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"I
applaud the dead-on accuracy of your analysis." —Manuel
de Los Rios
"Your
logical questions and objective research are exactly what is needed in this
industry." —Donna
Horowitz |
1.
Utah’s
Amended Pyramid Scheme Act – initiated by the Direct Selling Association
in the 2006 Utah Legislature –
allows for the worst abuses.
On July 1, a bill (SB182) went into effect that permits anyone to start a
pyramid scheme, make millions, and get away with it. Of course, founders
must live with leaving behind thousands of victims. And they must offer
consumable products, even though direct sales to legitimate customers are
not required. A person can sell exclusively to an endless chain of
downline participants, so long as sales are in the form of goods or services
“for actual use or consumption.”
The problem with these chain-selling schemes
(network or multi-level marketing, or “MLM” for short) is that they
reward a handful of people at the top of a pyramid at the expense of
thousands of downline recruits, 99% of whom lose money. This is proven
by four recent research studies. To read these, go to – http://www.mlm-thetruth.com/mlm_research.htm.
Utah leads
the nation in participation in and sponsorship of MLM programs – costing
hundreds of thousands of victims billions of dollars every year. But in
legislative committee hearings on the bill, statistics on victims were
ignored when the bill’s sponsors pointed out that Utah’s “direct
sales” (MLM) industry brings in four times as much income as the ski
industry.
2.
How the DSA/MLM lobby influenced the hearings on the bill
In both Senate and House hearings, it was clear
that legislators lacked the time to review research that should have led to
the defeat of the bill. Instead, they relied on testimony by Attorney
General Mark Shurtleff, who claimed the bill retained protection against
the “really bad schemes” that offer no legitimate products. Obviously,
he had not read any of the research that shows that the most damaging
pyramid schemes in terms of participant losses are those with products for
sale – even very good products. And Mr. Shurtleff failed to disclose
that his top corporate campaign contributors were companies protected by the
bill – one of whom, Pre-Paid Legal (which at least one judge, among a
spate of class actions, accepted the plaintiff's argument that it is an
illegal pyramid scheme) donated $50,000!
For more information about how this incredible
legislation came to pass, read the page "The
DSA duped Utah's top law enforcement officials, legislators, and Governor
Huntsman into legalizing product-based pyramid schemes."
For a clear explanation of the new amendments and its effects, read "How
SB 182 weakens Utah’s Pyramid Scheme Act"
(below).
Based
on extensive research, when five red flags
appear in an MLM pay plan, analysis of the companies’ own financial
reports reveals that approximately 99.9% of participants lose money.
One’s odds of profiting from a single roll of
the dice at craps in Las Vegas are many times as great as from enrolling in
one of these programs.
All but one of over 20 Utah-based MLM programs have
all five red flags in their compensation plans! No wonder the Direct
Selling Association, which is dominated by the MLM industry, lobbied
aggressively for the bill. So MLM programs that (until July 1) were
vulnerable to prosecution are now in the clear. And the Division of Consumer
Protection, which has been criticized for being so passive on enforcement of
the Pyramid Scheme Act, is off the hook. 3.
Utah's Division of Consumer Protection offers little or no consumer protection
against the greatest consumer fraud in the state.
When challenged on this issue, former DCP Director
Francine Giani responded that there have not been sufficient complaints to
justify action. But victims of chain selling or MLM schemes rarely file
formal complaints, blaming themselves for their “failure,” and
fearing self-incrimination or consequences from or to their upline or
downline, which often includes close friends or relatives still in the
chain. The silence of victims of such schemes is further explained in the
article by Dr. Jon Taylor: "Top
Ten things I Learned in Ten Years' Research on MLM/Network Marketing."
In other words, the Division of Consumer
Protection is in reality the Division of Consumer Complaints. Consumers are
led to believe that they have consumer protection when in fact they have
little or none. Careful review of financial statements of prominent Utah MLM
companies suggests that losses from these programs easily eclipse all other
scams combined. Yet consumers are given no protection against them. 4.
So where does a consumer go for advice when approached by an MLM recruiter?
So – if not the Division of Consumer Protection
– where does a consumer go for advice when approached by an MLM recruiter?
Forget the Better Business Bureau; most MLM’s are members, and they are
careful about offending them. They also report only unresolved complaints
– which are seldom filed by MLM victims. And the Federal Trade Commission
rarely takes action, unless there is a massive outcry of complaints.
The best place for independent and reliable
information on this issue is the Internet – so you have come to the right
place. From the home page on this site
you are linked to several research studies and other web sites that will
provide an abundance of information for making an intelligent decision.
Also, you will find “do-it-yourself”
evaluation pages for determining if the MLM you are considering is
likely to result in your losing money. And if you really want to earn a
legitimate independent income, read the article (and associated links) – “1,357
Ways to Make a LOT More Money than in MLM/Network Marketing.”
5.
The specifics of how SB 182 weakens Utah’s Pyramid
Scheme Act
Until
July 1, 2006, Pyramid Scheme Act (Title 76) specified that in a pyramid
scheme, “a person gives consideration to another person in exchange for
compensation or the right to receive compensation which is derived primarily
from the introduction of other persons into the sales device or plan rather
than from the sale of goods, services, or other property.”
This suggests that if
compensation is derived from sales that are primarily to downline
participants recruited into the scheme and not from legitimate retail sales
by the participants to end users (actual customers), it is an illegal
pyramid scheme.
SB
182 turns that language around by specifying: “‘Compensation’ does not
include payment based on the sale of goods or services to anyone
purchasing the goods or services for
actual personal use or consumption.
This means that the newly recruited participants can be induced or
incentivized to buy the goods without ever having to resell them to
legitimate customers outside the network of participants.
Under this wording, the workings of a product-based
pyramid are magically legalized. The purchase of goods and payments of fees
serve as “Consideration” that the participants pay for joining. For
making these payments, the participant gains “the right to receive
compensation which is derived primarily from the introduction of other
persons into the sales device.” Based
on the recruitment of new participants and their subsequent purchase of
goods and services to “play the game,” the recruiter is compensated with
commissions and bonuses. No real customer base is established. Recruitment
of an endless chain of buyers who enrich only the persons at the top of the
pyramid of participants is now permitted.
These “incentivized” sales to newly recruited participants
are the engine that drives the schemes. The scheme can be a closed system at
fixed prices in which the currency for joining and the compensation paid out
for recruiting are based primarily on the participants’ own purchases of
the scheme’s products.
This kind of scheme violated Utah’s Pyramid
Scheme Act until July 1, 2006, but is “perfectly legal” with the
amendments in SB 182 after July 1. The change actually facilitates the
harmful consequences that the existing law sought to prevent, i.e., the
losses suffered by 99% of the participants who are doomed – by the
scheme’s design – to lose money. |