1

IN THE HIGH COURT OF JUSTICE NUMBER 3787 OF 2006

IN THE MATTER OF TREASURE TRADERS CORPORATION LIMITED

and

IN THE MATTER OF THE COMPANY DIRECTORS DISQUALIFICATION ACT 1986

Between:

THE OFFICIAL RECEIVER CLAIMANT

and

1. Peter Kippax DEFENDANT

I, Philip Ralph Amatt, Deputy Official Receiver, of Public Interest Unit, 21 Bloomsbury Street,

London WC1B 3SS, HEREBY REPORT:

1. A Winding Up Order was made on 14 December 2005 against Treasure Traders

Corporation Limited (“Treasure Traders”). This disqualification application is

concerned with the conduct of Peter Kippax (“Mr Kippax”) whilst acting as a director of

Treasure Traders. The Official Receiver has been directed by the Secretary of State for

1. Claimant

2. Philip Ralph Amatt

3. First report

4. Exhibit PRA1 & PRA2

5. Dated this 26 day of May 2006

2

Trade and Industry to make this disqualification application for a disqualification order. I

have the conduct of the case and I am duly authorised to make this report.

2. The information in this report has come to the Official Receiver’s knowledge in the

course of the Official Receiver’s investigations of Treasure Traders’ affairs, the day to

day administration having been conducted under the Official Receiver’s supervision by

insolvency examiners.

3. In this report I also rely upon the affidavit of Rosemary Sarah Janes (“Ms Janes”), an

Investigator in the Department of Trade and Industry (“DTI”), sworn in support of the

winding-up petition. Copies of the affidavit and exhibits to it, the petition and Winding-up

Order, together with the witness statement of Mr Kippax dated 16 November 2005 made

in defence of the proceedings issued by the Secretary of State, are now produced and

shown to me marked “PRA1”.

4. Now produced and shown to me in the indexed paginated bundle marked “PRA2”, are

true copies of the further documents to which I shall refer in this report. Where specific

documents are referred to in this report, their page references are shown in bold text in the

body of this report.

The current position in the liquidation is:

o The assets total £2,184 and the liabilities £821,414

o Which gives a deficiency as regards creditors of £819,230

o The issued and paid up capital is £502

o Giving an overall deficiency as regards creditors and shareholders of

£819,732 [See paragraphs [#*#] to [#*#] below.]

INTRODUCTION

5. This report concerns Mr Kippax's conduct as a director of Treasure Traders, which was

incorporated on 9 September 2004 and commenced trading on 28 October 2004.

6. The Official Receiver was appointed Provisional Liquidator of Treasure Traders on the

25 November 2005, following the presentation of a petition by the Secretary of State for

3

Trade and Industry. The Court made a Winding-up Order against Treasure Traders on

14 December 2005 and appointed the Official Receiver as liquidator. The Winding-up

petition was presented on the grounds of public interest. (PRA1 p[?] ).

7. This report alleges misconduct in respect of Mr Peter Kippax as follows:-

Between October 2004 and November 2005 Mr Kippax caused Treasure Traders to

administer, operate, promote and/or facilitate a money circulation scheme which was bound

to fail.

In doing so, Mr Kippax breached the following legislation:

i. Section 120 of the Fair Trading Act 1973 (“FTA 1973”);

ii. Section 1 of the Lotteries and Amusements Act 1976 (“LAA

1976”);

This has caused the public to lose an estimated £570,000.

4

STATUTORY INFORMATION

DETAILS OF TREASURE TRADERS AND ITS OFFICERS

8. The following information was obtained from the public file for Treasure Traders

maintained by the Registrar of Companies (“the Registrar”) except where marked “*”,

which denotes that it was obtained from Treasure Traders own records or supplied by

the defendant.

Date of Incorporation : 9 September 2004

Date trading commenced : 28 October 2004*

Date trading ceased : 25 November 2005

Nature of Business : Trading scheme

Trading Style(if appropriate) :

Treasure Traders

Last principal tradingaddress :

1 Broadway, Hammersmith, London W6 9DL

Registered office : 1 Broadway, Hammersmith, London W6 9DL

Date and Type of anyprevious Insolvency Event

: None

Date of Petition : 31 October 2005

Provisional LiquidationOrder date

25 November 2005

Date of winding up order : 14 December 2005

Liquidator : Official Receiver

OFFICERS

9. The director of Treasure Traders has been:

Name From To

Peter Kippax 01/11/2004 -

5

COMPANY SECRETARY

Name From To

Oliver Koncz 01/11/2004 19/01/2005

Peter Kippax 01/11/2004 19/01/2005

Lillian Idamiebi Brown 19/01/2005 30/09/2005

Robert Leonard Pulleng 30/09/2005 -

SHARE CAPITAL

10. According to the return filed at Companies House on Treasure Traders, Treasure

Traders has an authorised share capital of 1000 shares of £1 each, of which 502 have

been issued and these are held as follows:

Name No of Shares Held

Peter Kippax 501

Treasure Traders International Corporation 1

Total 502

6

ASSETS AND LIABILITIES

STATEMENT OF AFFAIRS

11. A Statement of Affairs was not required. On information available to the Official

Receiver the assets and liabilities of Treasure Traders are:

ASSETS £ £

Bank 448

Furniture and Office Equipment (see note i) Nil

“Gem Cash” (see note ii) 1,736

Estimated total assets available to insecure creditors 2,184

LIABILITIES

Unsecured Creditors

Trade and Expenses 116,800

Members (see note iii) 570,000

Rent 22,616

HM Customs & Excise 91,998

Wages 20,000

Total owed to unsecured creditors 821,414

Estimated deficiency as regards unsecured creditors 819,230

Issued and called up capital 502

Estimated total deficiency as regards members 819,732

Notes:

i. The company had a large amount of office furniture, which is due to be sold by our agents.

This is unlikely to realise any funds for the estate, once agents’ fees are deducted.

7

ii. The purported total appraised value of the “Gem Cash” is £56,000. However, an independent

valuation of a sample of the emeralds contained within these items reveals that the

estimated wholesale value is an average 3.1% of the purported appraised value.

Accordingly, the emeralds contained within the “Gem Bricks” are estimated to realise

£1,736. [PRA2 p[?] ]

iii. “Consolidated Accounts 2005” spreadsheet delivered to the Official Receiver show 978

members paid the sum of £1,200 as a deposit towards the purchase of “Gem Cash”. The

spreadsheet also shows 503 captains were paid commission. Therefore, 475 (978–503)

members remain as creditors with individual claims of £1,200. [PRA2 p[?] ]

PRESENT POSITION

12. The present position is as detailed above. There is no prospect of a distribution to

creditors.

13. To date, unsecured creditors have submitted claims totalling [?] (PRA2 p[?] )

PRELIMINARY EXAMINATION OF OFFICERS

14. On 15 December 2005 Mr C Gray of the Official Receiver’s office interviewed Mr

Kippax and the Preliminary Questionnaire (L75.01) was completed and a narrative

statement in respect of the affairs of Treasure Traders (PRA2 p[?] ).

15. On 28 November 2005 Mr C Gray interviewed Mr Pulleng at Treasure Traders’

premises and a Provisional Liquidation Inspection Questionnaire was completed in

respect of the affairs of Treasure Traders. [PRA2 p[?] ]

HISTORY

8

16. Mr Alan Kippax, the managing director of Treasure Traders International Corporation,

(“TTIC”, a Canadian company), approached Mr Kippax (his cousin) regarding the

business operation of TTIC. Mr Kippax agreed to establish a similar business in the UK

with the assistance of Alan Kippax. TTIC financially supported Treasure Traders with

the commencement of trade. Until July 2005, TTIC supplied all marketing materials and

Gem-Cash to Treasure Traders.

17. Treasure Traders operated a scheme whereby members who joined were entitled to

various benefits including gemstones (which are variously described in promotional

literature as “Gem Cash” or “Gem Cache”, to which I will refer as Gem Cash) and

products at discounted prices. Prospective members were invited to attend a sales

presentation in London, Birmingham or Manchester. New members were required to pay

a deposit of £1,200, purportedly towards the purchase of Gem Cash (or latterly “Trade

Credits”). In return, Treasure Traders offered members the opportunity to earn an

income, or as the “success guide” says ‘…Why earn a living when you can make money’.

[PRA1 p[?] ]

18. In essence, Treasure Traders paid commission to members who recruited new members

to the scheme.

19. The method by which a member could earn commissions through recruitment of others

to the scheme operated by Treasure Traders is summarised at paragraphs 15 to 20 of the

first affidavit of Ms Janes sworn in support of the Winding-up petition [PRA1 p[?] ].

20. Existing members of the Treasure Traders’ scheme invited potential new recruits to

attend a presentation. Should the potential new recruit wish to join the scheme, then by

payment of £35 they could become a “registered distributor”.

21. In order to be eligible to earn commissions, a registered distributor is required to pay a

further £1,200 as a deposit against Gem Cash with a purported value of £5,000. Such

payment entitles the registered distributor to become a “Crewmember” upon the ship

“Destiny”, an imaginary treasure ship.

9

22. By the recruitment of further persons to board the “ship” in this fashion, a crewmember is

advanced to the point whereby a commission is payable on attaining the rank of

“Captain”. Each ship, or “board” as has been described by Mr Kippax, has a maximum

crew of 15 comprising 8 Crewmembers (the newest recruits), 4 “Voyagers”, 2 “First

Mates” and a “Captain”.

23. The “Captain” of each “ship” is entitled to a commission of £775 paid from the £1,200

fee paid by each new Crewmember joining the scheme. When a ship has its compliment

of 15 members, it divides in two and each rank is “promoted” so that Crewmembers

become Voyagers, Voyagers First Mates, and First Mates Captains of their own “ships”.

24. Thus a “Captain” will earn a commission of £6,200 (8x £775) each time his “ship”

recruits 8 new “Crewmembers”.

25. On 31 October 2005, following an investigation conducted pursuant to Section 447 of the

Companies Act 1985, the Secretary of State for Trade and Industry presented a petition to

wind-up Treasure Traders on public interest grounds. The Petition alleges the scheme

operated by Treasure Traders was a trading scheme operating in breach of the Fair

Trading Act 1973 (“FTA 1973”) and was an unlawful lottery contrary to section 1 of the

Lotteries and Amusement Act 1976 (“LAA 1976”) [PRA1 p[?] ].

26. On 14 December 2005, a Winding-up Order was made against Treasure Traders.

27. According to Ms Kippax the cause of the company’s failure was as follows:-

o Wound up by courts

ROLES AND RESPONSIBILITIES OF THE DIRECTORS

28. Mr Kippax stated in his Company Officer Preliminary Information Questionnaire dated

14 December 2005 that he over saw the day-to-day running of the company. Robert

Pulleng was the company secretary and accountant. Lillian Brown was the company

secretary/para-legal and gave advise on program and materials. Ross Stirling was the

assistant director and helped with the running of Mr Kippax duties. William Wiseman

10

was the assistant manager and assisted with managing the Hammersmith office [PRA2

p[?] ].

DIRECTORS’ REMUNERATION AND BENEFITS

29. Mr Kippax stated in his Company Officer Preliminary Information Questionnaire Form,

dated 14 December 2005, that he received £42,000 gross remuneration salary and benefits

including £15,800 for accommodation [PRA2 p[?] ]. In his statement of 15 December

2005, Mr Kippax goes on to state that he is owed approximately £55,000 by Treasure

Traders in respect of expenses, legal costs and wages [PRA2 p[?] ].

30. Mr Kippax also stated other company officers received a total sum of £34,000 including;

Mr Robert Pulleng received £3,600; Ms Lillian Brown received £22,000; Mr William

Wiseman received £7,800; and Mr Ross Stirling received £600 [PRA2 p[?] ].

ACCOUNTING INFORMATION

31. No accounts for Treasure Traders were filed with the Register of Companies House.

Treasure Traders accounting reference date is 30 September.

32. Mr Pulleng, the company secretary, personally delivered accounting records to the

Official Receiver’s Office in December 2005.

MATTERS DETERMINING UNFITNESS

THE OPERATION OF A MONEY CIRCULATION SCHEME CONTARY TO THE FAIR

TRADING ACT 1973 AND LOTTERIES AND AMUSEMENTS ACT 1976 WHICH WAS

BOUND TO FAIL CAUSING LOSS TO THE PUBLIC

The Scheme

33. Mr Kippax states that between 28 October 2004 and 14 December 2005 Treasure

Traders promoted to sales people the distribution of gemstones [PRA1 p[?] ].

11

34. Treasure Traders held presentations in London, Manchester and Birmingham informing

potential customers of the company’s concept with emphasis on the rewarding benefits

associated with being promoted and earning large amounts of cash. Either friends or

family members usually introduce the individual as a stepping-stone for their own

promotion. Entry fee is £5 and usually paid by the friend or family member.

35. The first section of the information session informs potential customers about the mark-

ups associated between manufacturing costs and distribution costs.

36. The presenter then introduces several Gem Cash products to the room containing an

emerald gemstone presented in a _ inch brick surrounded in 22-carat gold leafing. An

appraisal certificate by “Jewellery Judge” Steven A Knight is inscribed on the reverse

side of the brick detailing the quality and dimensions of the enclosed gem. The presenter

then explains the savings associated with being a Gemstone distributor in the market

place by obtaining gemstones for only 34% of the appraised value

37. A distributor kit for £35 is available to participants inviting the potential customer to

become a registered gemstone distributor and become part of the sales team. The kit

includes information on the scheme, access to training sessions and also covered

administration costs.

38. The speaker then discusses the advantages of purchasing Gem Cash as follows:

• Let them Appreciate in VALUE; put the Gem-Cash in a safety deposit box and let it

appreciate in value.

• Make JEWELLERY; break open the brick and make jewellery – rings, pendants and ear

rings.

• Retail & Wholesale SALES; you could put the Gem-Cash, our 'jewellery store in a box’, in a

retail store.

• Learn to TRADE for Goods and Services; you could also learn to trade the Gem-Cash.

[PRA1 p[?] ]

12

39. The presenter moves on to the introduction of Trade Deals, where members can trade

their Gem Cash (for the appraised value) to merchants in return for retail products at

highly discounted prices.

40. Mr Kippax incorporated Trade Deals on the 20 July 2005 and advised Mr Gray at the

Official Receiver’s Office that a previous company was set up in March 2004 but fell

short on demands. Therefore, Mr Kippax decided to set up Trade Deals with the intention

to trade as a separate venture [PRA2 p[?] ]. The website was launched on Sunday 24 July

2005. A £50 registration fee applies and entitles the individual to £50 worth of credit with

a telecoms company called Best Call.

41. The second part of the information section, is one of importance and is the way the

scheme sold gemstones to customers. The presenter commences with ‘Now comes the fun

part where we can take you on a voyage’ to collect treasure [PRA1 p[?] ].

42. To become part of the adventure a deposit payment of £1,200 is required towards one of

the following “Gem Value Packs”;

• Option 1: Redeem Certificate, pay a further £500 (plus VAT) and receive a Gem cache brick

containing emeralds, with a UK wholesale value of £5,000

• Option 2: Redeem Certificate with just the cost of packing and receive £1,300 retail value of

Gem-Cache (TTC chosen)

• Option 3: Redeem Certificate with no further payments and receive £1,200 retail value of

loose gemstones (not in cache, TTC chosen).

• Option 4: Redeem Certificate for and pay £400 plus a Trade Administration fee of £100

(plus VAT) and receive £5,000 worth of trade credit with Trade Deals (as of 24 July 2005).

43. A deposit payment towards one of the packs provides the recipient with a ‘Purchase

Order Deposit Receipt Certificate’; this entitles the customer to a free ticket, onboard the

‘Destiny’ ship [PRA1 p[?] ].

44. Mr Kippax advised Ms Janes, during the course of her investigation, that distributors were

very excited about the development of the fourth option (Trade Deals), as many

13

customers were not interested in Gem Stones. This clearly identifies that Mr Kippax was

aware the company mission (refer to paragraph [?]) was not one of importance to

potential customers [PRA1 p[?] ].

45. It is also interesting to note that according to Mr Kippax 99% of customers who paid

deposits towards Gem Value Packs became part of the sales tracking boards (Destiny

Ship). This clearly shows there are two aspects of Treasure Traders, the potential to

make sales and recruit new members [PRA1 p[?] ].

46. Prior to amendments made by Mr Kippax, during the course of Ms Janes investigation,

the captain had an opportunity to allocate free spaces on board the “ship”, if

crewmembers were encountering difficulties recruiting new members. However, captains

would only receive commission from those crewmembers who paid a deposit towards a

Gem Pack.

47. Once aboard the ship the individual’s mission is to move up the ranks and become

captain. To become captain the individual must recruit two friends or associates who

board the ship. Each friend or associate recruited entitles the individual to a “key”. The

individual can only become captain (top of the rank) if two keys have been collected

during their voyage, this entitles the captain to £7,000 worth of ‘treasure’.

48. The ship consists of eight crewmembers, four voyagers’ two first mates and one captain.

Individuals are promoted on board by introducing new crewmembers. Once the ship is

full the board divides in two and individual moves up the rank. The crewmembers

become voyagers the voyagers’ first mates and the first mates become captains (provided

they have collected two keys on their voyage). The captains will collect £775 commission

from each deposit of £1,200 paid by each crewmember. Treasure Traders retains the

remainder of £425 for administration fees.

49. An administration department was formed within Treasure Traders to manage the

collection and distribution of funds accordingly. Funds were held in a safe at the

Hammersmith premises and recorded on a “Consolidated Accounts 2005” spreadsheet

found at [PRA2 p[?] ].

14

The Lifelong Infinity Residual Retirement Bonus

50. Once the individual has completed the process of becoming captain twice, further

management positions are achievable. These positions are determined by the amount of

times the individual’s own recruits become captain and the amount of times the recruits

below them become captain (and so forth) this can be seen in the table below;

Position

Achieved

Minimum

times captain

Minimum team

developments

Cash

Reward

Emerald

Cheque

Wholesale Rep 0 0 0 0

Team Developer 2 2 Captains £30 £90

Regional Developer 3 3 Team Developers £60 £180

Regional Manager 5 3 Regional

Developers

£90 £270

Executive Manager 10 3 Regional Managers £120 £360

Regional Vice

President

15 3 Executive Managers £150 £450

51. The presentation goes on to explain the above table and benefits of becoming a senior

member (PRA2 pg [?]). It then goes on to show how increasing to higher management

positions increases potential income. The overall thrust of this part of the presentation is

to emphasise the significance of recruiting others into the scheme in order to increase the

earnings for the individual.

52. The information session explains that by obtaining senior positions within the scheme,

individuals have the ability to receive payments ‘for the rest of his life’ and includes

statements such as:

• ‘GEM-CASH, whatever you choose to do with your GEM-CASH, at a profit margin of 64%,

or greater, that’s our gift to you’.

15

• ‘BUILD A SALES TEAM, you can join the ship, The Destiny, and become Captain as many

times as you like, each time collecting $12,000 in value’ [The reference to $12,000 appears

to stem from the fact that Treasure Traders was using the promotional literature produced

by TTIC in Canada]

• ‘RESIDUAL INCOME, earn sleeping money by building a strong team and helping others

become successful in this business, creating a business that works so one day you don’t have

to!’.

[PRA1 p[?] ]

53. It is important to mention at this point that the individual was required to pay the £1,200

deposit towards Gem Cash (as at paragraph [?]) if they wished to continue to this level.

Mr Pulleng advised Ms Janes, during the course of her investigation, that by paying the

£35 fee for the distributor pack, the individual only has the ability to gain further

knowledge about the company and the individual is required to pay a deposit towards a

Gem Pack to achieve the above goals [PRA1 p[?] ].

54. Ms Janes outlined in her affidavit, further to the above table in paragraph [?] that the total

amount of recruits required at each level can be calculated as below;

Qualified Position No. you need to

recruit

No. your team needs

to recruit

Total

Wholesale Rep 0 0 0

Team Developer 2+2=4 4 8

Regional Developer 3+3=6 8_3=24 30

Regional Manager 5+5=10 30_3=90 100

Executive Manager 10+10=20 100_3=300 320

Regional Vice President 15+15=30 320_3=960 990

55. A further document that gives perhaps a better overall picture of the of business being

operated by Treasure Traders is within the information session where individuals are

advised to follow two company rules;

16

56. Rule 1: ‘Say nothing say nothing, say nothing, what part of nothing don’t you

understand? [PRA1 p[?] ]

57. The company “success guide” structures ‘Tips on inviting prospects by saying nothing’;

• “I know you know a good thing when you see one, so you’re going to see this business

sooner or later. So come and see it now, and you’ll be happy that I invited you.”

• Well – seeing is believing – so why don’t you come and see for yourself?”

• “I’m calling to put some money in your pocket.”

• “When you want to have a haircut, you have to go to the barber. No one can give you a

haircut over the phone; the same with a business.”

• “Serious cash is being made. You owe it to yourself to come and see this business”.

• A real business with a real product at real value. Why earn a living when you can make

money?”.

• “The more you see of this business, the more you’ll be glad you’re doing it, the more you’ll

be glad I called you. Would Tuesday at 7:30pm be better for you or Saturday at 1:30?”.

• My boss is paying me £7,000 to say nothing, and your not paying me a dime”.

[PRA1 p[?] ]

58. Mr Kippax states in his affidavit of 16 November 2005 that ‘…the approach was merely

adopted so as to not prejudice potential customers prior to the presentation and merely

enable them to attend with an open mind…’ [PRA1 p[?] ]

59. Rule 2: ‘Your Business is only as good as your list! Build a list with a minimum of 100

names! Continue adding at least 100 names per week!’. [PRA1 p[?] ]

60. The company “success guide” details this statement more clearly by listing examples on

how to accomplish this above statement (PRA1 page [?]) It is also interesting to note

that one example includes ‘the seating strategy’ which states ‘Sit in the middle of your

guests. This eliminates any negative chat between the guests. If you were not able to

cancel one, then call one of your Associates to sit in between the second and third guest’.

[PRA1 p[?] ]

61. These forms of marketing are not consistent with Treasure Traders’ mission ‘to become

one of the leading wholesale distributors worldwide of coloured gemstones and high

17

quality trade products’ and are more focused around the ability to become a part of the

sales tracking boards.

The Underlying Purpose of the Scheme

62. Whilst the purported mission of Treasure Traders was ‘to become one of the leading

wholesale distributors worldwide of coloured gemstones and high quality trade products’,

the actual operation of the scheme is such that the underlying purpose was to encourage

members to recruit new paying members to the scheme in order to benefit from earning

commissions.

63. As stated above, in order for an individual to participate in the scheme operated by

Treasure Traders, it was necessary to pay the sum of £1,200 as a deposit towards the

purchase of Gem Cash. If the underlying motive was to obtain the purportedly valuable

Gem Cash, then one would expect members to acquire and deal with the Gem Cash

product. However, in her affidavit, at paragraph 19 [PRA1 p[?] ], Ms Janes points out

that as at 20 May 2005 there were only 14 holders of Gem Cash as against at least 232

deposits paid purportedly to obtain the Gem Cash (Mr Kippax confirms this figure in his

affidavit of 16 November 2005) [PRA1 p[?] ]. Had the motivation in paying the £1,200

deposit been to obtain Gem Cash, one would expect more than 6% of deposit payers to

have actually acquired the Gem Cash product.

64. In his affidavit of 16 November 2005, Mr Kippax introduces and relies upon legal advice

obtained from Messrs Blake-Turner Solicitors as to the legality of the scheme. This

advice is dated 2 February 2005 (ie some 3 months after commencement of trading, albeit

that the advice was evidently sought in November 2004, just after the commencement of

trading) [PRA1 p[?] ].

65. Whilst the overall advice from Messrs Blake-Turner, based upon the information supplied

by Mr Kippax and other members of Treasure Traders’ staff, was that the scheme was

lawful, the following passage from their letter of advice is of crucial importance in this

instance:

“You have told me that the underlying motive in this scheme is that people actually buy

valuable gemstones. They get a genuine stone with an independent valuation….

18

At the end of the day, it is going to be a question, in my opinion, of what is “the

dominant intention”…If the dominant intention of your scheme is to sell emeralds and to

get other people to sell emeralds (although you have told me you may move into rubies

and sapphires as well) and those emeralds have a value which can be realised readily

then I do not believe your scheme is unlawful.

If however the dominant motive is to get others to join the scheme and for each

primary or secondary member to obtain payment for getting others to join being

secondary or tertiary members then I believe the scheme is unlawful. [My emphasis]

[PRA1 p[?] ]

66. As stated above, were the “dominant motive” of members to be the purchase and sale of

emeralds, then they would have taken steps to obtain the emeralds for which they had

paid a deposit. In fact, only 6% of those who paid a deposit actually obtained the

emerald(s) for which they had paid a deposit On that basis, it cannot be said that the

“dominant motive” was to buy and sell emeralds and Mr Kippax, as sole director of

Treasure Traders, must have been aware of, or reckless to, this fact.

Fair Trading Act 1973

Part XI – Pyramid Selling and Similar Trading Schemes

67. In her affidavit, Ms Janes, when referring to the Fair Trading Act, states ‘Section 120 (3)

provides that where a participant in a trading scheme makes any payment to or for the

benefit of the scheme promoter or another participant and is induced to make that

payment by reason that the prospect is held out to him of receiving payments or other

benefits in respect of the introduction of other persons who become participants in the

trading scheme; then the person to whom or for whose benefit that payment is made is

guilty of the offence. Here participants in the scheme are induced to pay a deposit of

£1,200, to or for the benefit of the promoter (TT Corporation) [Treasure Traders] and a

scheme participant (the relevant captain) by the prospect held out to them of receiving

payments (£7,000/6,200 cash as captain upon completion of a board) in respect of the

introduction of other persons who become participants in the scheme. Further to this,

19

section 120(4) states that the person inducing such payment to be made is also guilty of

an offence.’ [PRA1 p[?] ]

68. Mr Kippax, in his witness statement dated 16 November 2005, defends this element of the

Secretary of States allegation by merely declaring that Treasure Traders is not a

pyramid scheme or similar. He declares that to move up the rank or to become part of the

residential program the sales team must continue to make product sales. Therefore,

whether the individual joins the scheme or not, the individual benefits from the product

purchased [PRA1 p[?] ]. However, as stated at paragraphs [?] above, this bald assertion

is not supported by the facts.

69. Earlier in this report I outlined how the Treasure Traders scheme worked. In his

judgement dated 1 December 2005, Mr Michael Furness QC, sitting as a Deputy Judge of

the High Court, considered whether the scheme was unlawful under the FTA 1973. In his

judgement he referred to a similar case dealt with by Mr Justice Neuberger (as then he

was).

70. Mr Justice Neuberger summarised an approach by looking at section 120(3)(b) in the case

of Delfin International SA Ltd [2000] 1 BCLC 71 at 83 ‘where he points out that the

court is required to look at the reality of the business under consideration, and to

consider the marketing material for the scheme as a whole’ [PRA1 p[?] ].

71. Mr Michael Furness QC, in his judgement dated 1 December 2005, agreed with Counsel

for the Secretary of State for the Department of Trade and Industry when Counsel claimed

that Treasure Traders satisfies section 120(3)(b). ‘The fact that on the face of the Scheme

documentation a participant who is induced to make the payment envisaged by section

120(3)(b) receives a benefit from the payment of s [sic] on the product does not prevent

the section from applying if the persons who make those payments in fact go on to become

participants of the Scheme’ [PRA1 p[?] ]. He further stated ‘I therefore conclude that the

business of the company involves the commission of offences by the company under

section 120(3) of the Fair Trading act 1973’ [PRA1 p[?] ].

72. Mr Michael Furness QC also considered the following allegations petitioned by the

Secretary of State

20

• That the business constitutes a trading scheme,

• The person who has applied or has recruited to become a distributor makes a payment

falling within Section 120(3)(a) of the FTA 1973

• The business was trading scheme as dealt with by section 118 of the FTA 1973

73. Again Mr Michael Furness QC agreed with Counsel (PRA2 pg [?]). At paragraph 19 he

deals with these allegations and states ‘these arguments seem to me to be clearly correct’.

Lotteries and Amusements Act 1976

74. Section 1 of the LAA 1976 states “all lotteries which do not constitute gaming are

unlawful with the exception of those provided by this Act.” [PRA2 p[?] ]

Case Law

75. In the absence of specific statutory legislation governing lottery schemes, the Courts over

the years has established case procedures when dealing with illegal lotteries.

76. The case of Seay v Eastwood [1976] 1 WLR 117 (PRA2 p[?]) is one which establishes

that there is no precise definition of (amongst other things) a lottery in the UK.

77. In the case of Reader’s Digest Association Ltd v Williams [1976] 1 WLR 1109 (PRA2p

[?]) the Courts expanded its view of what constitutes a lottery.

78. Essentially, the Court held a lottery consisted of three elements:-

o The distribution of prizes;

o Done by a mean of chance

o Some actual contribution made by a participant in return for obtaining a

chance to take part

79. In the scheme operated by Treasure Traders, these three elements are present. There is

the contribution by the participant (the £1,200 deposit) in return for obtaining a chance to

take part (the participant’s place as a “crewmember” on the “Destiny). There is the

distribution of prizes (the £6,200 paid to the “captain” on completion of a “voyage”). As

21

the captain cannot influence the introduction of sufficient new crewmembers by the

participants below him, the likelihood of a given captain obtaining his prize is a matter of

chance. This is particularly so in the case of the “Lifelong Infinity Residual Retirement

Bonus”

80. Mr Kippax states in his witness statement of 16 November 2005 in defence (paragraph

55) that ‘…the £7,000 commission referred to as treasure is not earned by recruiting two

friends or associates, or to pay £1,200 to join the group: it represents the distributors

commission earned on the sale of the products’ [PRA1 p[?] ]. Mr Kippax’s defence is

purely the fact that the distribution of Gemstones is the main objective of Treasure

Traders and that members require substantial skill when selecting new people to join the

sales team.

81. Mr Michael Furness QC stated in his judgement ‘I consider that the Secretary of State is

correct on this point too I do not think the Company can plausibly characterise the

activities of the recipients of permanent pension as sales managers who earn commission

on the activities of their sales team. On the contrary it is suggested in the explanatory

literature that after a while permanent pension can be earned with no effort at all on the

part of the recipient’ [PRA2 p[?] ].

82. When addressing whether the scheme was unlawful due to the means of chance, Mr

Michael Furness QC referred to Saville LJ’s injunction in the Court of Appeal case of Re

Senator Hanseatische Verwaltungsgesellschaft mbH [1997] 1 WLR (“Senator”) to take “a

common sense” approach [PRA2 p[?] ].

83. Mr Michael Furness QC went on to state ‘ Permanent Pension is a substantial part of the

scheme. It is promoted by the Company as a means of participants earning substantial

amounts of money…So in this sense payments generated by chance are an important, and

I would say substantial part of the scheme. For this reason I am of the view that the

scheme is a lottery of the sort envisaged by the Court of Appeal in the Senator case’

[PRA2 p[?] ].

Conclusion

22

84. Money circulation schemes are based on mathematics; many losers pay a few winners.

Mr Kippax was responsible for promoting such a scheme in the guise of a gemstone

trading programme

85. Money circulation schemes are inherently objectionable, and are unlawful pursuant to the

provisions of the FTA 1973.

86. The chance of any person receiving the permanent pension depends sufficiently on new

customers joining the scheme. The individual has little or no control over this aspect of

the scheme and as such the customer’s success is wholly or significantly dependent on

chance. This effectively constitutes a lottery and is contrary to Section 1 of the LAA

1976.

87. As such, these schemes are doomed to fail through either the intervention by a regulatory

body such as Companies Investigation Branch of the DTI, or through the eventual

exhaustion of new members willing to join the scheme

88. The scheme has the appearance of a money circulation scheme; the Court decided it was

unlawful pursuant to the provisions of the FTA 1973 and the LAA 1976. This has caused

a loss to the public totalling approximately £570,000.

SUMMARY OF MATTERS DETERMINING UNFITNESS

23

89. With regard to the affairs of Treasure Traders, the following are matters by reference to

which Mr Peter Kippax is, in the opinion of the Secretary of State, unfit to be concerned

in the management of a limited company:-

Between October 2004 and November 2005 Mr Kippax caused Treasure Traders to

administer, operate, promote and/or facilitate a money circulation scheme which was

bound to fail.

In doing so, Mr Kippax breached the following legislation:

iii. Section 120 of the Fair Trading Act 1973 (“FTA 1973”);

iv. Section 1 of the Lotteries and Amusements Act 1976 (“LAA

1976”);

This has caused the public to lose an estimated £570,000.

(see in particular paragraphs [?] to [?] )

90. In all the circumstances, I request this Honourable Court to make a Disqualification Order

as sought in the disqualification claim form.

Dated this [?] day of [?] 2006

Philip Ralph Amatt

Deputy Official Receiver

1. Claimant

2. Philip Ralph Amatt

3. First Report

4. Exhibit PRA1 and PRA2

5. Dated this [?] day of [?] 2006

24

IN THE HIGH COURT

IN THE MATTER OF TREASURE TRADERS CORPORATION

LIMITED

and

IN THE MATTER OF THE

COMPANY DIRECTORS

DISQUALIFICATION ACT 1986

Between:

THE OFFICIAL RECEIVER

CLAIMANT

and

1. Peter DEFENDANT

REPORT

OF

PHILIP RALPH AMATT

DEPUTY OFFICIAL RECEIVER

Dated the [?] day of [?] 2006

Address:21 Bloomsbury StreetLondon WC1B 3SS