Business Practices Committee Report 75

MFS/Alpha's only real product was money. The success of MFS/Alpha, as in the Newport case, was dependent on the money received from its members and new members on a continuous basis. Ms Douglas confirmed that MFS/Alpha sold "business opportunities" to the members. She said "... some people buy for the products, most people buy it from my experience, to run their own business".

Sullner stated in her letter dated 7 November 1997 to the approximately 8 300 ex-Newport members that Alpha Club "... was a holiday and travel club with a difference. It offered its members, their family and friends world-wide travel benefits that were unique and very cost effective". From figures supplied by Alpha, it appeared that less than 0.1 per cent of the members availed them of the opportunity to enjoy a holiday abroad. This figures clearly suggests that the Alpha Club members were not that interested in going aboard for holidays, but became members to "make money" by canvassing new members.

The "advantage" to consumers who became members was the right to recruit and introduce new members. A considerable part of a new members' payment served to fund the recruitment costs, that is, the commissions payable to existing members who have recruited the new members and also the management of the scheme. The greater the number of new members introduced, the sooner was the recoupment of the original cash payment.

Assume that Alpha Club members had to recruit at least four new members each to recoup their "investments". These four new members must then recruit at least 16 other members to recoup their payments. Assume further that the scheme started with 10 people. These 10 people would need to recruit at least 40 new members to recoup their payments. The scheme now has 50 members of whom only 10 recouped their payments. To recoup their payments the 40 "out-of-pocket" members need to recruit at least 160 new members. The scheme now has 210 members of whom 50 recouped their payments while the remaining 160 members need to recruit at least 640 new members to recoup their payments. The cumulative figures are set out in the next table.

The figures in column A reflect the number of new members required to enable previous members to recoup their payments. For example, the 40 new members would need to canvass 160 new members to recoup their payments, and the 10 240 members need to recruit 40 960 new members to recover their payments.

The figures in column B shows the numbers of members necessary to enable the previous members to break even. For example, 850 people must have had to become members or partners of the scheme to enable the previous 210 members to recoup their payments.

The last column in the table shows the percentage of members that have not yet recouped their payments. Given the assumptions underlying the figures in the table, it is clear that the percentage of members that would not recover their payments would never be smaller than 75 per cent. This would apply to the total number of members, irrespective of at what stage they joined the Alpha club scheme.

The Committee is of the opinion that Alpha members would be unreasonably prejudiced. At any point in time people will lose money. Few people will make money and many would lose money. The relations between those consumers who have not recouped their payments and the business, Alpha, will be harmed. In terms of the Act this by itself would constitute a harmful business practice.