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 - End of Year, 2011
All
Previous Update Editions Are Available for Viewing

Dear PSA Patrons and Readers: 


That consumer fraud is on the rise in America and has taken on many new forms is not news. But  this Year-End Update of Pyramid Scheme Alert has a related message that will be important news to many citizens. And, this message means that the need for consumer education, access to truthful information and personal vigilance is greater now than ever before. For this reason, we are also asking for your financial support in the form of a donation to Pyramid Scheme Alert. PSA is all-volunteer, non-profit and non-partisan. We also allow no commercial advertising on our site. 

The news of this Update is that while cleverly disguised frauds have multiplied, a citizen's ability to gain restitution has been restricted.

Justice consists of honest law enforcement or fair representation in the courts. In the cases of frauds perpetrated on huge numbers of people, as in pyramid schemes, both avenues for justice - law enforcement and law suits - have recently been restricted.


Cops Leave the Beat
The Federal Trade Commission (FTC), the public's top cop and prosecutor of pyramid frauds, has been politicized and lobbied to the point that it now actively
protects large-scale pyramids. (see article below).

Citizens Barred from Courtrooms
On a one-person basis, the court system has never been available to Main Street due to high costs, the time required to pursue a private lawsuit and the financial/legal power of large fraudster companies. But the class-action suit provides a feasible alternative for Main Street. In class action lawsuits, thousands, even millions, of people who lost relatively small amounts each (e.g. $100-$30,000), but collectively were defrauded of millions or billions, can get their day in court against large fraudulent companies. Perhaps just as important as recovering money for victims, the class action lawsuit serves as a legal bulwark against Main Street fraudsters. A successful settlement can force a fraudulent scheme out of business or to change its behavior.


But, now, this legal avenue too is being closed off - at least for now - by the use of "binding arbitration" clauses in the contracts of "multi-level marketing" schemes and other large financial institutions such as banks and credit card companies. These clauses prohibit private or class action lawsuits. A class action case in Canada against Amway, for example, has recently been stopped by Amway's arbitration clause (see article below). A few other class action lawsuits have overcome this obstacle, only due to the flaws in the MLM contracts, rendering their arbitration rules inapplicable. Those weak spots will likely be fixed as MLM lawyers write contractual restrictions on consumers who unwittingly sign up.

Supreme Court Backs Up Big Scammers
And now the Supreme Court has ruled that these "binding" arbitration clauses can legally block a consumer from seeking justice in the court on an individual or class action basis. He/she must first go through the expensive and unfair arbitration process that is designed by the offending company.


Consequently, consumer education, access to truthful information and individual vigilance are more important today than ever. For this reason, we ask for your support to continue the work of Pyramid Scheme Alert with a donation. PSA is all-volunteer, non-commercial (no advertising), non-partisan and non-profit.

We thank those who have supported our work, and ask all who have gained benefits to consider donating to the cause.
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End-of-Year 2011 Update
When the Cops Leave their Beat: FTC Abandons Consumers
A European Court: "Herbalife is an Illegal Pyramid Scheme"
Amway's Binding Arbitration Ties Up Consumers in Canada
The Last Law Suits: MLM Victims Are Losing their Day in Court
Now Available: Consumer Report for Spotting MLM Scams
Donate to Pyramid Scheme Alert
Sign the Consumer Petition

FTC Chooses to Protect MLMs        
 When the Cops Leave their Beat 

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Here's a common-sense question: What type of "business opportunity" solicitation does the average person encounter most frequently? The answer is obvious to everyone. It is multi-level marketing, a.k.a. network marketing, a.k.a. direct selling. What family in America has not had at least one member propositioned to sign up with one of the many MLM "opportunity" schemes? Sign-up fees and related annual costs usually involve an investment of a few hundred to a few thousand dollars. Some people spend tens of thousands and take on debt or home mortgages and invest months or years of time as a result of these propositions. Some people go bankrupt due to MLM scams. The collective public loss each year is in the billions. 

   

Next question: How much financial information is provided when the MLM "business opportunity" proposition for investment is made? From painful experience of millions of people, this answer is also obvious: Not nearly enough. In some case, none, other than claims of the "greatest income opportunity in the world" or "recession proof" and "unlimited income." Actual average incomes, recruiting requirements, dropout rates, market saturation factors, business costs, sources of income, and other data needed for "due diligence" are not disclosed. The MLM "compensation plans" are complex, incomprehensible and misleading. The 99% loss rates among the millions who sign up, along with thousands of complaints, and the consumer lawsuits against MLMs are the obvious evidence that people are not given enough information to make a sound financial decision.  

 

So, which type of "business opportunity" schemes did the U.S. Federal Trade Commission (FTC) specifically exempt when it proposed a consumer protection rule on "business opportunity" solicitations? And which type of company did the FTC exempt from requirements for more financial disclosures when solicitations are made?   

 

That answer is not obvious, unless the factors of Washington politics, government corruption and lobbying by special interests are considered. The answer is: multi-level marketing. The same multi-level marketing that is fleecing millions of consumers, costing the nation billions, offering false income claims and withholding key disclosure facts was the "business opportunity" sector that the FTC singled out to exempt.   

 

When the FTC's "business opportunity" rule was first proposed several years ago, MLMs were clearly and definitely to be covered. The proposal stated, "The proposed Rule would cover those business opportunities currently covered by the Franchise Rule, as well as those not covered by the Franchise Rule, including work-at-home and multilevel marketing programs."  

 

Then, the Direct Selling Association, led by the Amway Corporation, from its K Street offices in Washington DC orchestrated a political lobbying campaign against the consumer protection rule. The campaign included letters from former FTC officials who now hold jobs as MLM lobbyists. The campaign also included gathering thousands of cookie-cutter letters from MLM recruits, claiming they would be harmed. Some of the letters have turned out to be from consumers who did not know what the Rule was about. Some letter-writers now say they did not write the letters. But, the FTC reversed itself and exempted MLMs. 

 

The FTC can still prosecute MLM pyramids under Section 5 of the FTC Act that prohibits "unfair and deceptive trade practices." However, the FTC, since 2000, when an Amway attorney was made chairman of the FTC, has largely avoided such prosecutions. Ever since, MLMs have had virtually a free reign to prey upon consumers. Send for the special report that documents the neglect and corruption of the FTC regarding pyramid scams. 

If this article was helpful, please consider a donation to Pyramid Scheme Alert.   


A European Court Rules: "Herbalife Is an Illegal Pyramid Scheme"    

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There are two icons of MLM that represent all the others of that "industry". They are among the oldest and largest MLMs, and they have spread to most other countries worldwide.  One is Amway. The other is Herbalife.  

 

Herbalife has just been ruled an illegal pyramid scheme by a court in Belgium. A case had been brought against Herbalife in Belgium by a non-profit consumer protection organization.  

 

Previously, Herbalife marketers have been prosecuted in Canada, and Herbalife has been sued by individual distributors in the USA and in class action suits by American consumers who claim Herbalife is an illegal pyramid scheme. 

 

After years of delay in the Belgian courts, a ruling was finally gained: It concludes that Herbalife is exactly what the consumer group claimed it is, an illegal pyramid scheme based on "endless chain" recruiting. Such a plan dooms the vast majority to losses, by its design and deception.   

 

The Belgian court zeroed in on several key points that affect many other MLMs.  

 

1.) It showed that Herbalife is not a direct selling company.  

Herbalife did not offer the court any evidence that it has a base of consumers who buy the products on a retail basis from Herbalife "distributors." In fact, the actual customers, based on evidence, are the Herbalife salespeople themselves. They buy thousands of dollars of products in order to receive promised commissions gained from recruiting other "salespeople." It is theoretically possible to sell Herbalife goods to retail customers for a profit, the court acknowledged, but few salespeople ever do, based on evidence, and the Herbalife pay plan offers much more reward for recruiting than for retailing. 

 

2.) The court also rejected Herbalife's claim (which is also made by many other MLM companies) that its salespeople can be classified as "retail customers."  

The court revealed that Herbalife plays a shell game, depending on whether it is reporting to the SEC and shareholders, arguing to the court, or recruiting consumers, in which sometimes the salespeople are described as "direct sellers" or "distributors" and at other times as "customers." Clearly, both cannot be true at the same time. Salespeople pay fees, sign legally binding contracts that define them as "contractors," and are offered rewards based on recruiting.   

 

Herbalife's "direct selling" disguise and the deceptive shell game of "find the customer" were both rejected by the court, which concluded in plain language that Herbalife rewards consumer investors for recruiting other consumer investors and the rewards are based upon an unsustainable and "dishonest" system of endless recruiting.   

 

Despite this ruling in Belgium (which took 7 years to litigate) and despite previous  class action suits brought by American consumers in which Herbalife paid millions to settle, the Federal Trade Commission (FTC) in America, where Herbalife is based, has taken no law enforcement action against the scheme in recent years.  

 

If this article was helpful, please consider making a donation to Pyramid Scheme Alert.  

Binding Arbitration Rule Blocks...
Consumer Lawsuit in Canada against Amway      

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Few consumers read the full contract of any MLM when they sign up as salespeople (a.k.a. IBO, coach, distributor, supervisor, associate, etc.) Often the recruitment is done at emotional, large-scale rallies or in the privacy of homes of friends or relatives. Reading the MLM contract's fine print in either setting is impractical. In any event, all MLM contracts are "take it or leave it" propositions. A recruit cannot change the terms.

 

 Yet, buried in these contracts is a key clause in which the recruits unwittingly sign away all personal rights to sue in court if they are harmed or deceived.   

 

Recently, a court in Canada ruled that Amway salespeople who claim they are victims of Amway's deception and pyramid scheme cannot go to court as a group to prove their case or seek restitution. The court said they must - one by one - make their cases through Amway's own arbitration process. The thousands who are affected, the court ruled, had each signed the Amway contract that prohibits a class action.

 

The consumers' argue that Amway deceived them with a false "average income" claim and by not revealing that they would all have to participate in an "endless chain" of recruitment in order to earn any profit, which would doom the majority to always be at the bottom. They offered statistical and mathematical reports to back their claim and the report of a Canadian marketing expert and academic who dissected Amway's program and concluded it was a disguised pyramid scheme. 

 

But these claims may never see a day in court due to Amway's use of the "binding arbitration" clause that prohibits going to court.  

 

Attorneys representing the consumers say they will appeal the decision.

 

If this article was helpful, please consider making a donation to Pyramid Scheme Alert. 

The Last Lawsuits?

Current Consumer Class Action Suits Against MLMs Could Be the Last       

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Two important class action lawsuits brought by consumers against large multi-level marketing schemes could be the last chances any US consumers get in court against MLMs. "Binding arbitration" clauses used by most MLMs are blocking consumers from getting a day in court.  And now the US Supreme Court (5/4 decision) has given new power to MLMs and other large businesses to block a consumer's right to sue against fraud.   

 

The two current MLM lawsuits in the USA are against the MLMs - Amway and Stream/Ignite. Both lawsuits argue that these schemes are illegal pyramids (endless chain recruitment scams), which cause massive losses among consumers who are lured into signing up. After delaying the case four-years by claiming the consumers had no right to sue (due to binding arbitration), Amway offered to pay $150 million to settle the case. A Federal judge is now reviewing a revised settlement agreement.  

 

These two lawsuits were able to move forward, despite the binding arbitration clauses used by both companies, only because attorneys for the consumers were successful in showing that the "binding arbitration" clauses on those contracts were flawed (illusory, unenforceable, unfair). And in both cases, overcoming the binding arbitration blockade by the MLMs took extraordinary effort, time and cost (four years in the Amway case!)  

 

Now a Supreme Court ruling in a related case supports the "binding arbitration" strategy of big businesses like MLMs, banks, credit card and telephone companies. Most MLMs, seeing how Amway's and Stream's contracts had allowed class action cases to proceed, will make repairs to their own contracts. More importantly, now they will also be able to cite the Supreme Court ruling to block consumer complaints of fraud.

 

The net effect may be that these two cases - Amway and Stream/Ignite - may the last in a while for consumers to seek restitution from any MLM schemes. Some analysts believe the prohibition against consumers seeking justice will not stand and that recourse will eventually be restored. But, as it appears now, an individual consumer will not be able to go to court nor can consumers seek justice as a group when they are defrauded by MLM charlatans.    

 

The Perfect Scam?

The scenario of a perfect Main Street fraud now begins to take form, that is, by swindling a million ordinary people out of a thousand dollars (or some relatively small amount) each, rather than the classic Wall Street rip-off of stealing a billion dollars from a much smaller number of wealthy people.  

 

The Main Street pyramid scheme had already achieved great sophistication in deception and disguise. It had also amassed significant political/lobbying power to corrupt federal regulators. Now, it is gaining immunity from justice in the court system.   

 

Status of the Stream/Ignite Case

One of the two remaining class action lawsuits, the case against the MLM, Stream/Ignite, is moving toward a trial. Stream/Ignite is among a new breed of MLM companies that claim to sell "energy" to consumers in several states (including Georgia and Texas) that have "de-regulated" energy (gas or electricity) .  

 

Here's the catch. Ignite, which is the MLM sales organization for Stream, charges consumers hundreds of dollars for the right to sell its energy products and a monthly fee to use the sales-related website, plus other costs. It then offers bonuses when the new salesperson signs up other salespeople (the salespeople are also "customers"). Each salesperson does need a few actual retail customers also to remain qualified. But earning money just from retailing would be virtually impossible and the average salesperson has only a few "customers". The rewards offered on selling to retail customers are only pennies per month, whereas hundreds of dollars are promised for bringing in salespeople.Those at the top are promised rewards to "infinity" as the chain is extended.   

 

If this article was helpful, please consider making a donation to Pyramid Scheme Alert.  

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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