|
Multi-level Marketing Continues to Spawn Lawsuits, Regulatory Debates , and News Media Investigations
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Despite pouring millions into politicians' pockets, threatening and suing whistle blowers and producing volumes of PR spin and dis-information, multi-level marketing is plagued with fraud accusations and negative public opinion. Uncomfortable facts about 99% loss rates, 60-80% drop-out rates, ruined finances, loss of friends, family disruptions, and the insidious deception of "unlimited opportunity" continue to haunt multi-level marketing. Here are just a few recent highlights:
Churches combat MLM "preying" on members... On May 27, 2011 the Christian Broadcasting Network ran a special 30-minute show on the ethics of multi-level marketing. PSA President, Robert FitzPatrick, was featured on the show as "an expert in revealing deception and fraud in bogus home-based businesses." Video of his comments is on the CBN link.
The show's host, Lee Webb, acknowledged that MLM solicitations in churches now constitute a far-reaching problem. In his own congregation, he stated, the church had to post a special directory in which members could be listed as "do not solicit me" to prevent MLM recruiting. MLM recruiters often claim MLM is "God's plan." Others leverage church membership or position to pressure fellow church members to invest.
China battles illegal MLMs... Asia One, a Singapore-based news service reported that in China "Online pyramid selling, an illegal and fraudulent method of business, lured more than 40 million people involving some 6 billion yuan (S$1.16 billion) in 2010 alone." This data came from a recent report jointly released by the Zhejiang-based China e-Business Research Center and the Beijing-based China Anti-Pyramid Selling Association. The articles quoted an official of the China e-Business Research Center who stated "multi-level marketing is illegal."
Yet another MLM sued, this one for $1 Billion... "Direct-to-consumer energy retailer Ambit Energy LP was hit Monday with a lawsuit seeking more than $1 billion for allegedly defrauding and harassing an independent consultant it had signed up to recruit new customers. The suit, filed in Brooklyn federal court, accuses the Texas-based company of federal racketeering, fraud and unfair business practices." A news release on the suit stated that "Ambit buys electricity and natural gas at wholesale prices and resells it to customers recruited by a network of more than 60,000 independent agents... The company operates in New York, Texas and several other states with deregulated energy markets. The lawsuit characterizes Ambit as "operating as a pyramid scheme which makes false and misleading statements that constitute deceptive acts or practices.""
Amway sued in the US and Canada and prosecuted in England... No other fact is more revealing of MLM's inherent fraudulence than the fact that its flagship, founding company, Amway, is the subject of lawsuits and government prosecutions - all charging fraud. Amway recently announced plans to pay out $150 million to settle a class action lawsuit in the USA that charged Amway was an illegal pyramid scheme. Currently, Amway is battling a similar class action suit brought by consumers in Canada. In England, the UK government sought to close down Amway after discovering that over a 30-year period, 99% of all UK consumers who invested in the Amway "business opportunity" had failed to make a profit!
FTC Says the Line between "legal" MLM and fraud is too complex to regulate!!!...
The staff the Federal Trade Commission reversed its earlier position on the need to regulate multi-level marketing and has now recommended exempting it from a proposed "business opportunity rule." This means MLM will have no rules requiring disclosure of income averages, recruiting requirements, saturation, failure rates, or business costs when its recruiters lure people to invest in its famous "unlimited income opportunity."
The reason? The line between MLM fraud and legitimate direct selling is too complicated! The FTC staff report states, "... identifying a pyramid scheme (or, at least, one that attempts to disguise itself as a legitimate business opportunity) entails a complex economic analysis including an in-depth examination of the compensation structure and the actual manner in which compensation flows within an organization... There is no bright line disclosure that would help consumers identify a fraudulent pyramid from a legitimate MLM."
But this thin - almost indistinguishable line between fraud and direct selling prompted the staff to a logic-defying conclusion. Instead of seeing this "complexity" (translation: tricks, disguises, diversions and lack of disclosure) as a compelling reason for the FTC to provide better consumer protection and oversight of MLMs, the FTC staff cited the "complex economic analysis" as the cause for doing nothing! It recommended exempting MLMs from disclosure rules that would help consumers evaluate MLM "business opportunity" solicitations.
See the new resources available from Pyramid Scheme Alert, "What About This One", that offer consumer/investors a practical guide for identifying and avoiding MLM scams.
| 
