Letter to the FTC Commissioners

May 15, 2004
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580

Timothy J. Muris, Chairman
Mozelle W. Thompson, Commissioner
Orson Swindle, Commissioner
Thomas B. Leary, Commissioner
Pamela Jones Harbour, Commissioner

Dear FTC Commissioners:

Based on the May 7, 2004 exposé on NBC Dateline along with much other documented evidence submitted to FTC staff Pyramid Scheme Alert respectfully demands that the FTC immediately enforce its orders against deceptive marketing and possibly illegal business activities of Amway/Quixtar, the operating subsidiaries of Alticor Inc. (formerly Amway Corporation). FTC action is required now in light of blatant and large-scale violations of FTC's existing cease-and-desist orders to this company dating to 1979 and 1986. The scale of consumer losses surpasses that involved in the Enron debacle.

The failure of the FTC to enforce its own orders against Amway/Quixtar, and the extraordinary level of political lobbying by the Direct Selling Association and financial contributions made by corporate officers and high level distributors of Amway/Quixtar lead us to believe Amway/Quixtar is being politically protected. The NBC report is only one more instance of overwhelming evidence of wrongdoing brought to the FTC's attention.

After a year-long undercover investigation backed by whistleblowers and other research, the NBC report revealed a systematic, worldwide program of mass deception aimed at inducing billions in consumer investments in Quixtar. The report revealed how tens of thousands of consumers are lured into week-end long mass meetings where they are inundated with claims of an "extraordinary business opportunity" and testimonials of financial success from Quixtar "kingpins."

The NBC report uncovered that, after payments to Quixtar and the kingpins, virtually no one ever earns a profit from this "opportunity." This stark and devastating fact is concealed from new recruits, leading nearly all into financial harm and many into bankruptcies, extreme personal losses and the ruin of their careers.

Even more shocking, NBC Dateline revealed that not only do Quixtar promoters make false and misleading claims about income potential but the majority of their own incomes are not earned from Quixtar. The main source of their income is from selling "tools"- books, tapes and seminars - to unwitting Quixtar recruits. The deceptive sales of these costly "tools" add to the financial losses suffered by the victims of Amway/Quixtar.

This "other" business of Quixtar's kingpin distributors is highly organized and operates with the full knowledge and support of Quixtar and Alticor. It is at the center of a federal court case brought by high level Quixtar sales representatives against Quixtar. The sale of the tools is described as a system of pyramid schemes in which certain Quixtar distributors reward lower level recruits for recruiting others with a secret compensation system. Alticor/Quixtar is a collaborator and direct beneficiary of this system of false claims and misleading income promises as each new recruit is induced to purchase Quixtar-branded products and others promoted by that company.

Additionally, we demand that the FTC apply the same standards to Amway/Quixtar that it has used in prosecuting all other network marketing companies, namely, that most of payments to high level distributors must be funded from retail sales to end-users. Payments cannot come chiefly from investments made by lower level sales representatives in an endless recruitment chain. This was the standard and the basis for prosecution of Equinox International and Trek Alliance, for example, which were recently forced to shut down by the FTC as illegal pyramid schemes.

Regarding the criteria used to prosecute Trek Alliance, in an August 4, 2003 release, the FTC stated,

• Trek told recruits that they could earn money by selling products or recruiting, but emphasized that more money could be made through recruiting
• The vast majority of consumers made less money than they had paid for front-end expenses, and many made little or nothing
• Compensation was not sufficiently linked to retail sales
• The program is a pyramid scheme and most participants lose money.
• The practices violate federal law.

We have submitted to the FTC overwhelming and clear evidence that Amway/Quixtar operates in the same fashion. It funds its rewards to kingpins primarily and mostly from payments induced from new recruits in an endless chain. As in the cases of Trek Alliance, Equinox and others that the FTC prosecuted only a tiny portion of Amway/Quixtar goods are ever resold to the consuming public. Recruiting is achieved through false promises and deceptive testimonials of income.

Each month that the FTC ignores evidence and petitions for action on Quixtar, more consumers in America and worldwide suffer losses and this system of deception further infects the legitimate marketplace.

Please let us know what actions the FTC intends to take in light of these disclosures and reports.

Sincerely,

Robert L. FitzPatrick, Pres.
PYRAMID SCHEME ALERT

U S. Senate

Commerce, Science, and Transportation
Committee (FTC oversight)

Senator John McCain, Chairman

Senator Fritz Hollings, Ranking Democrat

Subcommittee on Consumer Affairs (FTC oversight)

Senator Peter FitzGerald, Chairman

Senator Ron Widen, Ranking Democrat

US Congresswoman, Sue Myrick

James Kohm, Attorney FEDERAL TRADE COMMISSION