International Association to Expose, Study and Prevent Pyramid Schemes
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Pyramid Scheme Alert
Pyramid Scheme Alert is a non-partisan, non-profit, all-volunteer consumer education group.
Contact Robert L. FitzPatrick, Pres. at
[email protected]
Website Update - August 2011 (with correction)
All
Previous Update Editions Are Available for Viewing

Dear PSA Patrons and Readers:

We are sending this edition a second time after discovering some broken hyperlinks to important news items on the PSA website. Apart from the link repairs, all other content is the same as in the original Update.

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August 2011 Update
Large MLM,Burnlounge, Ruled Illegal Pyramid Scheme
Market for Donald Trump's ACN Phone Collapsing?
Victims of MLM, Your Travel Biz, May Seek Restitution
India Fights Back Against US-based MLMs
Has MLM Corrupted Avon?
Now Available: Consumer Report for Spotting MLM Scams
Donate to Pyramid Scheme Alert
Sign the Consumer Petition

Federal Judge Rules that Large and Popular MLM, BurnLounge, Is Illegal      

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Federal Trade Commission (FTC) officials invested four years in seeking a verdict from a federal court on their charge that the multi-level marketing (MLM) company, BurnLounge, Inc., was an illegal pyramid scheme. Finally, on July 1, 2011, the verdict came in: Guilty! BurnLounge is gone now, but what does this ruling mean for the hundreds of other MLM schemes still operating? 

 

For a full analysis of this important ruling, with links and background, see the latest False Profits Blog. 

False Profits Blog Logo
False Profits Blog: Click on the image for a full analysis of the BurnLounge court decision.

 

BurnLounge took the country and the music industry by storm when it was launched by former leaders of another large and famous, but now defunct, MLM, Excel Communications, in late 2005. It gained promotional endorsements from sports and music stars, Shaquille O'Neal and Justin Timberlake. Aspiring musicians and music fans flocked to get in on BurnLounge's "business opportunity" solicitation. 60,000 signed up in less than two years. Music industry people reported that many young musicians were led to believe the new company would radically change the way musicians marketed themselves. It would give those with BurnLounge websites a  short cut to huge followings by promising "income opportunity" to fans and other musicians, based on recruiting other followers.

 

MLM attorneys are now scrambling to advise other MLM companies how to evade the law, based on parsing the Judge's guilty verdict. Consumers can expect  more MLMs to concoct higher retail selling requirements in order to boost overall revenue  from outside the sales chain and for price adjustments to make it appear that consumers who join their schemes are getting "value." The judge focused on the "motive" of  BurnLounge purchasers. If few people bought the program who were not also "sales" people for the scheme, he took this as an indicator that they were not just making normal consumer purchases; they were pursuing the income scheme. And, if the value of the MLM product were less than the scheme charged, he saw this as a similar indicator of that it was the income promise that drove the purchasing, not market factors.   

 

In reality, high price and lack of retail customers are only outward characteristics of a pyramid scam and they are after-the-fact of the fundamental fraud. The core of the fraud is falsely promising income based on endless chain expansion (which is impossible). So the ruling may change some superficial rules or policies of some MLMs, while they continue to make the fraudulent (endless chain) income promise. Companies making such changes will only be adding more camouflage. They are still misleading consumers into paying fees and buying products based on a chain-letter income promise.  

 

The decision will likely mean yet more confusion for consumers over what constitutes an illegal pyramid scheme that is disguised as "direct selling" or "multi-level marketing." (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.)

 
The decision also raises the question why perpetrators of multi-million dollar scams that harm tens of thousands of people are not criminally prosecuted. The FTC's action was just a civil case that sought only partial financial restitution to a some people and only to stop the scheme from continuing. See the analysis.  


Hyped by Donald Trump, ACN Video Phone Business May Be Collapsing  

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Donald Trump tells Americans that it is a technology breakthrough, a wave of the future; everybody will own one; better get in now! In typically hyperbolic form, he is touting  the "revolutionary IRIS V Video Phone", the flagship product and the new icon of the multi-level marketing company, ACN, for which Donald Trump serves as pitchman-in-chief.

 

But the latest disclosures from the video phone's manufacturer, WorldGate Communications,  indicate the market for this device has collapsed. Demand, if it ever existed in the real marketplace, is vanishing. The top management of the company has resigned. Orders from ACN have plummeted. The value of the stock of the phone manufacturer has been virtually wiped out. The company reported to the SEC that it may seek bankruptcy protection very soon. 

 

Yet, despite the manufacturer's notice to the government that it is at the verge of collapse and sales to have ACN have been cut back, a March, 2011 press release is currently posted on ACN's website proclaiming ACN's appearance on Trump's Celebrity Apprentice show and Trump's personal endorsement of the ACN video phone. Donald Trump is quoted, "I think the ACN Video Phone is amazing. It's connecting people face-to-face regardless of where they are. I simply can't imagine anybody using this phone and not loving it!"  

 Read More...  

Federal Court Decision May Allow Some Victims of the MLM, Your Travel Biz.com, to Recoup Some Losses   

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A three judge federal panel has overturned an earlier ruling by a federal judge, thus giving new life to a class action lawsuit against the multi-level marketing scheme, Your Travel Biz.com (YTB). The YTB business was  prosecuted as an illegal pyramid scheme by the California Attorney General.   

The class action lawsuit brought by consumers that had invested in the YTB "business opportunity" states, "The defendant corporations have taken over half a billion dollars from their unsophisticated customers, selling them on the dream of cheap travel and million dollar pay-outs when the only way that plaintiffs and their class could make a net profit was by recruiting others to join the illegal pyramid scheme."     

 

The YTB scheme was a member of the Direct Selling Association (DSA), the official trade association of multi-level marketing. DSA  claims consumers can rely on its "code of ethics" that members must follow. YTB was approved for membership after the DSA examined its structure and business practices for a year. Yet these very same practices and structure led the California Attorney General to prosecute the company for pyramid fraud. Read more. 


Police in India Raid Amway Offices
Consumers and Regulators in Other Countries Battle US-based MLMs    

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In recent years, the reputation of the United States has been severely tarnished by America's export of financial frauds. The sales by American investment banks of "toxic assets" , disguised as sound and reliable American home mortgage bonds roiled the world's banking industry,set off a global Recession, and damaged pension funds worldwide.  

 

US-based pyramid schemes, disguised as "direct selling" companies have received less publicity but have caused perhaps even more damage at the level of Main Street and in poor communities. Resistance to pyramid selling scams may now be gaining traction and the media are beginning to take notice. Additionally, as in the US,  courageous consumers in many countries are leading with whistle-blowing investigations, websites and blogs.  

 

India Fights Back   

Recent news accounts in India report that offices of the American MLM giant, Amway, have been raided by police in the state of Kerala and that Amway materials and records were sealed. Police reportedly are bringing charges of violation of India's anti-pyramid laws against Amway.  

 

India's resistance to Amway and other pyramid selling schemes has grown in recent years.   About five years ago, Amway offices were similarly raided in the southern state of Andhra Predesh by that state's Criminal Investigation Division which charged that Amway violates India's "Prize Chits and Money Circulation Schemes Banning Act." This law covers endless chain and pyramid schemes. Amway in typical form has delayed law enforcement with court actions.   

 

One of India's strongest and most visible consumer watchdogs against Amway-type multi-level marketing  schemes, Shyam Sundar, has courageously investigated, brought lawsuits and publicized the realities of fraud and financial damage caused by  multi-level marketing in India. His blog, Corporate Frauds Watch is widely read and respected. 

 

Years before,  intrepid Indian journalist, Ramjee Chandran, produced one of the most revealing investigations of how Indian consumers, many of them desperately poor, were losing their last bit of savings in Amway's recruitment scheme. He explored the mathematical impossibility of Amway's promise of endless expansion in the city of Bangalore.   

 

Non-profit  institutes in India have also been issuing warnings, publishing facts and conducting research into the impact of MLM on the people of India. The Institute of Chartered Financial Analysts of India (ICFAI Society) reprinted an analysis of MLMs written by PSA president Robert FitzPatrick.  

 

More recently, Sucheta Dalal, trustee of Moneylife Foundation, publicly warned Indian investors in a series of seminars of the dangers of pyramid schemes in India. Moneylife Foundation has demanded a ban on pyramid schemes and that MLM schemes, which she called "Daylight Robbery",  should be brought under  stronger government regulation and that pyramid schemes should be investigated before losses are documented, which is often too late.

   

 China is the only country to definitively outlaw the MLM sales model . MLM  was invented in the USA and America is where most of the schemes are based. Yet, ignoring the law, MLMs still operate illegally and the Chinese government has waged a strong campaign of law enforcement. MLMs are constantly lobbying the US government to pressure China to legalize the "endless chain" sales schemes.  American direct selling icon, Avon, has reportedly been accused of violating China's anti-pyramid scheme laws and  our own Foreign Corrupt Practices Act.    

 

Has MLM Corrupted Avon?  

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Avon has long been the pillar that holds up the credibility of the direct selling industry. It has unintentionally lent legitimacy to multi-level marketing (MLM) schemes that sold outrageous health scams, some that were sued by financially ruined consumers and others that were shut down by regulators for pyramid fraud. Anyone who has ever questioned the validity of any multi-level marketing company has had to answer the defiant challenge: "Are you saying Avon is also fraudulent?"  

 

But, in recent years, the tide may have reversed. MLM may be corrupting Avon. Something at the core of its business model has shifted at Avon especially in the last 6 years, and that shift is now having major, negative consequences. 

  • Avon is increasingly called a pyramid scheme by Internet critics and some ex-salespeople.
  • "Channel stuffing" - basing "sales" on increasing the number of salespeople who are induced to buy company products - appears to be an official strategy to offset declining consumer demand for the Avon brand and a recessionary economy.
  • The drive to constantly add salespeople even as sales decline and as salespeople sell less on average, has led Avon to the unseemly practice of info-mercials that  hype an illusory "income opportunity" to desperate and unemployed people.
  • Avon's stock is non-performing.
  • Now Avon is being investigated for possible violations of the Foreign Corrupt Practices Act, i.e., corrupting officials of foreign governments with bribes.
  • Avon is reportedly also being investigated in China for violating China's anti-pyramid scheme law.
  • In the US, shareholders are filing class action lawsuits against the company's board.      

 Read more... 

What About This One?
Audio and Written Report Offers Tools for Spotting Scams Disguised as "Income Opportunities" and "Network Marketing" 

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"What about this one?"   

What About This One Logo
What About This One?

That is the most common question consumers ask Pyramid Scheme Alert. It refers to a request for information about the particular MLM scheme or network marketing company they - or someone close to

them - has been solicited to join. Most people now know that many MLM schemes are disguised pyramids - frauds - but which ones? So, they ask, "What about this one?" Is it a true business opportunity or money trap? MLM recruiters run a shell game, warning consumers that many other MLMs are frauds but the one they represent is a "legitimate

MLM."   The PSA audio and report, "What About This One," shows how to evaluate any MLM.

 

To get a free copy of the audio and the companion report click on the graphic and follow the download steps.

Donations Make It Possible
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Pyramid Scheme Alert is all-volunteer and non-profit, but it still has many costs to maintain its website, to help with legal defense, publicize its research and analysis and to assist thousands of individuals worldwide. PSA's costs are covered by contributions from courageous private citizens. You can support PSA's work by making a donation.
No More Silence: Take Action
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Over the last eight years, Pyramid and Ponzi schemes have grown and spread. The Internet is now choked with "cash gifting" scams and "matrix selling" frauds. Pyramid selling scams have multiplied and now boast that the Recession will bring them more desperate "recruits." The false promise of income from an "endless chain" recruitment scheme is the lure of these multi-level marketing scams. Many of the "job" and "business opportunity" solicitations on the Internet are nothing more than pyramid schemes, flim-flam frauds.

Consumers now have a way to fight back. A petition for stronger regulation is being gathered on the Pyramid Scheme Alert Website.
To Read and Sign the Petition, Click Here

Special Reports for Consumers...

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What About This One Logo
Click the image to receive "What About This One?"

 What About This One?   Now Available! Free!

The new audio and written report published by Pyramid Scheme Alert is the product of years of research and direct experience of analysts, former insiders of multi-level marketing companies and veterans of  direct selling.The audio is a down-to-earth, conversational dialogue. that hits the key points for evaluating income opportunities and avoiding pyramid scams. The companion written report outlines the information for easy reference.   

 

The Main Street Bubble: (free) The financial bubble is composed of investments by millions of Main Street people in MLM "business opportunities" that depend, for their worth, on bringing in new investors. It is a classic endless chain scam disguised as "direct selling." As millions "fail" each year, their individual bubbles collapse. But as millions of other new hopefuls take their places in the schemes, the MLM bubble is re-inflated, year after year.  The Main Street Bubble report details how the FTC has become corrupted by close ties to the MLM industry, with key FTC leaders working as MLM lobbyists and "experts."

 

False Profits Blog Logo
 False Profits Blog. Discussion of the Economics, Politics, Legalities, Ethics and Sociology of Pyramid Schemes and multi-level marketing. The False Profits Blog, published by author, Robert FitzPatrick, is a sane, rational and fact-based forum. Read, get podcasts, make comments, subscribe.
Contact Information
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  Pyramid Scheme Alert
Tel: 704-334-2047
Fax: 888-334-1944
Email: [email protected]
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