Canada as Global Incubator and Protector of Ponzi Schemes?
Are Ponzi and Pyramid Schemes Legal in Canada?

July, 2008

Could it be possible that the Pigeon King International (PKI) scam in Canada – which has now collapsed and ruined family farmers in Canada and the USA – was legal under Canadian law? How can it be explained that the Canadian Competition Bureau (equivalent to the Federal Trade Commission (FTC) in the USA) and the Ontario police took no action despite whistle blowers, consumer activist warnings, and news media revelations?

In response to a whistle-blower letter that Pigeon King was a fraud that would ruin family farms, one official from the Competition Bureau wrote that even if it were a fraud, Canada’s anti-pyramid scheme law did not cover it. He wrote, "the business practices of Pigeon King International do not appear to meet the definition of a "scheme of pyramid selling" which must first and foremost meet the definition of a "multi-level marketing plan" as stated in section 55. (1) of the Act. I have taken the liberty to forward your concerns to the Ontario Provincial Police Anti Rackets Section."

Here is the Canadian law’s actual wording:

Competition Act
PART VI: OFFENCES IN RELATION TO COMPETITION
Definition of "scheme of pyramid selling"
55.1 (1) For the purposes of this section, “scheme of pyramid selling” means a multi-level marketing plan whereby
(a) a participant in the plan gives consideration for the right to receive compensation by reason of the recruitment into the plan of another participant in the plan who gives consideration for the same right;

This is a well-worded description of a classic “endless chain” which is what Pigeon King International was. Pigeon King participants gave “consideration” (money paid to the scheme for breeder pigeons) for the right to “receive compensation” (money they received for offspring). The compensation was based purely on the recruitment of other participants who “gave consideration” for the same right.

Was Pigeon King “multi-level”? Like all Ponzis it had to be multi-level. Earlier recruits are paid from investments made by later ones. There is no other source for the money. Like all multi-level marketing (MLM) scams that have virtually no retail sales, PKI’s only “market” was other “breeders”, equivalent in MLM to new “distributors.”

At whatever level participants invest in a Ponzi or pyramid scheme, the payments they receive from the scheme (if they get any at all) must come from another participant recruited at another level “below” them on the chain. All Ponzis are, by definition, multi-level.

Yet, Canada’s Competition Bureau used the law’s technical wording to turn its back on Canadian farmers and American farmers, many of whom were lured into the scam and ruined.

But even if officials at the Competition Bureau were proper in splitting hairs about whether the Pigeon King scheme was “multi-level,” it is indisputable that selling investments based on the endless chain trick is a fraud.

Here is Canada’s fraud law (shortened here for clarity):
CRIMINAL CODE OF CANADA
206. (1) Every one is guilty of an indictable offence and liable to imprisonment for a term not exceeding two years who
(e) conducts… any scheme… by which any person, on payment of any sum of money… shall become entitled under the scheme… to receive from the person conducting … the scheme… a larger sum of money … than the … amount paid … by reason of the fact that other persons have paid … money … under the scheme.

This is a precise definition of a Ponzi or Pyramid Scheme and of Pigeon King International (and nearly all multi-level marketing schemes operating openly in Canada.) PKI paid earlier investors with later investors' money and had no external market. There was no “pigeon business” but only a business of getting people to invest. Pigeons were only the camouflage, the way to launder the money. The only reason anyone got paid by PKI was “that other persons have paid money under the scheme.” There were no customers, only investors!

Similarly, there are virtually no multi-level marketing “customers” and no "external market." The only people buying the products of any consequence are the distributors themselves, and the only way they can earn a return on their investment is when more “distributors” are recruited below them on the “endless” chain.

Clearly, Ponzi schemes are illegal in Canada, both under the Competition Bureau Act and under the Criminal Code of Canada. Canada’s authorities were repeatedly notified about the pigeon scam that was ravaging farmers. Regulators were also able to see the facts in magazines, on television, on the radio and on the internet. And yet, they did nothing.

Why? The reasons are all speculative and all are indefensible. They include:

1) Incompetence – Canadian regulators possibly do not understand the nature of pyramid/Ponzi fraud and can’t see it when it is in front of their eyes. If they do see it, then they might be outsmarted by the scam artists.

2) Insensitivity – Canadian regulators possibly don’t appreciate the harm caused by pyramid scams. They blame the victims, as stupid, greedy and deserving of harm. Or they just downplay the scale of the harm. They don’t act unless the public forces them to do their jobs.

3) Complicity and corruption – It is possible that some Canadian government officials are involved in the schemes themselves (this has occurred often in the USA) and are making money from the frauds. It may also be that Canadian politicians are receiving campaign contributions from the scams and, in return, Canadian regulators must provide political protection to scam artists.

4) Intimidation by USA – It is well known that huge, USA-based pyramid selling schemes, such as Amway, are protected by the US Federal Trade Commission and that powerful Republican politicians in America have received millions from MLM scams. Canadian officials may fear that law enforcement against pyramid schemes in Canada could put Canada in conflict with the current government of the USA, so the Competition Bureau sacrifices Canadian citizens to the scams and thereby makes Canada an even better haven for the scams than the USA.

Whatever the root cause, it is now a sad fact that Canada is becoming known as a "global scam capital." Consumers will be wise to avoid or scrutinize any business opportunity that has a “made in Canada” label.

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