Legal Classification of Gift Circles and Pyramid Schemes
So-called gift circles, which represent a variant of the classic pyramid scheme, regularly raise significant concerns in case law. Such models are designed so that participants initially make a payment, which is then distributed to several members as further individuals join. The conditions for participation are closely tied to the recruitment of new members – the continuation of the system therefore depends primarily on the constant influx of new participants.
Civil Law Assessment: Claims for Reimbursement
The question of whether and to what extent participants who took part in such a gift circle and made payments are entitled to reclaim these amounts is the subject of numerous civil court disputes. The focus is regularly on the classification of the payments made and their compatibility with the provisions of the German Civil Code (BGB).
In the specific case before the Regional Court of Oldenburg (decision of 17.06.2008, file no: 2 S 127/08), the repayment of a sum of money was demanded, which the plaintiff had paid to the defendant as part of a pyramid scheme disguised as a ‘gift circle.’ The payment obligation was not considered in isolation, but analyzed in the context of the legal requirements for gifts under § 516 BGB, the principles regarding immorality (§ 138 BGB), and unjust enrichment (§ 812 BGB).
Immorality and Nullity of the Agreement
Gift circles regularly operate on the borderline of immorality. They are particularly considered immoral within the meaning of § 138 para. 1 BGB when the continuation of the system necessarily presupposes that later participants have no real prospect of consideration or payouts. Due to this structural principle, success for new participants is effectively excluded once growth stagnates. Many courts therefore assess such agreements as void.
The invalidity of the agreement results in the elimination of legal grounds for the received contributions. According to established case law, a payment without legal grounds (§ 812 para. 1 sentence 1 BGB) is present, as there is no valid gift agreement. Recipients of payments can therefore generally be required to return them.
Prohibited Pyramid Schemes in the Light of Criminal and Competition Law
Beyond the civil context, pyramid schemes are also regularly relevant under criminal law. Pursuant to § 16 para. 2 of the Act Against Unfair Competition (UWG), the operation or promotion of distribution systems is prohibited when the prospect of economic advantage essentially depends on the recruitment of further participants. Criminal liability (§ 16 UWG) and sanctions by supervisory authorities can lead to further civil disputes, for example in the context of repayment and damages claims.
Although these provisions primarily concern commercial providers, purely private ‘gift models’ can also, under certain circumstances, be classified as misleading competition or a criminal offense.
Obligations for Reimbursement and Exceptions
The unwinding of payments is subject to certain conditions under §§ 812 ff. BGB. In individual cases, grounds for exclusion must be examined, for example if the payer was himself involved in immoral conduct (keyword: ‘in pari delicto’ – contributory fault on both sides). Jurisprudence frequently discusses whether the claim for repayment is excluded when the participant knowingly took part in a system that was evidently immoral to outsiders. The main issue here is the question of the payer’s need for protection.
On the other hand, claims for repayment must not be categorically denied, even if the payer was aware of the systematics, as the main focus is on the protection of the public and, in particular, the integrity of legal transactions.
Conclusion and Outlook
Participation in gift circles and pyramid schemes regularly leads to disputes concerning repayment claims and the question of the immorality of the underlying agreements. Civil, competition, and criminal law aspects often overlap. It is precisely the complex legal situation and the multitude of possible individual case scenarios that make a differentiated analysis indispensable.
If you require an individual legal assessment, the lawyers of MTR Legal with extensive experience in commercial, corporate, and civil law are happy to assist you.
