter for the courts.It is very important for potential participants or scheme operators to understand thatcompliance with the legislation does not automatically mean that schemes arecommercially viable. They should seek independent and impartial business and legaladvice to help assess the pitfalls and potential of starting the business venture, priorto signing any agreement.
Q2. Can you advise me on starting up a trading scheme?
 
A useful starting point for business information and advice is:England - Business Links: 0845 600 9006www.businesslink.gov.uk 
Wales - Business Connect: 03000 6 03000www.business-support-wales.gov.uk/ 
Scotland - Scottish Business Shop Network: 0141 221 5513www.scotent.co.uk 
Northern Ireland - Invest Northern Ireland: 028 9023 9090www.investni.com 
Q3. I have lost money participating in a trading scheme. What can I do?
 The Department's booklet "The Trading Schemes Guide" describes the rights ofparticipants in schemes regulated by trading schemes legislation.BERR cannot give legal advice to individuals or take legal action on their behalf. Ifyou wish to pursue a claim against the scheme operator you should takeindependent legal advice or consult your localCitizens Advice Bureau.The small claims procedure is straightforward and provides the means to bring aclaim before the civil courts at modest cost and without the need for a solicitor.
Q4. I believe a particular trading scheme may be operating illegally. What can Ido about it?
 
 
Trading Schemes, Pyramid Selling Quick Facts
BERR cannot give advice on individual schemes, but we do take enforcement actionagainst schemes which break the law. This Department will consider complaintsabout trading schemes which may be acting illegally. Complaints should beforwarded to Consumer and Competition Policy Directorate, BERR, 1 Victoria Street,London, SW1H 0ET, setting out, in as much detail as possible, the nature of thecomplaint.We are unable to evaluate all schemes immediately. Any dealings this Departmentmay have with promoters are in confidence and that interpretation of the Fair TradingAct and the legality of individual schemes would ultimately be a matter for the courtsto decide.
Q5. I have been invited to join a trading scheme and make a lot of money.Should I put money in it?
 The Department cannot give advice on individual cases. However, we encouragepotential participants to consider:• Do I understand what is being offered to me?• Do I know what I will have to pay?• Do I understand that this is a self-employment opportunity and earnings will dependon the market and my efforts?• Is there a demand for the products of the scheme and can I honestly recommendthem to others?• While I have a legal right to a contract, do I understand that, if things goes wrong, itwill be up to me to enforce my rights?• Am I prepared to take the risk?• Should I seek independent advice before joining? Compliance with the legislationdoes not mean that a scheme is commercially viable. Potential participants shouldseek independent and professional business and legal advice before signing anycontract.
Q6. I have been asked to join a chain gifting scheme. Should I get involved?
 Under the Gambling Act 2005 it is an offence for a person to invite someone to join achain-gift scheme or for them to knowingly participate in the promotion,administration or management of a chain-gift scheme.
Q7. I have lost money in a chain gifting scheme. Can I get my money back bygoing to the Small Claims Court?
 The Department cannot advise on individual cases. Whether or not you could obtainsome redress in the Small Claims Court would depend on the circumstances of thecase (e.g. evidence of what you were told when joining the scheme, whether specificpromises were made, whether there was any evidence of deception.) You need totake professional legal advice on your case.
Q8. Why do chain gifting/pyramid schemes not work for most people?
 All such schemes would need an infinite supply of new participants for everyone tomake money. Since the supply will always be finite, the pyramid must collapseeventually and most participants will lose their money.

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