Federal court slams international ATTM Card Scheme

The International ATTM Card Scheme marketed and promoted by World Netsafe Pty Ltd and Terence Butler has been ruled an illegal pyramid and referral selling scheme by the Federal Court, Brisbane.

In litigation initiated by the Australian Competition and Consumer Commission, the court has further confirmed that the promoters misled or deceived participants into joining the scheme in a variety of ways.

During 1999 and 2000, World Netsafe and Terence Butler promoted the World Netsafe ATTM Card Scheme at public meetings, through promotional materials, on the Internet World Wide Web and by email throughout Australia and overseas. World Netsafe and Terence Butler claimed that the ATTM Card allowed members to create a World Wide business that could generate lifelong residual income, 24 hours a day, seven days a week, from five different streams of income, without the member leaving his or her home.

Thousands of consumers paid $2,389 to join the ATTM Card Scheme. Justice Spender made mention of evidence which demonstrated that World Netsafe and Terence Butler had received more than $4 million in payments in connection with the scheme as at December 1999. After hearing the evidence put forward by the ACCC, the Federal Court ordered that within 28 days, World Netsafe and Terence Butler return money to members who paid to take part in the scheme.

"This case exemplifies the need to educate the general public to beware of scams", ACCC Chairman, Professor Allan Fels, said today. "The promotion of pyramid type schemes on the Internet in particular, has been of growing concern to the ACCC and other consumer protection agencies throughout the world over the last few years.

"Modern technology, and in particular the Internet, allows pyramid recruiters to build these schemes via direct access to consumers worldwide. This means that the recruitment is faster and more widespread, and therefore, the potential for harm is greater than ever".

Justice Spender stated the scheme was a "highly offensive" and "blatant' pyramid and referral selling scheme and further declared that Terence Butler was knowingly concerned in, and a party to the pyramid and referral selling contraventions and other contraventions of the Act. The court ordered that World Netsafe and Terence Butler be restrained from carrying on the ATTM Card Scheme or any other similar scheme. Specifically, the court extended its injunctive order against Terence Butler to include his promotion of this scheme or similar schemes throughout the world.

"This case is part of the ACCC's work to address consumer protection issues on a global basis", Professor Fels said. "The scheme was marketed outside of Australia to people in other countries as well. The ACCC has an ethical responsibility to protect consumers in other parts of the world. It is also in Australia's national interest, since the reputation of our legitimate businesses can be damaged by Australian traders operating illegal schemes and misleading people overseas".

The court also made extensive orders regarding breaches of various consumer protection sections of the Trade Practices Act 1974. The court found that World Netsafe and Terence Butler had misled or deceived consumers by making misrepresentations (including the following) in connection with the ATTM Card Scheme:-

• the card was, or would soon be available, for use by scheme members
• the card was associated with Visa, MasterCard, Maestro, Cirrus, or utilised some other electronic communication network relating to banking or commerce, so that the World Netsafe ATTM card could be used at ATMs and POS terminals world-wide
• the card was associated with an account managed by Chase Bank and Australian banks and through which money could be deposited onto the card
• the card operated on software which would be certified by Price Waterhouse
• the card has been cleared or approved by Australian regulatory authorities
• that arrangements had been made which would allow people in the scheme to earn income from becoming a member or holding a card in the scheme, by introducing others to the scheme or from transactions of other cardholders;
• that arrangements had been made so that the card could be used to make cheap telephone calls anywhere in the world; and
• that arrangements had been made so that the card would record a universal currency called 'Teleminutes' which would convert into any currency.

Permanent injunctions are now in place which restrain both World Netsafe and Terence Butler from making false representations in connection with this scheme or a similar scheme in the future.

Justice Spender also ordered that World Netsafe and Terence Butler publish a Notice of Apology relating to the ATTM Card Scheme at their expense on the Internet, by email and in newspapers. Further, it was ordered that Terence Butler undergo a trade practices compliance program in the next six months.

Background

The ACCC acted swiftly at the commencement of this case in late December 1999. On 21 December 1999 the ACCC obtained ex parte orders including a mareva order freezing the assets of World Netsafe and Terence Butler. On 23 December 1999 the Court accepted undertakings from the company and Terence Butler but kept the mareva order in place until a more substantive submission from both parties could be heard on 25 January 2000.

On 25 and 27 January 2000, after hearing submissions from the ACCC and World Netsafe and considering affidavit evidence presented by both sides, the Court granted interlocutory injunctions (for misrepresentations, pyramid selling and referral selling). The court also lifted the mareva order at that time due to a lack of evidence of dissipation of World Netsafe funds. However, in granting the injunctions, Justice Cooper effectively restrained World Netsafe and Terence Butler from marketing and promoting the ATTM Card Scheme.

On 15 June 2000 a directions hearing was held whereby Justice Spender set the matter down for trial commencing 4 December 2000. On 17 November 2000 a notice of motion brought by the ACCC was heard by the court and it was ordered that World Netsafe's defence be struck out in this matter. It was directed that the trial proceed by way of affidavit evidence and that any request by World Netsafe to cross examine witnesses must be made by leave of the court.

The trial commenced on 4 December 2000. World Netsafe and Terence Butler did not appear in this matter.

Information: Legal vs Illegal Schemes

The ACCC cannot provide legal advice regarding pyramid or referral selling schemes, nor approve or disprove such schemes. It is ultimately up to a court to determine whether or not a scheme amounts to a pyramid or referral selling scheme.

Pyramid Selling - Section 61

The Act prohibits the promotion of, or participation in, pyramid selling schemes. The difference between acceptable multi-level marketing structures and pyramid selling is often confused. Both will exhibit a pyramid distribution structure, but there are some fundamental differences between the two. An acceptable multi-level marketing scheme will normally exhibit the following characteristics:

Participants will be rewarded for the sale of genuine products by themselves or by other people they have introduced or recruited into the system. The rewards will only be based on product sales, and there will be no reward for merely introducing people.

The products will be genuine products which are not grossly overpriced, and will normally be of the type which a consumer can be expected to buy time and time again. Schemes which involve products or services which will only be purchased once by each participant and therefore require ever expanding numbers of participants in order to generate income, are unlikely to be legitimate multi-level marketing systems. Properly operated multi-level marketing systems allow income to be generated by continuous supply to a finite number of people.

Many pyramid schemes are disguised by providing for the sale of goods and services which are over-priced, of poor quality, difficult to sell or of little value. Often the promotion and sale of these goods and services is of little importance and participants are not properly trained.

Referral Selling - Section 57

The Act also prohibits referral selling. In simple terms, this is the selling technique of inducing customers to purchase goods or services by representing that the consumer will receive a reward for either giving the supplier the name of prospective customers or otherwise assisting the supplier to provide goods or services to other consumers, if receipt of the reward is contingent upon a subsequent event such as the purchase of the goods or services by the consumer.

Penalties

Heavy penalties can be imposed by the Federal Court including penalties of up to $40 000 for individuals and $200 000 for companies and orders for restitution of monies received by those participating.