Congress set to make some “illegal pyramid schemes” legal.

Pyramid Scheme Promotion amendment added to Congressional Bill. If passed, could hurt Direct Selling companies, distributors and consumers.

The Moolenaar Amendment could lead to a decline in the number of “customer-driven” Direct Selling companies — which could jeopardize the future of the Direct Selling channel.

Many Direct Selling companies, leaders and advocates strongly oppose the current version of the Moolenaar Amendment. Consumer groups have also called on the House to oppose the Moolenaar pyramid scheme promotion amendment. (To view National Consumer League opposition, click here)

This amendment would rob the Federal Trade Commission of its ability to protect consumers from all but the most egregiously fraudulent pyramid schemes.

This amendment is problematic for a number of reasons:

  • First, it eliminates the need for direct selling companies to establish their product with a retail customer base other than distributors themselves. It relieves distributors of any responsibility to sell to retail customers, other than those that they recruit to pursue the business opportunity, who in turn recruit others for the purpose. This would relieve direct selling businesses of the need to operate a viable retail business, as opposed to a fraudulent or deceptive recruitment scheme. (iii)
  • Second, it allows direct selling companies to profit off a churning base of recruits who are incentivized and often required to continually repurchase product directly from the company in order to qualify for rewards, rather than meeting legitimate retail demand for the product or service on offer.
  • Third, it eliminates anti-pyramiding safeguards established in prior case law to ensure that the direct selling company successfully demonstrates its distributors’ emphasis on legitimate retail customers.
  • Finally, it gives fraudulent or deceptive MLMs permission to engage in purchase and recruiting behaviors that the courts have already identified as endemic to illegal pyramid schemes. Recent actions by the FTC and SEC demonstrate the ongoing risk.

The ability of the FTC to prosecute fraudulent or deceptive pyramid schemes posing as legitimate multi-level marketing business opportunities is crucial.

Unfortunately, instead of empowering the FTC to protect consumers, the Moolenaar amendment would blur the line between legitimate business opportunities and illegal pyramid schemes.

The courts have consistently stated that the critical difference between a legitimate MLM business and a pyramid scheme is that a MLM’s revenues must come primarily from the sale of products and services to retail customers unaffiliated with the business opportunity.

  • Consumer groups call on House to oppose pyramid scheme promotion amendment: Click to read.
  • DSA President’s opinion piece on The Hill; completely ignores lack of emphasis on customers in Moolenaar Amendment. Click to read.
  • FTC Commissioner Terrell McSweeny: “Congress should crack down on predatory ‘pyramid schemes,’ not look away.” Click to read.
  • “What the FTC requires of MLMs is simple: make truthful representations and be built on real sales to real people.” — @TMcSweenyFTC
  • The Hill: Pyramid schemes want immunity from the feds — here’s why. Click to read
  • DSA: Currently no statutory definition of a Pyramid Scheme exists in federal law. Click to read. Yet neither Moolenaar Amendment nor HR3409 make adequate distinction between pyramid schemes and pure internal consumption companies by not addressing “real sales to real customers” as part of the definition. Not good enough.
  • The Moolenaar Amendment: Why is the DSA pushing pro-pyramid law? Click to read. “There is no distinction between a pyramid scheme and an MLM company without retail sales taking place and generating commissionable revenue. Just imagine, MLM companies operating with little to no retail sales activity with full impunity from the law. That’s a disgraceful enough proposal on its own. That the Direct Selling Association is advocating it? How about the DSA stop soley representing the interests of company owners paying their bills and try representing the best interests of the Direct Selling industry for a change?”

Direct Selling Report

The DIRECT SELLING REPORT is a news aggregator for the Direct Selling channel. This includes Social Selling, Social Commerce, Party Plan, Network Marketing, MLM, etc.

Direct Selling Report

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The DIRECT SELLING REPORT is a news aggregator site for Direct Selling (Social Selling, Social Marketing, Party Plan, Network Marketing, MLM)

Direct Selling Report

The DIRECT SELLING REPORT is a news aggregator for the Direct Selling channel. This includes Social Selling, Social Commerce, Party Plan, Network Marketing, MLM, etc.