Federal Court declares Greenstar pyramid scheme illegal

26 March 2003

The Federal Court in Perth has found 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.

In his reasons for judgment, Justice Nicholson said that the parties to the Greenstar scheme had breached a number of the consumer protection provisions of the Trade Practices Act 1974.

"The Australian Competition and Consumer Commission is pleased with the Federal Court findings, which support the ACCC’s vigorous stance in applying the Act to prevent or stop pyramid selling", ACCC Chairman, Professor Allan Fels, said today.

"The ACCC has previously been successful in securing orders in the Federal Court against two other pyramid selling schemes, World Netsafe Pty Ltd, which was an international AATM Card Scheme, and Skybiz 2000, which was an illegal home based business pyramid scheme".

In June 2001 the ACCC instituted court action against the Greenstar group of companies and associated directors for promoting the scheme which involved a transaction card and earthworm farming program that formed the basis for enticing members of the public to join the illegal pyramid and referral selling scheme.

From August 2000, Greenstar and the directors promoted the Greenstar scheme at public meetings in capital cities across Australia, through promotional materials, on the Internet and via e-mail throughout Australia and overseas. Greenstar and the directors claimed to be able to deliver to members a worldwide business that could generate lifelong, residual income, 24 hours a day, seven days a week, from seven different streams of income, without the member leaving his or her home.

The court advised that, subject to receiving submissions from the parties by 1 May 2003 as to the structure of the orders, it would make extensive orders including declarations, injunctions, findings of fact, corrective notices, and refunds.

Justice Nicholson stated that the companies and directors misled prospective and existing members by making false representations (including the following) in connection with the Greenstar scheme:

  • Greenstar was purchasing on behalf of members 1kg of worms each month and members who paid US$30 per month for 36 months and who wished to leave the scheme would receive their money back in full when this was not the case;
  • the Greenstar scheme had been approved by the Western Australia Ministry of Fair Trading when it had not;
  • Greenstar was in negotiations for "debit transaction cards" which would shortly be in use and these cards could be used by companies for paying employee payrolls, to pay their commission agents and by charity and non-profit organisations, and that the transaction charge from these users would be returned to the members' "world pool" providing the potential for huge returns to members when this was not the case; and
  • Greenstar was the major shareholder in Australian Environmental Technologies and dividends from these shares would flow into the Profit-Share pool, with AET anticipating an April/May 2001 float which was not the case.

The court heard evidence that since 1998 thousands of consumers in Australia and worldwide, paid in millions of dollars to join the Greenstar companies – some invested their entire life savings based on the false promises by the organisers of this scam.

"This case again demonstrates the need for consumers to beware of promises sounding too good to be true ", Professor Fels said. "The promotion of pyramid schemes on the Internet in particular, has been of growing concern to the ACCC and other consumer protection agencies throughout the world.

"Modern technology allows pyramid recruiters to promote illegal schemes via direct access to consumers worldwide".

In assessing the injunctions sought by the ACCC, Justice Nicholson said they were appropriately cast without geographical restriction given the international scope of the scheme and its promotion on the Internet.

"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". 

Release number: 
MR 052/03
ACCC Infocentre: 

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