Federal Court update on illegal Greenstar Pyramid Scheme

Two consumers will receive compensation for the money they paid in membership fees for the illegal Greenstar pyramid selling scheme following Australian Competition and Consumer Commission action.

Last week, Justice Nicholson in the Federal Court handed down his judgment on compensation concerning his finding last year that Greenstar Co-operative Ltd, Bio Enviro Plan Pty Ltd, Buyplus Commodities Brokers Pty Ltd, Greenstar Management Pty Ltd and their Directors Kevin Robert Smith, Paul Anthony Haigh and Trevor Sampson had promoted an illegal pyramid and referral selling scheme known as Greenstar, and had also engaged in false and misleading conduct in relation to the scheme.

Whilst Justice Nicholson ordered compensation to two consumers for money paid for membership fees and who had given evidence in the trial, he declined to make a general compensation order for other Greenstar members that the ACCC had sought.

He ordered that the respondents pay the ACCC's costs.

In his reasons for judgment denying the compensation order, Justice Nicholson said that given the bankruptcy of the only two remaining directors of Greenstar, the insolvency of the companies themselves and the absence of any other respondents with assets able to meet likely liabilities such orders appeared futile.  He therefore declined to make them.

"The ACCC is pleased by the court findings, which support the ACCC's vigorous stance to prevent or stop pyramid selling that breach the Trade Practices Act", ACCC Chairman, Mr Graeme Samuel, said today. "The judgment again highlights that given the very nature of pyramid schemes, even with the best efforts of the ACCC, consumers hoping for compensation for joining them are likely to be disappointed.

"However, members who believe they have suffered losses as a result of being induced into a pyramid scheme can take their own private action against the promoter to recoup any losses if the schemes are found to be illegal.

"Consumers must be wary about entering into any schemes promising quick returns, particularly those with elements of pyramid schemes and/or referral selling.  In some cases, participation and promotion of these schemes may even be illegal".

Background

In March 2001, the Perth Office of the ACCC was advised of a number of complaints regarding the Greenstar scheme and following an investigation into the complaints, instituted proceedings against the Greenstar Companies and the Directors on 7 June 2002.

On 15 June 2002, Interim injunctions were granted by consent against Greenstar Co-operative Ltd, four of its directors and an associated company, Greenstar Management Pty Ltd.  The Federal Court injunctions, which remained in place until the matter was determined at trial, prevented the companies and directors from:

1. inducing persons to becoming members of the Greenstar scheme
2. representing that persons would be paid a commission in return for assisting the companies to provide goods or services from Greenstar to other consumers and
3. making representations that the companies have for supply, whether alone or as part of the scheme, a Greenstar Card and that in respect of the use of the Greenstar Card:

• the card is of any assistance in making telephone calls
• any record of any currency is kept in relation to the card
• any arrangement has been made with any bank or financial institution in relation to the card
• a deposit can be made to the credit of any card
• the card is of any assistance in making purchases by way of utilising an electronic communication network
• the card possesses any debit card facilities
• the card is of any assistance in obtaining cash from an automatic teller machine
• the card has any association with any debit platform or with any other network utilising electronic communication in relation to banking or commerce
• it is possible for a member of the Greenstar scheme to earn money from their membership.

The court further ordered that the companies and the directors be restrained from representing the merits of, or characterisation of the ACCC action, including that the ACCC regards the breaches as "technical", that the ACCC has "softened" its attitude in the prosecution of its action against the companies and the directors; that there had been some form of "resolution" of the ACCC action and that the ACCC in any way condones, approves or endorses any of the trading activities of the companies.