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Monday, 25 April 2016
In the face of the 'Aspire MLM' racket, Australian 'regulators' run up the white flag
A GROUP of multi-level marketing spruikers from UK have made off with an estimated $5 million from everyday Australians after a “cashback shopping” scheme collapsed.
Go Aspire Ltd, formerly Aspire Worldwide, has gone into insolvency months after investors’ so-called “franchise agreements” — some of which had been purchased for hundreds of thousands of dollars — were exchanged for shares in the now worthless company.
More than 40 investors out of an estimated 1000 affected have sought legal advice and are asking the Australian Competition Consumer Commission and the Australian Securities and Investments Commission for help.
Attempts to contact the two husband-and-wife duos responsible — founders Andrew Terence Hansen, 47, Wendy May Hansen, 45, Philip Gordon Watts, 68, and Sally Anne Watts, 52 — have been unsuccessful.
Legal experts, however, fear nothing can be done.
It is unclear exactly how many investors lost money. One former member who is compiling a database says the current count is 698, but that does not include around 400 early members who were kicked out for not paying ongoing fees.
Aspire, which deregistered its Australian arm late last year, purported to be a cashback loyalty scheme into which members, who paid between $3000 and $30,000 to join, were enticed with promises of earning money for doing nothing.
Members were promised they could earn so-called “passive income” by signing small businesses up to the payments system to create “micro shopping communities”, while also earning commission for signing up other members.
In theory, customers would be encouraged to make payments at participating stores using the Aspire system. The commission paid to the Aspire franchisee who signed up the store would be charged instead of a credit card processing fee.
The franchise agreements supposedly gave the holder the right to sign up small businesses in their local area.
In one promotional video from 2013, Mr Hansen claimed a typical member could “easily” be making more than $180,000 a year just by signing up eight or nine small businesses into the scheme.
Aspire appears to follow the same model as the controversial Lyoness cashback shopping scheme, which the ACCC unsuccessfully attempted to prosecute for allegedly operating a pyramid scheme and engaging in referral selling.
All four founders of Aspire were involved in the early promotion of the Lyoness scheme in Australia, in which many people lost thousands of dollars after promises of future income failed to materialise.
Mr Simule, from Dandenong in Victoria, left his successful trade as a self-employed caulker in the hope of becoming a business coach with Aspire.
He bought in initially for $1600 and went about recruiting other members. “Then they started offering coach and mentor franchises for $22,000, then $26,000,” he said.
“[Those people] would basically be allocated the clients. They were saying, it’s a second-to-none type of deal, no one else offers this.”
Mr Simule says promises made by the company never seemed to eventuate. “There was supposed to be an Android app, that never came out. There was supposed to be a credit card, but then they changed their mind, they said it was old technology,” he said.
He ultimately ended up spending just under $30,000, plus lost income and travel costs.
“I spent my mortgage deposit money,” he said.
“I could have bought a house. I’ve lost the majority of my clients. People I used to be quite close to don’t want to have anything to do with me because I was going around promoting Aspire. I even got my mum involved.”
Mr Simule says his “world has come crashing down”. “I’m [nearly] 30 years old now, by this point I should already be going somewhere. I don’t have anything to my name besides my car,” he said.
Sue from Henley Brook in Western Australia says she remortgaged her house to raise the $23,000 to buy into Aspire. She, too, quit her job with the dream of becoming a business coach.
At one point she even sold all her jewellery, including her wedding and engagement rings, figuring that “when the money started coming in, I would buy the most expensive jewellery I could afford to replace them”.
The 46-year-old, who preferred not to use her last name, says she earned just $500 for the entire year of 2015. “People have lost life savings, borrowed money from family members. It doesn’t matter if you put in $1000 or $500,000, it’s not right,” she said.
“They’re very clever people. That money is gone. For me it’s not about the money anymore, I just don’t want them to do this to somebody else.”
One Perth businessman, who did not wish to be named, lost more than $300,000 buying multiple coaching licenses. “The business concept looked great but the actual technology wasn’t working like they were claiming,” he said.
“The product was basically the internet banking system that was going to be converted into an app. Very clumsy. They were supposed to spend millions of dollars on the development of it and they didn’t.
“They sold the franchises before the product was actually finalised and developed. They were selling agreements way before there was anything in place.”
He describes the entire saga as a “f****** mess”. “It’s an emotional mess, financial mess, relationship mess, business mess. It was all smoke and mirrors,” he said.
“Some people have lost their jobs, quit their jobs, can’t get loans anymore, have lost relationships and friendships.”
He says the majority of his time was spent recruiting other franchisees — “multi-level marketing stuff” — and giving presentations to small business owners to convince them to sign up.
Craig Salamone, owner of The Iris restaurant in Jandakot, Western Australia, is one business owner who did get on board. He paid $3000 to become a franchisee, figuring it would bring in extra business.
Luckily for him, by hosting Aspire meetings he managed to recoup his investment. “I paid $3000 for the franchise but I had a couple of functions where I probably put through about $4000, so I think I’m probably a little bit ahead,” he said.
Some members paid hundreds of thousands of dollars to join.Source:Supplied
Mr Salamone says while some commissions were going out to members “to make it seem like it was legitimate”, the system “didn’t really get off the ground at all”. “People with training licences, they lost out big time,” he said. “I was probably one of the lucky ones.”
According to multiple members, at one point the company claimed it had been approached with a takeover offer from one of the “big three” — Visa, Amex or MasterCard.
“We said, why didn’t they take the offer? We asked, where’s the proof?” Mr Salamone said.
He guesses most of the money was spent on travel costs. “They did a big seminar in Dubai, they were doing a lot of travelling,” he said.
“Andy was coming out from the UK regularly. They hired out hotels regularly for seminars in Perth, Melbourne, Sydney, Brisbane, Adelaide to get it off the ground. That all takes money.”
Lisa Smith, 43, a single mother from Perth, lost $29,000 in the scheme. “We were told we were going to be making $49,000 a month,” she said.
“They said we’d get paid to do public speaking, we’d get exposure all over the world. We got told so much stuff, you feel like a bit of an idiot looking back on it.”
CALLS TO TIGHTEN LAWS
Gerard Brody, chief executive of the Consumer Action Law Centre, said the case highlighted the need for provisions around pyramid selling under the Australian Consumer Law to be reviewed.
“It does seem that pyramid scheme is defined too narrowly under the law,” he said.
“I’ve said before these multi-level marketing schemes can be very risky and it can be very hard to get your money back if things go wrong, and that’s what has played out here.”
The Australian Government is currently undertaking a review of the ACL, with an issues paper just released and a final report due late this year or early next year.
Mr Brody says that will be too late for the victims of Aspire. “The provisions need to be broadened to capture these types of schemes to make them unlawful. At the moment it is too hard to successfully prosecute them,” he said.
He added that there needed to be stronger provisions against unfair trading. “At the moment we’ve got a prohibition on unconscionable conduct, which is a bit of a technical concept,” he said.
“We think there needs to be a better standard that if a business or marketing strategy means consumers are significantly harmed or making [poor economic] decisions, those sorts of business strategies should be outlawed.
“Then you might get these business models that slip between the cracks.”
Consumer Action’s Gerard Brody says the laws need to be reviewed.Source:Supplied
‘WE BELIEVED EVERY WORD’
Mr Hansen subjected members to endless webinars, seminars and training sessions, often multiple times per week.
As one member wrote in a letter to fellow victims: “[We] believed every word! But what did they actually deliver? What of their potential did they actually realise? Which of their promises did they keep? None!
“Now, what other profession sells potential, makes exaggerated promises, but never delivers? Did we fall for some good old snake-oil salesmen?”
In a surprise annual general meeting in October last year — conducted via webinar — the founders converted the franchise agreements into “shares” in the company.
Local members exchanged their franchise agreements at a rate of £6 ($11.30) per share, when in fact the B-shares issued by the company have a nominal value of one one-thousandth of a pound.
Australian Mark Edwy-Smith, a former director of the company and previously national sales director for Australia, told news.com.au: “I’ve got no comment. I haven’t worked for them for over nine months.”
Mr Watts signed an application to deregister the Australian arm of the business, Aspire Worldwide (AU) Pty Ltd, on October 29.
Four months later, in a letter dated 17 February, Mr Watts informed members the company had ceased trading. “It is with deep regret that I must inform you that the company has now ceased trading due to becoming insolvent,” he wrote.
“The difficult decision to cease all trading activities has been forced upon me so as to comply fully with my responsibilities as a company director.
“Unfortunately the company has insufficient immediately realisable assets and no funds in which to appoint an insolvency practitioner and thereby initiate a voluntary liquidation.
“I and my co-directors are not in a financial position to fund this personally, having now lost our livelihoods and having not been paid since July 2015.
“The company therefore, will now lie in a state of ‘limbo’ until either Companies House in the United Kingdom strike it from the register or a creditor winds it up through the High Court in the United Kingdom, leading to the official receiver being appointed as liquidator.”
Multi-level marketing schemes are being questioned.Source:Supplied
THE RISE OF THE ‘WILD, WILD WEST’
In a legal opinion to affected shareholders in October, one solicitor said the so-called share transaction was “probably not of legal foundation”.
“In our view, all the money should be refunded. We are concerned that the founders of Aspire do not have the financial capacity to repay this money,” he wrote.
“In addition, the wholesale disregard of the franchising regime in Australia means that in our view, the Australian Consumer and Competition Commission should be informed as to what occurred so as to ensure that the network is shut down.
“Furthermore, the ACCC may be prevailed upon to use taxpayers’ money to assist in the recovery of the $4.5 million to $5 million.
“The first step would be to ascertain if the founders being Phil and Sally Watts and Andy and Wendy Hansen own any assets in the United Kingdom.”
The solicitor warned that in order to commence proceedings in the UK against the founders, the group would be unwise to proceed “unless at least $1 million of accumulated losses from franchisees in Australia was to be supportive of the action”.
News.com.au understands the ACCC was approached by a legal representative for the group, but the watchdog indicated it was not interested in pursuing the matter. News.com.au has sought comment from the ACCC.
One legal expert, who spoke on the condition of anonymity, said the law was “selectively applied” in these sorts of cases because organisations like ASIC and the ACCC didn’t have the resources. Both organisations have to have regard to the “public interest” and a limited budget.
“The amount of money that these people have taken from ‘investors’ or ‘franchisees’ was sufficiently small per person not to make it worth anyone’s while to go after anyone,” he said.
“So you are seeing the rise and rise of the wild wild west. That is made all the more the case when the alleged wrongdoers reside offshore.”
News.com.au has contacted the Watts and Hansens for comment.