You will lose money on the loom scheme!

There appears to be a revived pyramid scheme in Australia called the ‘loom’.

I’ve seen it pop up in Facebook feeds and Instagram feeds and it is unfortunately capturing the attention of some people who appear to be of the view they can ‘make’ money from the loom scheme or craze.

I feel like in a few months time I will be fielding new enquiries from people who have lost money on this loom scam and will be wanting me to fight for them to get it back.

Lets be sure you know where this is going early……. it’s an illegal SCAM!

How does it work?

The concept is the same as every other pyramid or Ponzi scheme:

  • You buy-in for a sum of money, let’s call you the ‘instigator’.
    • This current trend appears to be $300 but it does not matter the amount, $1 or $1m, the result is the same, you buy in and get nothing tangible in return (as in, nothing worth your buy in amount).
  • The instigator then needs to convince others (friends, family, strangers) to also buy-in for the same money.
  • If you do, those others will sit behind you in a ladder, pyramid, loom, circle or whatever you might want to call it.
  • Once again, they get nothing for their money but a place in the imaginary queue and become ‘co-instigators’.
  • All those co-instigators will then need to convince their friends, family and strangers to also buy in.
  • That continues until the original instigator is pushed up the ladder or pyramid or into the centre of the loom or circle.
  • Once enough people have paid the buy-in, the original instigator collects their money.
    • For the current loom, that’s after 7 co-instigators have also paid $300, making the pot $2,400.
    • The original instigator then walks away with that $2,400 pot.
    • The other 7 co-instigators then need 7 more co-instigators each to buy-in before they get to walk away with a pot of $2,400.

Lets summarise this in the way that it normally works to destroy people, friendships and lives:

  • You must convince 7 of your friends to give you $300 each, for nothing – 8 friends involved – you only cash out ($2,400).
  • The 7 friends left then must each convince 7 of their friends to give them $300 each, for nothing – 56 friends involved – 7 cashed out ($16,800).
  • Those 48 friends left then need to each convince 7 friends to give them $300 each, for nothing – 392 friends involved – 49 cashed out ($117,600).
  • Those 252 friends left then need to each convince 7 friends to give them $300 each, for nothing – 2,744 friends involved – 343 cashed out ($823,200).
  • Those 1,814 friends left then need to each convince 7 friends to give them $300 each, for nothing – 19,208 friends involved – 2,401 cashed out ($5,762,400).
  • That must then continue infinitum to be successful for all those persons who paid $300 and are involved.
  • The reality however is that at some point, there are no more friends, family, neighbours or strangers left or willing to buy-in.
  • So perhaps the 16,807 people left in my example above who are yet to cash out will never cash out.  That’s a staggering $5,042,100 paid into a scheme which will never give any of the payees a payout.

In my example above a total of 19,208 people gave $300 to enter the loom, a total cash pot of $5,762,400.  Only 2,401 people managed to cash out, taking $2,400 each and every dollar of the cash pot.  The remaining 16,807 paid $300 and will get nothing for it.

The mathematics behind the scam is that 87.5% of people who buy in, will lose their money.  The simple fact is that there are not enough people to keep putting money in.

The point I hope you see is that the early and first adopters of the scheme get the payout, the latecomers are doomed to fail.

The ABC recently published an article on the scam and how it uses social media to spread and especially lure young people into it and is worth a read.

Can I get my money back that I paid into a loom?

Simply put……. YES.

The best framework I can put around this ‘loom’ scheme is contractual.  It is not a bet, it is not an investment and you do not get any product for your money.

So, a contract is void if an essential element of the transaction it contemplates is illegal.  Given pyramid schemes like the ‘loom’ are illegal in Australia, no money no money given into one is a valid transaction and should be returned.

As such, whomever you may have given your money to (your friend!) is liable to give it back to you.

Of course, the normal commercial realities of making a claim against another person apply: Do they have the money to give you? Will it cost you more money to get it back than the amount owed? Is it worth your time and effort to chase the money?

How can we help?

We only deal with civil claims and therefore deal with civil claims day in day out.  Take a look at the type of legal services we offer.

Feel free to call us or make an appointment to talk about your issues and find out why you might want to choose us to help you make a claim.


DISCLAIMER: The above article was written at a specific point in time in the past and is provided as general guidance only. It is not intended to be specific legal advice to any person’s particular circumstances who may be reading it. We do not recommend you use this article as a replacement for obtaining proper legal advice on your issue and encourage anyone reading the article to obtain legal advice to ensure the above information and guidance remains valid and suits your particular circumstance. In our experience, there is no ‘one size fits all’ to legal problems!