"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.
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.
|