The OFT executed entry warrants at three premises, accompanied by police who arrested three women for alleged involvement in the operation and promotion of a suspected pyramid scheme. The OFT also visited two other premises in Bristol and seized evidence. The OFT's investigation is at an early stage and no assumption should be made that any offences have been committed.
The investigation is the OFT's first use of new criminal powers under the Consumer Protection from Unfair Trading Regulations 2008. The OFT is working closely with Bristol Trading Standards Service and South West England and Welsh Trading Standards Scambusters teams.
The action comes as the OFT, as part of its Scams Awareness Month, is alerting consumers facing the economic downturn to the dangers of pyramid selling schemes which have seen a resurgence over recent months. The OFT estimates that such pyramid scams collectively cost UK consumers £420 million every year.
The schemes, often advertised through mailings, the internet, recruitment meetings or through relatives or friends, work by promising huge earnings if members recruit others. However in order for every participant to make money, there needs to be an endless supply of newcomers. The OFT estimates that 480,000 adults fall victim to these scams each year, losing an average of £930 each, but only one in 100 people report their experiences to the authorities. Often victims recruit family and friends to the scam, resulting in emotional as well as financial harm.
Pyramid schemes, however they are described, are unlawful under consumer protection laws which prohibit the establishment, operation or promotion of any scheme where money is made primarily from recruiting other people rather than from the sale of goods and services. Breach of the law is an offence punishable by up to two years imprisonment and/or an unlimited fine.
Heather Clayton, OFT Senior Director of Consumer Protection, said: 'Scammers adapt to new circumstances and are tempting people feeling the pinch with false hopes of making easy money. Sadly responding to these pyramid schemes will only leave participants worse off.'
Consumer Minister Gareth Thomas MP said: 'It is important that people are alert to how costly these illegal pyramid scams can be. These schemes are cruel, and they keep victims hanging on for money which in the great majority of cases will simply not materialise.'
The OFT is also warning about 'work at home' scams during the economic downturn which often have a pyramid-style element to them. This scam works by advertising opportunities on the internet, lampposts or mailings, promising the unemployed or those seeking extra cash a way of making large sums from home, without specialist skills or qualifications, often for addressing or stuffing envelopes. The catch is that after the consumer pays a 'registration' fee they may simply be asked to send information to others on how to work at home for which they will not be paid. In other cases promised work does not materialise. Last year there was a 37 per cent rise in complaints of 'work at home' scams to Consumer Direct.
