Lyoness: Austria knew in 2005, but no-one acted

Recently, Gerhard Huber, member of the Austrian parliament for the BZÖ, has submitted a list of parliamentary questions (pdf) to the Austrian ministers of Finance and Justice, Dr. Beatrix Karl and Dr. Maria Fekter, respectively. Mr. Huber has expressed his concern over the impact of the Lyoness fraud on Austria, Europe and the world and the possible tax exemption Lyoness has received from the Austrian government.

Mr. Huber is definitely not the first Austrian MP to express his concern over Lyoness in the Austrian parliament. A simple search with the key word 'Lyoness' on, shows that already in 2005, Lyoness was discussed in the answers to parliamentary questions. These questions were asked on June 8, 2005 and concerned the legal situation around article 168 of the Austrian Penal Code. More specifically, MP Johann Maier (SPÖasked the then incumbent Justice minister about the reports arrived on alleged pyramid schemes in 2004, and about what had been done with these reports.



Almost two months later, each Austrian politician was back from holiday. Karin Miklautsch (now Gastinger), then minister of Justice and a member of Jorg Haider's BZÖ (Gerhard Huber's party), after being an independent politician and minister for a while, answered to the questions of Maier.


Miklautsch, a lawyer with no prior experience as a politician, gained quite some recognition during her governing period. As she was party-independent (but nominated by Haider's FPÖ), she had no natural enemies in parliament and political cleavages applied less to her, than they would have to a party-specific minister.

The answers of Miklautsch were structured in a perfect, legal style. Nothing excessive, everything ordered and to the point. Miklautsch answered listing all 'companies' about which allegations of pyramid fraud had been received. In Graz, two of the three mentioned companies were Galvagin and Lyoness. Galvagin was the fraud Hubert Freidl exploited before instigating Lyoness (with a slight overlap). Most probably, Freidl initially founded Lyoness in order to have a place to move his illegal earnings to when Galvagin would cease to exist.

Galvagin operated in a similar manner as Lyoness, from London, and like Lyoness consisted of a true pile of different companies and organisations. The director slots in Galvagin were taken by agencies paid to do so (the managing director had several thousands of companies on her name), and the company was located at an obvious post forwarding address, together with hundreds of other empty corporations. Evidently, the multitude of companies and organisations tied to Galvagin was used to move the money out of Galvagin before it collapsed.

Back to Miklautsch. She, or better: her department, compiled a list of 36 'companies' and websites of which the local district attorney's offices had received reports. However, only very few investigations (let alone proceedings) were started. If the lawyers at the Austrian department of Justice would have started an investigation, they would have found that Galvagin was an obvious pyramid scheme, trying to obstruct justice by moving its headquarters around and having its company registered in London, not Austria. Also, they would have found that Lyoness was essentially the same scam, run by the exact same people.

Media coverage was scarce and also on the internet not much was to find about Galvagin and its founders Hubert Freidl and Helmut Rücker (with whom Freidl later got into a fight, just like with Bernhard Wagner now). In 2002, a reader of Spiegel der Kritik calling himself 'BD' submitted a letter to the medium's editor, explaining how his friends were enrolled into this scam and how many red flags he had observed while looking into them. Nothing happened. Politicians did nothing and for as far as can be determined, the media were not interested either.

When Galvagin was liquidated in 2005, due to a lack of funds, Freidl just continued on the same path with Lyoness. However, when the company started to grow bigger (a development that slightly flattered the Austrian ego), no-one seemed to remember that already in 2004, reports were filed against Lyoness. The ministry of Justice forgot, all parliament members forgot and frankly, within the media and the society there was no-one who picked it up either. The most striking fact is probably that no-one, no politician, no regulator, no prosecutor and no journalist, ran a simple search on Lyoness on the website of the Austrian parliament. That could have saved a lot of people, a lot of money.
It took until 2008 for someone to step up. The Steiermark branch of the Austrian Federal Chamber of Labour (Arbeiterkammer) warned explicitly to be extremely cautious when doing business with Lyoness. They had bundled complaints from victims, approached victims and consumer advocates and found that Lyoness violated the privacy of its members, that they used misleading advertising and provided incorrect, deceptive information and that the (promised) benefits gained through the Lyoness system were redundant at best and unrealistic and non-existent in practice. Obviously, Lyoness publicly contested the allegations.

Although the media attention in Austria and Switzerland grew a little after that, Lyoness - seemingly unchallenged - managed to expand into numerous new countries, in all of which it managed to dupe a considerable amount of consumers and companies, gaining sizable amounts of illegal earnings. In 2010, another branch of the Austrian Chamber of Labour (Vorarlberg) issued an unambiguous warning against Lyoness. In this warning, the Chamber referred to the following matters:

- The discount vouchers issued by Lyoness are unreliable.
- Lyoness spreads evidently false and deceptive information and hides the truth (i.e. lies).
- By joining Lyoness, members agree to the transfer of their data, turnover, photos and videos (made of them) to unspecified third parties.
- The 'cashback card' is redundant and not free.
- Any returns from the 'position system' are highly implausible and unrealistic if no-one is recruited into the system by you.

Little by little, journalists and the established media they work for started to pick up on the obvious fraud Lyoness had been committing, which spilled over into regulatory actors, investigative and litigative government agencies and politicians - yet, rather slowly. So slowly, that now, 3 years after the last warning issued by the Chamber of Labour (and 5 years after the first), 8 years after the entire parliament and government (as well as anyone else paying attention) got to hear and/or read that Lyoness was being accused of being a pyramid scheme and even 9 years after these first complaints were filed, Lyoness is still operating and continues to do so in more than 40 countries and on all continents of the world - with 2.7 million members. And the role of the Austrian authorities in this happening cannot be denied or neglected. 

As a matter of fact, by not taking action earlier, and still not having closed Lyoness down, the Austrian authorities have enabled Lyoness to expand to a large amount of countries and have allowed Freidl and his accomplices to scam millions of additional people worldwide. Similarly, the certification institutes that have done nothing to stop Freidl and Lyoness from abusing the banal certificates issued to Lyoness to dupe all these victims under false pretences, are principally guilty of accommodating fraud. When the scam finally unravels completely, which can be any day now, this could mean that the Austrian authorities and certification institutes may be (partly) held to account in civil court cases abroad, for instance in the United States.
As it turns out, there may be a price to pay for pride. The fact that Austria had produced such an 'amazing billion dollar company' may have filled the hearts of many Austrians (particularly government regulators) with joy (albeit for a little while). Although understandable, it is of course an outrage if such pride gets in the way of fair judgement. Let us hope that the Austrian authorities have learnt something from this experience and will be on alert for new companies started by Freidl and/or his known associates - not only to protect their own citizens, but also to prevent the rest of the world from being duped like this again. 

In 2011, it was reported that Freidl was behind a company called Trevilian, which hosted a 'shopping community' called Fryee. Now, two years later, the website of this 'shopping community' is down. Nevertheless, it is to be expected that Freidl is already working on his next scam.

We sincerely hope mr. Huber gets the answers he is looking for - the answers everyone victimised by Lyoness is waiting for. It should be especially interesting to hear how the Austrian authorities, particularly the Austrian Justice ministry is going to avoid new scams like these rising and flourishing in and from their country. However, mr. Huber should not forget to also ask himself the question why he has not picked up on this earlier, and he should probably ask his former party member and Justice minister Karin Miklautsch why she has not done anything to stop Lyoness. Then again, this goes for pretty much every politician who served in the Austrian government and parliament during the last 8 or 9 years, as well as for a whole bunch of regulators, prosecutors and officials that they have employed.

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