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Help protect consumers in your state! Volunteer to be a PSA watchdog and help stop the Direct Selling Association's attempts to legalize pyramid schemes state by state. Contact us for more information. Former Herbalife participants wanted for class action lawsuit. The law firm that sued Newest Way to Wealth wants to pursue other "lead generation" systems within Herbalife. Click here for contact information. |
November 11, 2003 Re: Consumer Opposition to HR 1220 Dear Congressperson: As a member of the House Subcommittee on Commerce, Trade and Consumer Protection, we respectfully ask you to consider our position on the bill, HR 1220 currently before your subcommittee. This bill will negatively affect millions of consumers each year and undermine the integrity of the marketplace. Pyramid Scheme Alert, a non-profit, nationwide consumer education organization, urges you to oppose this bill. We believe an inquiry will reveal that HR 1220 is a classic "wolf in sheep's clothing." Its title, "To prohibit pyramid promotional schemes " is a disguise. This bill promotes the worst sort of pyramid schemes, those that masquerade as legitimate direct sales companies and offer a bogus "home-based business opportunity." We have attached detailed information for your review. We would greatly appreciate an opportunity to talk further with one of your staff who will investigate this proposed legislation. HR 1220 seeks to override Section 5 of the Federal Trade Commission, which governs "unfair and deceptive" trade practices, and to supercede state anti-pyramid statutes. Additionally, the bill specifically states that it will nullify federal court interpretations that have provided the basis for pyramid scheme prosecutions. HR 1220 seeks to accomplish this by legally currently prosecuted at the state and federal level as pyramid scheme fraud. By redefining a "pyramid scheme" HR 1220 would legalize schemes in which little or no products are ever resold to consumers. The scheme is based primarily upon inducing consumers to purchase goods or services as sales representatives of the pyramid company. Consumers are recruited with promises of high income and financial independence. However, due to the pyramid business model the failure rate in companies of this type exceeds 99%. Information about the pyramid pay plans, income averages, drop out rates, and costs of doing business are not disclosed to consumers solicited by these schemes. HR 1220 would legalize the business model that is based upon endless chain recruiting and would permit these misleading promotions. The author and promoter of HR 1220, the Direct Selling Association, is a trade association that counts among its membership over the years companies that have been prosecuted, fined, or shut down for pyramid scheme fraud. DSA had submitted a "friend of the court" brief defending the MLM pyramid scheme, Omnitrition International. The subsequent federal court ruling against Omnitrition is one of the landmark decisions in defining a product-based pyramid scheme. More recently, a member of the DSA "Education Foundation" testified in defense of the Equinox International, the largest pyramid successfully prosecuted by the FTC in recent years. The FTC's prosecution of Equinox also rested on the Omnitrition ruling. If HR 1220 had been law, Equinox's predatory practices would be continuing today. There has been extensive media coverage of the obvious pyramid schemes sweeping the country that operate as "gifting clubs" and involve no product sales. I have appeared on ABC World News, NBC Nightly News with Tom Brokaw, and the NBC Today Show to explain and expose these follies. However, coverage - and therefore public understanding - of the "product-based" schemes is greatly lacking. I have had extensive opportunity to investigate these product-based schemes, having served as expert witness and consultant in federal and state cases brought against pyramid scheme perpetrators. I currently serve as a consultant to the Attorney General's office of the state of Tennessee. I have also served as expert witness for the Attorney General of Kansas. The product-based schemes enroll far more victims and inflict much greater financial harm than the simpler "gifting" scams. HR 1220 seeks to protect and support these types of deceptive business schemes. Thank you for your consideration. We look forward to further opportunity to confer with you on this issue. Sincerely, Robert L. FitzPatrick, President Enclosed:
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