Back in July it was revealed the Norwegian Gaming Board had reopened its pyramid scheme investigation into Lyoness.
The investigation was reopened following a continued stream of complaints from the public, which prompted the Gaming Board to contact Lyoness in April.
The Gaming Board sought to have Lyoness address concerns it was running a pyramid scheme in Norway.
Lyoness’ response was filed in late May but failed to satisfy the regulator.
In July the Gaming Board requested “further information” from Lyoness, and that’s when we became aware of the renewed investigation.
In a letter dated October 6th, the Gaming Board has provided updates on their investigation since July.
The Gaming Board investigation seeks to determine whether Lyoness as a company is deriving revenue primarily from the sale of goods and services.
Complaints from the general public allege Lyoness primarily derives revenue from and pays commissions on affiliate recruitment.
Lyoness responded to the Gaming Board’s July “further information” request on August 31st.
Rather than address the fact Lyoness doesn’t sell goods and services (access to discounts is neither), the company instead
- provided a legal opinion (“legal rating”) on Lyoness with respect to Norway
- accused the Gaming Board of violating Norway’s Public Administration Act through an “unsound, non-independent and non-impartial” investigation
- criticized the Gaming Board for providing Norwegian media with updates on the case until it’s completed
In short, Lyoness’ response was a cacophony of irrelevance.
(Lyoness’) tips are not relevant to the legal issues in this case.
The company did not confirm or deny whether information provided in the tips (we received) are correct or not.
Lyoness failed to address the one thing the Gaming Board was interested in, that being whether revenue was generated via the sale of products and services.
Nonetheless, the regulator has responded to Lyoness’ points as follows:
- the legal basis for the investigationis the Norwegian Gaming Board is tasked with ensuring the Lottery Act is complied with
- the relevant section of the Lottery Act that allegedly concerns Lyoness is section 16, which prohibits participation and promotion of “pyramid games and similar systems”
Section 16 of the Norwegian Lottery Act permits the Gaming Board
- to request evidence that commissions paid in a suspected scheme were derived from the sale of goods and services and not recruitment
- to order a company to rectifying or suspend suspected illegal activity
- to impose administrative sanctions on companies that fail to comply
- request written confirmation from offenders that stipulate they will cease Lottery Act violations
The Gaming Board stipulates that
anyone who intentionally or negligently violates Section 16 of the Lottery Act may be fined or imprisoned for up to three years.
With respect to the Public Administration Act, the Gaming Board stated it
believes (its) case handling is in accordance with the Public Administration Act’s requirements for sound, independent and impartial case handling.
In its correspondence with Lyoness, the Gaming Board has informed relevant facts and legal issues, which is the basis for assessing whether Lyoness is to be regarded as an illegal pyramid scheme pursuant to Section 16 of the Lottery Act.
Lyoness had also argued that the legal tips received from the public
did not have legal significance (with respect to) assessment of Lyoness’ activities in Norway, in relation to the pyramid provision of the Lottery Act.
Before we get into the Gaming Board’s reply… No, you’re not reading that wrong.
Lyoness is attempting to argue complaints about its pyramid scheme from the Norwegian public are not legal basis enough to launch a regulatory investigation over.
Hardly something you’d expect in response from a legitimate company readily able to demonstrate revenue generation from the sale of goods and services.
In response to the nonsensical claim that tips about Lyoness from the public should be ignored, the Gaming Board claimed its own assessment found
the tips have legal significance.
We have made Lyoness aware that it is the actual business of Lyoness in Norway that is subject to the Gaming Board’s assesment of the company in relation to the pyramid provision of Section 16 of the Lottery Act, and not the international business like the company, objectively speaking, is representing.
In summation, the Gaming Board concludes
Lyoness’ response to the Gaming Board deals mainly with formal and objective explanations of the sales system, which describes in a limited extent how this system works in practice in Norway.
The factual circumstances in the tips submitted to Lyoness for explanation are not contested.
Lyoness also denies liability for any breaches committed by individual participants in the business.
To this end the Gaming Board observes that if it were to be Norwegian participants in Lyoness operating an illegal pyramid scheme in Norway, which the company receives revenues from, then the company could also be held liable for this.
As of October 6th, 2017, the Gaming Board “has not concluded whether Lyoness is an illegal pyramid-like sales system or not”.
The regulator maintains it has been unable to determine “what tangible goods and services” affiliates who pay money to Lyoness receive, and ‘if the value of (any goods and services received) corresponds to the amounts paid’.
If more than 50% of Lyoness’ revenue comes from the replacement of participants and their participant payments and not the sales of goods and services in Norway, the business will be an illegal pyramidal scheme pursuant to section 16 of the Lottery Act.
Whereas the Gaming Board was sweet-talked by Lyoness in the past, this time it appears the regulator is having none of it.
With respect to Lyoness’ business operations in Norway, the Gaming Board has requested the company hand over
- accounting statements for 2016
- the latest accounting estimate for 2017
- an audit of turnover by the company divided by “revenue type, discount coupons, customer shows, promotional material, events and seminars etc.”
- documentation detailing the use of discount vouchers and other paid member benefits from 2016 to October 1st, 2017
The above documentation is to be supported with “corresponding documentation” from Norwegian Lyoness affiliates.
Lyoness has been given until November 3rd to reply. I’m not sure if this is a final deadline but from the sounds of it the Gaming Board’s patience is running out.
Unable to verify the sale of goods and services which don’t exist, Lyoness isn’t likely to directly address the Gaming Board’s concerns.
And if that wasn’t bad enough, evidently Lyoness has also been lying about the status of the Gaming Board’s investigation.
In “concluding remarks” of their letter, the Gaming Board instructs
Lyoness and representatives of the company to immediately stop informing the public that the company is approved by the Gaming Board.
This is directly wrong and therefore misleading.
Lyoness has been given the option of requesting a meeting with Gaming Board officials, though only after they’ve provided the requested documentation.