HIGH COURT INJUNCTION AGAINST PROMOTER OF PYRAMID SELLING

19 Dec 2005 11:15 AM

The OFT has obtained an interim injunction against Mr Gurdeep Singh concerning his involvement in a pyramid selling scheme known as the VIP Club.

The High Court granted the interim injunction under the Enterprise Act 2002 to prevent Mr Singh from continuing activities the OFT believe are breaches of the Control of Misleading Advertisements Regulations 1988; the Lotteries and Amusements Act 1976; and the Consumer Protection (Cancellation of Contracts Concluded away from Business Premises) Regulations 1987 ("Doorstep Selling Regulations").

Mr Singh had previously given undertakings to the OFT regarding a similar business he ran called OMI Club. However, the OFT believed that he had breached or was likely to breach those undertakings through his involvement in the VIP Club.

Both the OMI and VIP Clubs claim to provide significant discounts on travel and leisure services in exchange for a £1,695 membership fee. The clubs also offer members the opportunity to earn large amounts of commission for introducing other people who become members - potential earnings are stated to be up to £99,900 over a period of 10 months. Both OMI and VIP club have particularly targeted members of the Asian community.

Potential recruits are invited to attend high pressure sales presentations that can last up to six hours, and are held in glamorous hotels across the country. In the case of OMI, complainants allege that considerable pressure was placed on attendees to become members and pay the membership fee within a very short space of time. It was claimed during a VIP presentation that there was a growing UK membership base of around 10,000 people, which would mean that a total of around £17 million has been paid into the scheme by new members. The OFT argued that the central purpose of both the clubs was to make money by recruiting other participants to the schemes.

In bringing the court action the OFT contended that Mr Singh, through his involvement with OMI and VIP Club had been concerned with the making of misleading claims about the scope and value of the membership services and discounts, and the potential commission that could be earned through the recruitment of new members.

The OFT also argued that the OMI and VIP Clubs were unlawful lotteries and that Mr Singh's involvement in their promotion was in breach of the Lotteries and Amusements Act. In addition, the OFT said that Mr Singh had previously failed and was likely to fail again to provide cancellation rights to new members in accordance with the Doorstep Selling Regulations.

The OFT worked closely with Trading Standards Services and the Department of Trade and Industry in collecting evidence for this case. It is continuing to investigate the involvement of other individuals in both the OMI and VIP Club schemes.

Christine Wade, Director of Consumer Regulation Enforcement, said: 'These clubs use slick, high pressure sales presentations to deceive the public about the benefits of becoming members. New members were encouraged to recruit family and friends based on misleading promises that they would enjoy large discounts on travel services and have the opportunity to earn large amounts of commission'.

NOTES

1. The High Court interim injunction was granted on 13 December 2005. The injunction takes effect until a further hearing can determine whether a final injunction should be granted.

2. In order to make an interim injunction, the court must be satisfied of various matters including that it appears to the court to be expedient that the conduct is prohibited or prevented (as the case may be) immediately and that if the application had been an application for a final order it would be likely to be granted.

3. VIP Club is a trading name of Leisure Marketing International Limited, a company registered in Belize with an address of 1 Mapp Street, Belize City, Belize CA.

4. Mr Gurdeep Singh operated as a sole trader under the name of OMI Club. His stated place of business was Communications House, 9 St John's Street, Colchester CO2 7NN.

5. The Enterprise Act 2002 came into force on 20 June 2003 and gives OFT and other enforcement bodies strengthened powers to obtain legal undertakings or court orders against traders that breach a range of consumer legislation; controlling activities such as misleading advertising, lotteries, sale of goods and services, trade descriptions, mock auctions, timeshare, unfair terms in consumer contracts, doorstep selling, distance selling, package travel and consumer credit.

6. Tackling mass-marketed scams is a priority area for the OFT over the next 3 years. The OFT has set up a specialist team to target the most prevalent scams with the aim of reducing the harm suffered by consumers and increasing consumer confidence in legitimate mass marketing to the benefit of all fair trading businesses.

7. The Control of Misleading Advertisements Regulations (CMARs) 1988 implement an EC Directive on misleading advertising. To fall within its scope an advertisement must be misleading (i.e. it must deceive or be likely to deceive the recipient and affect their economic behaviour, or for those reasons harm the interests of a competitor), and be published, in connection with a trade, business, craft or profession, in order to promote the supply or transfer of goods or services, immovable property, rights or obligations. The OFT can take action against anyone appearing to be concerned or likely to be concerned with the publication of a misleading advertisement.

8. The Lotteries and Amusements Act 1976 (LAA) provides that all lotteries and raffles (except where specifically authorised by the LAA or the National Lottery etc. Act 1993) are unlawful, and makes it an offence to be involved with their promotion.

9. The Consumer Protection (Cancellation of Contracts Concluded Away From Business Premises) Regulations 1987 - known as the Doorstep Selling Regulations - apply to a contract, other than an excepted contract, for the supply by a trader of goods or services to a consumer which is made (among other situations) during an excursion organised by the trader away from premises on which he is carrying on business. The Regulations provide a seven day cooling-off period in which contracts can be cancelled. At the time such contracts are made traders are required to give consumers written notice of their right to cancel and how to exercise it, and to provide a cancellation form (although consumers do not have to use this and a cancellation will still be valid if sent in an ordinary letter). If the trader does not provide the notice and cancellation form the contract cannot be enforced and the trader is committing an offence.

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