Lyoness and the vouchers! Legally and financially innocuous?

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All loyalty programmes (e.g. Miles&More) have to make financial provisions for non-monetary benefits like collected points or frequent flyer miles, as consumers can decide to redeem them at any point. As an example, Lufthansa has to set up millions on its balance sheet for its high-status miles-club members’ non-expiring frequent flyer miles.

Depending on the marge of the distributor, Lyoness promised its members vouchers up to a certain percentage of the invested sum after making down payments of EUR 2,000. The resulting entitlements for those EUR 2,000 payments make out at least 10% of the payed sum. These should have been financially provided for, even when they haven´t been redeemed. Considering Lyoness’ promise that all would be easy, as everyone would shop, it should’ve counted on a big share of the prepaid vouchers being actually required. This means that millions in vouchers or funds should’ve been set up for this. The same way, the involved distributors should´ve set up voucher reserves to be able to deliver them in cases of full payments. None of this seems to have been taken care of.

Allegedly, the Austrian fiscal authority only shows an interest in operating business activities in Austrian territory involving Austrian companies. Therefore, it suited Lyoness well to close the contracts with consumers and members through a Swiss company. The Swiss members, on the other hand, made the deal with the company Lyoness-Management GmbH, located in Graz (!!) This was never questioned, although the actual recruitment of Austrian members was done in Austria, the recruited distributors were approached from Austria, the vouchers on the orders were from Austrian companies and all connected advertising measures and materials were produced in Austria. Using a Swiss contract partner without operational offices in Buchs (no proof of actuality!), who wasn’t involved operationally, should be fiscally relevant. (The same applies to any other country)

We will see how the remaining voucher partners and the financial police react.

 

Court of appeal’s final judgement – Significance

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The court has made a very clear final decision in the case (case file 31 C 651/16z 11) which will surely apply to all damaged parties: They acted as consumers and never stood a chance of obtaining the advantages promised without recruiting new members.

The court’s reasoning shows a comprehensive view of what happened. Several crucial aspects that are mentioned in the reasoning should be shown in context and put together, in order to clarify the nature of the advertised “shopping community” and the “pyramid scheme” or MLM-System behind it.

The highlighted business model, based on down payments on voucher orders and on the necessity to recruit new members as fundament of the pyramid scheme, was defined as unlawful by the court.

Lyoness pretended that the business model “customer card + Cashback” was all about “shopping”. In fact, there was no significant turnover based on Cashback, but only on the vouchers themselves. This is actually a complicated and cumbersome way of payment for consumers, who have to pick it up personally at a Lyoness’ point of sale. It was much easier to “virtually” sell vouchers through the mentioned “down payments” of EUR 2,000 and grant the right to vouchers, summing up to EUR 20,000-100,000 and more, in cases where the paying member covers the difference, makes a purchase or recruits new paying members.

Lyoness took advantage of renown brands for all down payments, as well as for “country and business packages”. The brand’s reputation was used to improve the image and credibility of the system (as for sure no one would’ve trusted or made down payments for “Lyoness vouchers” only). Even today, these brands are perhaps not aware that their brands/vouchers were named and consigned on the “order contracts”. This was also done abroad, where it wasn´t possible to pay with them. We are in the process of informing the concerned distributors that their credibility and image have been illegally misused to generate a larger turnover through down payments. From this perspective, the so called “voucher partners” would be directly linked to the billions in generated Lyoness turnover and the resulting damages.

How do this companies asses the situation, as their vouchers are now part of a pyramid scheme and thousands of consumers have made down payments on them? Will companies such as Otto, McDonalds, OMV, etc. manage to keep out of the legal responsibility of having perhaps significantly contributed to damage members, as thousands of their vouchers were set up to back up down payments?

 

It´s official: Lyoness is a pyramid scheme!

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As expected, Lyoness lodged an appeal against Salzburg District Court´s decision (31 C 651/16z – 11).

The court of Appeal at the Regional Court Salzburg has now dismissed the appeal (22 R 351/16w) and confirmed that Lyoness is indeed a pyramid scheme.

A further appeal at the Austrian Supreme Court (OGH) is not allowed.