The “WirtschaftsWoche” from Germany is probably one of the most traditional economics journals far and wide. It is characterized by a very high professional competence and great influence on the formation of opinion. The following article was published on June 14, 2019:
My Insta profile, my yacht, my debts! Ironically in social networks the oldest trick works especially well: the “snowball system”. How criminals are abusing digital biotopes of vanity and self-staging.
I am meeting the man who promises the deal of my life to me on Instagram. He is in his mid-thirties, has got a little chin beard and a slight double chin. With his help I could become rich without working. That’s what he says. 30,000 per month can easily be made.
In four years, at the age of forty, he would be wealthy enough to retire. For now, the man, who shall be called Hannes Krause here, is working as a truck driver. It all started with a comment below one of my pictures on Instagram: “Hey, nice picture. Let’s connect!” Via a link in his Instagram bio I can start a chat on WhatsApp with Krause. He has already prepared my message. All I have to do is to send it. The next morning, Krause sends a message: “Hey, we are offering a program for customer loyalty and are making money with daily worldwide purchases.” Large enterprises were taking part: Walmart, Red Bull, the soccer club AS Roma, the Moto GP motorcycle Championship. And many, many more.
This is the story of a large-scale rip-off. The deal, Krause proposes to me while I am scrolling through my Instagram feed quite bored waiting for the train, is a deal that only brings money to a few. First, it is about paying money – and about recruiting further people who pay further money. Whoever is at the foot of the hierarchy is paying in. Whoever is at the top, collects the money. The company Kraus is working for has reloaded the very old snowball system for Instagram. The youngest and hippest of all social networks. With 15 million members only in Germany. The most of them: young people.
Target group: young and naïve
Krause and his colleagues are currently addressing unexperienced and gullible seeming people. The promise a deal to them through which they could quickly become rich and could be able to fulfil all their wishes. They are referring to desires that have been nourished by all the shiny pictures in social networks. In truth, this is about taking money out of their pockets. An illusory business for the illusory wold of Instagram.
I, too, am fitting perfectly into their scheme: On Instagram I am acting successful. My trademarks: white shirt, Rolex and gluey hair. I decide to accept Krause’s offer. We arrange a phone conversation. “Hello? Hello? Wait a second…” Krause is sitting in his truck and has problems with the hands-free kit. As soon as the connection is established he comes to the point quickly: The “super business” is his side job. Krause is an independent distributor of Lyconet. The company, that is present with various names, had built the biggest purchasing community in the world, Krause wants to make me believe. With eleven million registered customers, 130,000 partner companies in 47 countries.
For Lyconet, Krause distributes bonus cards through which one shall save money on purchases. So-called Cashback cards. The difference to the payback card known in Germany which one can use at every large chain: You get your money back, immediately when purchasing. One to two percent of the sum, Krause tells me. Only by saving, nobody becomes rich overnight, I say. This is, when Krause places his lure: I should become his new colleague. An independent distributor of the company Lyconet, just like him. Or “marketer”, as they call it internally. Only marketers are the ones who are making some real profit.
I would make money with passing my card on to other people who are using it for their purchases. With recruiting new companies. And with new distribution partners that I am recruiting. How much money I am making is measured in “Shopping Points” that are emerging every time somebody uses my card at a shop. Just like playing a video game: The more points I collect, the faster I will reach a new level of career.
Hannes tells me that he would be on level 3. Earnings: 200 EUR per month. At level 8, one would earn up to 150,000 EUR per month. Simply by other people that go shopping.
The snag: To make money, I first have to invest money. 299 EUR for the software with which I can register customers, companies and new marketers. And 2000 EUR for the Starter Package. On a reference day, I will get the money back and will additionally get a monthly participation in sales.
Krause takes great care to dispel my concerns. One had to put the start fee in a context: As a marketer of Lyconet, one is more or less a franchisee. “Normally, a franchise costs one million Euro. The license of McDonald’s for instance.” Actually, the costs are at 844,000 Euro. If collecting points may take too long for me, I could also buy shares in an account recording all revenues from all cashback partner shops for 1,000 EUR each. Obi, Douglas, MediaMarkt, Fressnapf, McDonald’s, even Formula 1. In this way, I will earn up to 2,500 EUR per month. Krause says. After the phone call, he sends me a personal link for the registration so that the system knows that he was the one who recruited me. And he further sends me a video. I should send it to my friends.
Blinded by stylish clothes. In the video, the discount card is advertised as a groundbreaking idea: Its inventors, Hubert Freidl, is said to be smarter than Mark Zuckerberg. The founder of Facebook is only networking people. But Freidl had concluded: Not all people want to communicate, but all of them have to consume. “If you don’t eat and drink for two weeks”, the video says, “you are in trouble. Because you are dead.” That’s why Freidl’s source of revenue is quasi inexhaustible.
The reality looks somewhat different: In Germany, hardly any retailers are taking part. Certainly, no large chains. But: barbershops, nail spas, pubs. “Everyone who is in a bad economical position and considers the possibility for acquiring new customers via the discount card the last chance”, says a person who opted out of the Lyconet management and wants to remain anonymous.
The Cashback card on the other hand, was only a camouflage, he says, just like the mafia clan Corleone’s trade of olive oil in the gangster movie “The Godfather”. The company was making money with high starting fees, the independent distributors are paying – or are rather putting into an alleged investment opportunity.
Just like Anna, who does not want to give her real name. She too, was recruited on Instagram. The 24-year-old looked online for a bank that would give her a credit of 11,000 EUR and bought shares with this money. Before this, she had not even searched for Lyconet on Google. Currently she is going through an education with the German army.
In the beginning of February, she met her marketer for the first time, in a café in her hometown Bayreuth. He was only 19. But with his stylish clothes, she got the impression that he already had achieved a lot in his life. Anna joined immediately. That something was wrong, she suspected only after a dropout had warned her.
She confronted her recruiter. His answer: Only members, who are one hundred percent behind their work were to get anywhere. “Every weekend, I drove 400 kilometres from Hannover to Bayreuth, just to attending the business trainings of our groups”, she says. “The seminars and videos have been making me feel inwardly strengthened to this day.” Despite the high debts.
Anna asked the Viennese lawyer Josef Fromhold for help. For more than 1000 injured parties, he had claimed back money. Most of them were young people under 25. Some of them had invested up to 25,000 EUR.
“I even had clients who had stolen from their parents. Just for being able to pay into the system of Lyconet,” the lawyer says.
Almost everyone joins Lyconet without reading the terms and conditions. A fatal mistake. Because there, they say, that everything that was promised in collateral agreements, is invalid. So as well the promises in chats with marketers. “If the company itself contacted people, it would be inadmissible advertising. But a private person who recommends something is not forbidden”, Fromhold says. Social networks are making things a lot easier. “Back in the days, they held gatherings in conference rooms of hotels”, the lawyer recalls, “and people were told to bring their friends.”
The number of people who fell for Lyconet in Germany can only be estimated. For example, by considering the number of requests Ben Ecker has received so far: 4,000 since he started his website for Lyconet victims four years ago. For many of them, he is the first point of contact.
Krause calls me back. He wants to know whether I am in. I am hesitating. He tries to build trust: He tells me, that is married and has two young daughters. He was unhappy. Wanted to leave his old life behind. Become rich. “I sold my car”, he tells me. He had spent the money for further shares in Lyconet immediately. Worth 12,000 EUR. Krause quit his job as head of a vehicle fleet. Complete focus on Lyconet. Now he is a truck driver. A Job, that should help him make ends meet until he has not become rich.
Obscure network of companies
How much money did he already make with Lyconet? “Well, not that much.” Krause has signed a contract that says he will only see any money after 4 years after signing the contract. And he had only joined 20 months ago.
In 2003, the company was founded as Lyoness International AG with its headquarters in Graz, Austria. After the first lawsuits, it outsourced its distribution channel in 2014 – and called it Lyconet. Last year, the parent company renamed itself to my-World. The headquarters moved to London. But the business model remained. Meanwhile, the company has grown to an obscure network of subsidiary companies. All Lyconet marketers from EU countries are not concluding their contract with the Viennese Lyconet International AG, but with Lyoness Europe AG located in Switzerland. The terms and conditions state that the swiss Lyoness Europe AG is only operating a marketing program under the name “Lyconet”. This makes it harder for European courts to take actions against Lyconet.
Nevertheless, in May 2017 the Austrian High Court judged, that the terms and conditions are obscure and deliberately misleading. Lyconet was classified as an illegal snowball system. This also happened in Norway and Switzerland. And in Italy, the competition authority gave the company a sentence of 3.2 million euros.
Upon request, Lyconet rejects any dishonest intent: The marketers, a written comment says, are “self-employed entrepreneurs” who are free to choose “the channels for bringing forward the development of their network.” A “Code of Ethics, set up by Lyconet” obligated them to not make unrealistic profit predictions. Lyconet did not have “any knowledge” about marketers making false promises in social networks.
The company also rejects the accusation of advertising with fake partners. Nevertheless, they are advertising with the McDonald’s logo on their website. A speaker of the fast food chain comments: “McDonald’s Germany is not a cooperation partner of Lyconet.” Similar comments are made by the perfumery chain Douglas or the pet food chain Fressnapf, with whose logos also had advertised in the past.
A private jet in reward
A Saturday, beginning of May in Brose Arena, Bamberg. Where normally the basketball team sinks baskets, this afternoon, an event of Lyconet is going to take place. Also founder Hubert Freidl is said to be there. I don’t want to miss this opportunity. A ticket costs 70 EUR.
2000 young people are streaming into the arena. Monitors are hanging from the ceiling and finally Freidl’s face appears in close-up while he strides through the audience rows. As he stands on the stage in his dark suit, his bald head and the pointed patent-leather shoes are reflecting the spotlights. Freidl is not sparing on superlatives: Lyconet would become the new Amazon. He roars into the crowd: “Over are the times in which the revenue for our purchases went to the USA or to China!” Soon there would be a common online shop for all Lyconet partner companies.
“And then the marketers are making the money!”
People next to me can’t stay on their seats anymore. They are cheering. To my right: Hannes Krause. He murmurs to me: All over Europe, huge warehouses are already being built for the new online shop.
But Freidl has brought even more with him: He announces an “Elite-Club” – as a reward for the marketers. From now on there would be private clubs “in every big town”. Luxury cars would be available there. Also, the marketer would be able to use the company’s helicopters, private jets and yachts. Krause is cheering.
Initially, I thought that Krause selects his victims specifically. But he is a victim himself. Back from Bamberg, I decide to tell him the truth. He was faster: There is no use for people like me in his team, he writes me via Facebook. I would not be a doer. “You did not even manage to get registered for the free Cashback card.” It is his last message.