Lyoness

Since 2003, 'Lyoness' has been the registered trademark name for an expanding group of globally distributed (mostly privately-owned, limited-liability) corporate structures, which originated in Austria. It comprises at least 7 corporations registered in Switzerland, 9 corporations registered in Austria and approximately 42 additional national and regional corporations all around the globe. The name ‘Lyoness’ was derived from the Celtic mythological kingdom ‘Lyonesse’.

The main corporation, then called ‘Lyoness Holding Europe AG’, was registered in 2003 by Iwan J. Ackermann, Max Meienberg and Uwe Proch. In 2004, the publicly-known CEO of Lyoness, Hubert Freidl, was hired by this corporation as a director . Lyoness, in its entity, has an estimated annual turnover of 1.2 billion euros (2012) , with a self-proclaimed member total of 2,800,000 (as of June 2013) . Lyoness is currently active in more than 40 countries spread over 6 continents.

Business model

Lyoness operates an international, cross-sectoral shopping community. Participants receive discounts while shopping at companies affiliated to Lyoness through four different systems.:

Cashback card, a discount card Discount vouchers, issued by partner companies Mobile cashback, a discount-oriented smartphone application software Online shopping, through a shopping portal offered on the Lyoness website

The Lyoness shopping community has currently (as of May 2013) an estimated 2.8 million members around the globe, receiving discounts while shopping at 29,000 Lyoness partners, with over 150,000 points of acceptance. Through the discounts systems, Lyoness members receive direct discounts of 1-2% in the form of cash back on every purchase made at a Lyoness partner. The sum of the obtained discounts needs to be €10 or higher in order for it to be transferred to the account of the Lyoness member.

Next to discounts over personal purchases, Lyoness members receive an 0.5% commission over the purchases made by the people they have introduced to Lyoness, as well as 0.5% over the purchases made by the people introduced by the people they have brought in. Lyoness refers to this system as the ‘Friendship Bonus’.

Additional to the 1-2% cash back that Lyoness members receive, a percentage of the expenditures of members at Lyoness partner companies is transferred into the Lyoness position system – which is a system in which left-over discounts are saved up into positions. When enough new positions are entered into the position chain, the holder of the original position is rewarded with earnings through a concept called ‘system commission’ or ‘loyalty commission’ and when 35 positions have been entered above the original position, as well as under the position, the original position is multiplied in value by 9 (i.e. a 50 euro position gains a value of 450 euros) .

In order to become a Lyoness ‘Premium Member’, one needs to put in a down-payment of at least 2000 euros on future discounts. Commonly, these 2000 euros are used to acquire 7 positions of 50 euros, 3 positions of 150 euros and 3 positions of 400 euros . The partner companies (entitled ‘Loyalty Merchants’) offering discounts to Lyoness members, need to become a ‘Premium Member’ as well, meaning they also have to put in a down-payment on future discounts of at least 2000 euros as well, if they want to enrol in the ‘loyalty merchant program’ for a flat fee of $570 per shopping location. If companies do not wish to become a ‘Premium Member’ of Lyoness, the sign-up fee is $1999 per location. Additionally, they may be required to pay $26 per month in ‘network charges’. .

Social involvement

According to Lyoness, every purchase made by its members at its partner companies benefits the Lyoness Child and Family Foundation (a Lyoness-owned charity organisation) and the Lyoness Greenfinity Foundation (a Lyoness-owned organisation promoting sustainability) .

Lyoness, together with its Greenfinity Foundation, is the main sponsor of the annual Austrian Open golf tournament, now named Lyoness Open . This tournament is part of the 2013 European Tour . In 2012, a contract defining the sponsorship for three more years (until 2014) was signed. Lyoness also sponsors the ‘European Juniors League’, a European football competition for youth teams.

Controversy

One year after Lyoness was founded, in 2004, the Austrian criminal police (Kriminalpolizei) published an article in the December issue of its organisation’s magazine, in which it warned for the resurfacing of Ponzi schemes and pyramid schemes in Austria. Lyoness was explicitly mentioned in this article. Lyoness contested the allegations publicly. In 2005, Austrian Parliament member, Johann Maier (SPÖ) asked the then-incumbent Austrian Minister of Justice (Karin Miklautsch, BZÖ) parliamentary questions about the reports filed against alleged pyramid schemes in Austria in 2004. Lyoness was one of the organisations complaints were filed against.

In 2008, the Austrian Chamber of Labour (‘Arbeiterkammer’) of Steiermark issued a warning against Lyoness, listing its alleged privacy violations, misleading advertising, deceptive information and unrealistic and negligible benefits as red flags for doing business with Lyoness. In 2010, the Vorarlberg branch of the Chamber of Labour issued a similar warning . The Chamber warned against the unreliability of the discount vouchers, the false and deceptive information spread by Lyoness, privacy violations, the redundancy of the ‘Cashback card’ and the unlikeliness of receiving any returns on investments if no-one is recruited into the system.

In March 2010, the Swiss medium Beobachter published an article by Pascale Hofmeier entitled ‘ Lyoness: Hands off’. In the article, Sara Stalder of the Swiss Consumer Union and Manuel Richard of the Swiss Gambling Commission warn consumers not to do business with Lyoness. In the beginning of 2012, Kleine Zeitung published an article suggesting that Lyoness has deceived the masses by operating an irrelevant shopping community, whereas actually, it is all about the systems behind this community. L’Hebdo, a Swiss medium, reproduced a story about how Lyoness members are told that an investment of 3,000 CHF will eventually lead to 25,000 CHF in return, if enough new, down-paying members are recruited.

In February 2012, the Beobachter published an article stating that, based on consideration of internal Lyoness communication, members are offered ‘bounties’ up to 45,000 CHF to provide ‘relevant information’ on Lyoness’ critics. A critic from Zurich was reported to have been sued for over 1 million CHF for ‘defamation’ after he contacted Lyoness’ partner companies in Switzerland in an attempt to explain the business model of Lyoness to them. The article also reported that the Lyoness business model seems to revolve around recruiting activities instead of discounts and that Lyoness is internationally charged with forgery, fraud and hosting a pyramid scheme.

Der Standard reported in July 2012 that the Austrian Economic and Corruption Prosecutor (‘WKStA’) has been granted jurisdiction to investigate and prosecute Lyoness in Austria . Additionally, criminal charges are pending in Switzerland. The Swiss Handelszeitung mentioned a court case Lyoness lost, which revolved around the question as to whether Lyoness should have issued a financial prospectus before asking investors to finance their foreign-markets advertising campaigns . In September 2012, the same newspaper reported that major, alleged Lyoness partners in Switzerland (Microsoft and Kuoni Travel) were announcing not to continue the partnerships, if there were any to begin with. The Wiener Zeitung reported about a pending lawsuit initiated by the Austrian Consumer Organisation ‘VKI’ in March 2013. The VKI contests 61 clauses of Lyoness’ ‘General Terms and Conditions’, which it called opaque, uncertain, and/or meaningless. Eric Breiteneder, hired as a legal representative by the organisation, also referred to the concepts used to distinguish various parts of – and benefits within the Lyoness business model as vague and/or undefined elsewhere.

The Handelszeitung reported about suspicions that high-level Lyoness members were earlier involved in (other) pyramid schemes, like the ‘Spirit of Independence’. It also mentioned a system called ‘GTS’ (Global Trade System), operated by Erin Trade SA, as a former organisation tied to Hubert Freidl. Like Lyoness, this company has been called a pyramid scheme in the public debate . The Kleine Zeitung reported that various experts were looking at the investment schemes for advertising campaigns organised by Lyoness, and whether a prospectus was required before attracting capital from investors . Lyoness-hired professor Susanne Kalls concluded that no capital market regulations were violated by not issuing a prospectus; attorney Karl Hengstberger came to the opposite conclusion . In the same article, Mathias Vorbach, spokesman of Lyoness, admits that Lyoness may have had some trouble before, but that those days are behind us – Lyoness has learned from its mistakes . He asserts the message that legal problems have only appeared in Austria (a contested claim) and that 95% of the Lyoness members just shop and do not participate in the earning models offered by Lyoness. However, the Beobachter, after reportedly considering internal Lyoness documents, published an article suggesting that 99.7% of the Lyoness turnover derives from down-payments on future purchases, not from actual shopping or (saved up) discounts.

Lyoness contests that it operates a pyramid scheme, as well as that it violated the relevant capital markets regulations when offering investments without issuing a prospectus .

Television

On November 30, 2011, Dragons’ Den Canada aired an episode featuring the pitch of a Lyoness ‘Premium Member’ from Ontario, Canada, in which he asked the ‘Dragons’ to jointly invest 175,000 Canadian Dollars to acquire Lyoness ‘business packages’ through him. None of the Dragons were willing to invest. Instead, they ridiculed him and his business idea, claiming it to be a ‘distasteful pyramid scheme’. They also advised the Lyoness member, who borrowed against his house to acquire Lyoness positions, not to invest any more money in the Lyoness system.

Another television show that has reported on Lyoness is the Austrian public television program ORF Report. This programme aired episodes under the names ‘The money mule’ (December 19, 2012) and ‘The man behind Lyoness’ (April 23, 2013), interviewing experts and former participants, which both say that Lyoness operates a pyramid scheme behind the façade of a ‘shopping community’ . The latter episode also features hidden camera footage of Hubert Freidl telling his followers that spreading ‘Cashback Cards’ is irrelevant – ‘it is all about the positions, positions, positions, positions’.

Legality

In the meantime, both Austrian and Swiss authorities have started investigations of the Lyoness business model and the related allegations that the company is running an illegal pyramid scheme. Reportedly, similar investigations were started in Hungary and Australia. Also, it was reported that the Austrian Consumers Union has filed suit against Lyoness for providing participants with unclear and deceptive terms and conditions. According to the website of his law firm, VKI-attorney Breiteneder is currently the attorney of about 300 former Lyoness participants who are demanding their money back from Lyoness. Reportedly, he has managed to get his clients’ money back on several occasions. These clients had invested money in the advertising campaigns organised by Lyoness, and several option trading packages offered by Lyoness, but were not provided with a prospectus. The Viennese Commercial Court has on several occasions ruled that this violates the Austrian legislation on investments and has granted the plaintiffs the right to demand their money back.

Income

From a leaked internal Lyoness income disclosure statement can be derived that the average Lyoness member in the United States receives a gross annual commission of approximately $275, or $23 per month. The monthly median commission value of $0.38 indicates that the vast majority of the members receives a lower commission than the 23 dollar monthly average .

Additionally, the document states that 46% of the Lyoness members makes $0 in commission and that the average annual expenditures, not taken into account when calculating the [[average] commission, are $1,294.

Internet

On the Internet, various websites and Blogs from all over the world have spent attention on Lyoness, accusing the company of illegal business practices (mainly of running pyramid and Ponzi schemes) and questioning the alleged partnerships between Lyoness and several multinational corporations, as well as the validity and relevance of the certificates granted to the Lyoness shopping community. English author David Brear’s copyrighted study of the subject concludes that: 'Lyoness is an unoriginal, blame-the-victim, cultic racket comprising a dissimulated closed-market swindle and various, related, advance fee frauds’ .

In April 2013, it was reported that former (Austrian) participants of Lyoness had organised themselves and founded an organisation and website called Plattform Lyoness. Not much later, an international equivalent was established under the name Lyoness Complaint Centre.

In the beginning of June 2013, it was reported that Lyoness filed legal complaints against the founders of Plattform Lyoness. The founders were forced to remove legal documents concerning Lyoness from their website .

External Links

Official Lyoness Website

Official Lyoness Corporate Website

Official Plattform Lyoness Website

International Lyoness Complaint Centre