Pyramid-scheme bill deserves veto
1. The purpose of the bill was misrepresented by its sponsors and promoter, the Direct Selling Association, which is dominated by the multi-level marketing industry and seeks to weaken laws against pyramid schemes. DSA membership has included Equinox and Trek Alliance, found by the Federal Trade Commission to be pyramid schemes.
The DSA claims SB182 will strengthen law enforcement in protecting consumers against the worst scams. The opposite is true. SB182 removes protection against product-based (MLM) schemes that do the most harm. Four investigations have shown that 99 percent of participants in these programs lose money, after subtracting necessary purchases.
In fact, tax studies show the odds of profiting are much greater at Nevada's gaming tables than in these MLMs — Utah's version of legalized gambling.
Apparently, the real purpose of SB182 is to exempt MLMs like PrePaid Legal, Amway/Quixtar, and Nu Skin from prosecution as illegal pyramid schemes. This exemption would apply even where no real customer base is established and compensation comes primarily from building a downline — which makes an MLM illegal in most other states.
3. In the hearing, DSA's Misty Fallock misrepresented the position of the FTC, claiming the agency considers compensation paid on purchases by participants in the plan to be "perfectly legal and not within the definition of a pyramid scheme." Wrong. In the case of Equinox, which was shut down by the cooperative efforts of the FTC and eight states, FTC investigators made clear that "sale of products or services to ultimate users does not include sale to other participants or recruits in the multilevel marketing program or to participants' own accounts."
4. Enforcement against chain- or pyramid-selling schemes in Utah is weak. In fact, Utah has the highest per-capita sponsorship of such schemes in the country, thus Utah's reputation as the "scam capital of the world." This is partly due to victims themselves, who almost never file complaints with law enforcement, even if they have lost thousands of dollars. They fear consequences to friends and family they recruited or who recruited them — to say nothing of self-blame and self-incrimination. Effective enforcement requires a more proactive strategy not dependent on victims going public — like child abuse. However, with SB182, law enforcement is "off the hook." SB182 changes the law to accommodate the abuse, rather than containing the abuse to meet the law.
Recent comments
Thank you for the heads up. I sure hope Governor Huntsman veto's…
Jared | March 20, 2008 at 2:10 p.m.
