The Restitution of Payments Made to Gift Communities in Germany (La Restituzione dei Pagamenti Fatti Agli 'Schenkkreise' Tedeschi)

Abstract

In recent years the German courts have been increasingly faced with claims for restitution of payments to so-called “gift communities” (“Schenkkreise”), which have become widespread in Germany and whose economic damage is enormous. They mostly involve four-level hierarchical snowball or pyramid structures. The members at the bottom level (“givers”) pay contributions, which, depending on the individual scheme, can vary between 100€ and 5000€, to members occupying the top level of the structure (“receivers”), who then drop out of the game. The givers then move up a level, but for their own part must recruit new givers to constitute the level below them. This generally means that after each “round” eight new givers must be found for each receiver. Thus, the number of new members to be recruited increases exponentially throughout the duration of the scheme. The ultimate consequence is that only the founders of these communities attain a guaranteed profit, whereas the subsequent members, by reason of the large number of new members to be recruited, barely have a realistic chance of making a profit themselves; rather, they inevitably lose their contributions. A new member, who has already paid, can only maintain the (albeit merely theoretical) possibility of one day becoming a receiver himself, if he finds new victims. In the cases which appeared before the German courts the victims, many of whom had subsequently grouped themselves together, claimed restitution of the sums paid to the respective members above them in the pyramid structure. Some courts denied restitution of the contributions, others by contrast allowed the victims’ claims and thus enabled them to get their money back These contradictory judgments led to considerable legal uncertainty in Germany. This called for action by the Bundesgerichtshof (German Federal Supreme Court). In two identical judgments of 10.11.2005 the highest German civil court sided with the victims and allowed them to claim restitution of their money and thereby put an end to the conflict which had been smoldering for years Because of the significance of the judgments and the doctrinal issues they had to resolve, especially that of application of a bar on restitution where both parties are engaged in conduct contrary which offends good morals according to § 817, 2nd sentence BGB (German Civil Code), it is worth taking a closer look at the decisions and their reasoning.