The latest “UPDATE” from Pyramid Scheme Alert is a special consumer alert to HR 5230, the proposed federal law that will effectively prevent all further FTC prosecutions of “multi-level marketing” companies. The bill is designed to legalize marketing practices that are currently prosecuted as “unfair and deceptive”. It is a “pyramid-protection” law.
You can read the report, with all links HERE
This anti-consumer bill was created and is backed by the Direct Selling Association (DSA). It would effectively prevent the potential prosecution, for example, of Herbalife, a DSA member, for operating a pyramid scheme. The proposed law would up-end the FTC’s and the federal court’s 40-year definition of a pyramid scheme, making the current charges against Herbalife, and other recent FTC prosecutions of Vemma (also a DSA-member), Fortune High Tech Marketing and Burnlounge invalid. It would also over-rule some state anti-pyramid statutes.
The bill is deceptively disguised as “anti-pyramid scheme”. The law would allow closed market traps in which the only effective way to recoup investment and gain the promise rewards is by recruiting more recruiters, etc.. That system must always doom the vast majority at the bottom to financial loss. The hallmark red flag of MLM pyramid schemes — absence of profitable retail selling by the participants – would be eliminated under this proposed law. The proposed law would re-define payments to participate in the reward scheme as ordinary consumer purchases rather than as pay-to-play requirements for eligibility for pyramid rewards. Typically, MLMs require the participants to continuously meet personal purchase quotas in order to “qualify” for the fabled “unlimited” rewards that are tied to enrolling new recruits, who also must meet the purchase quotas. All those on the recruiting chain who keep buying to maintain eligibility are promised “infinite” rewards gained as “commissions” on the qualifying purchases of the “endless chain.” These qualifying purchases serve as the pyramid’s main source of revenue and the funds for rewarding its recruiters.