ACCC v Stott; Director Disqualified for Pyramid Selling Scheme

The Federal Court of Australia has published its decision regarding Leslie Forsyth Stott, the former Director of CISS, who was a knowing party to a company engaged in a pyramid selling scheme. The case citation is Australian Competition and Consumer Commission v Stott [2013] FCA 88.

The Facts

At all material times, CISS had carried on a business in trade and commerce in Australia as the owner of the exclusive distribution licence for certain vehicle and home contents etching products. The business was carried throughout several Australian states. Essentially, the business model involved an investor obtaining the title “State Director” who would incorporate a company within an Australian state with distribution rights to CISS products. Persons recruited to various positions after would be required to make recruitment payments to the State Director. The investor would receive the flow through recruitment payments even if no CISS products are sold. This arrangement was agreed on by all parties, including Mr Stott to constitute a pyramid selling scheme.

The Decision

The primary question which the court had to decide was whether to grant an injunction against Mr Stott from enacting further schemes like this in future and whether it was appropriate to disqualify him from managing future corporations. The parties alleged that the injunction was necessary as it was designed to prevent Mr Stott from future involvement in such selling schemes and did not have a purely punitive purpose. To this extent, Mr Stott had agreed to the injunction and thus it was granted.

Regarding the disqualification, the court felt satisfied that a five-year disqualification order is appropriate. Justice Middleton found that Mr Stott had cooperated with the ACCC and had spared the Court from committing resources to the preparation of the trial. Mr Stott had also refunded a partial amount of money CISS had received from the State Directors. To this extent, a short period of disqualification seemed sufficient. 

 

The Trade Practices and Competition and Consumer Acts are a part of one narrative with our Competition and Consumer Point-in-Time Service.  Contact TimeBase for a free trial.