An Open Letter to Congress on H.R. 5230

May 23rd, 2016

This is a guest blog by William Keep, Ph.D. who is the dean of the business school of The College of New Jersey and an expert consultant on multi-level marketing issues. 

Dear Member of Congress:

Before acting on H.R. 5230 I urge you to consider the following factual points about pyramid schemes. Each point below can be documented and the evidence dates back decades. As an educator and expert witness, I have taught business courses to undergraduate and graduate students, and assisted government prosecutors in closing pyramid schemes. I believe that successful businesses are vital to our nation’s economic and social well being, and that entrepreneurs energize and revitalize local and even global economies. I also have seen the grave damage caused by pyramid schemes.

Here is what can be documented about pyramid schemes:

  • They do great financial and social harm, involving tens and even hundreds of thousand of victims, many millions of dollars, and drive emotional wedges between friends and family members.
  • They must use fraud to grow and sustain the scheme. The fraud is perpetrated through face-to-face communications, earnings claims and other company-generated documents and websites. The lack of independent, publicly available information about the opportunity prevents verification and permits overt and covert misrepresentations.
  • They can last for many years – in two recent cases (Fortune Hi-Tech Marketing and Vemma) the companies operated for ten years before FTC action.
  • They are recruitment driven and lack what the BurnLounge court called “consumer demand” and what the Vemma court called “customers” outside of recruitment-based purchasing.
  • They use recruitment-based product purchases and/or fees to generate the funds that compensate upline distributors, whose financial rewards hinge on sustaining a cycle of ongoing recruitment.

Here is what can be documented about the prosecution of product-based pyramid schemes:

  • After Amway ’79, every multilevel marketing (MLM) company that faced a formal FTC pyramid scheme charge has either ceased operations in the face of litigation or lost in court after a trial on the merits.
  • Courts have roundly criticized experts defending MLM companies in FTC cases as being ineffective and unable to defend the business model as practiced.
  • Completed cases take many years, absorbing significant FTC resources and yet always reaching the same conclusion.
  • Individual members of the Direct Selling Association (DSA) have actively defended MLM companies prosecuted by the FTC, including cases where the court subsequently found the company to be a pyramid scheme.
  • Company members of the DSA have closed their operations in the face of FTC action.

Here is why H.R. 5230 (the Bill) will reverse decades of case law and essentially protect product-based pyramid schemes from prosecution:

  • The Bill eliminates the purpose of direct selling as a form of retailing by removing the need for customers external to the recruitment process. MLM representatives can simply sell the idea of joining an income opportunity, as opposed to actually operating their own retail business.
  • The Bill implicitly recognizes the MLM parent company as the sole seller in the business model, as a churning base of recruits—the financial life of the company—purchase directly from the parent company.
  • The Bill reverses the precedent of the 1979 Amway safeguards, company policies seeking to ensure retail sales by distributors to customers outside of the distribution network.
  • The Bill codifies permission for purchase and recruiting behaviors the courts have already identified as endemic to illegal pyramid schemes.

Industry-sponsored bills have long been part of our federal legislative process. However, the MLM industry and DSA have published statements that undercut their legitimacy in this regard. Admitting publicly to the existence and harm of pyramid schemes, the industry has nonetheless long resisted regulatory oversight. Despite recognizing that pyramid schemes can effectively disguise themselves as legal MLM companies, via this Bill the DSA supports efforts to make identifying pyramid schemes even less likely. Rather than seeking clarity, fear of greater transparency appears to be driving the industry to sponsor and support H.R. 5230. I urge you to stop H.R. 5230 from becoming law.

My opinions are independent, based on my own research and experiences. Except for a current pyramid scheme prosecution that I am assisting, I have no financial ties to any individual or organization that criticizes or supports the MLM industry or any MLM company.

Sincerely,

William W. Keep, PhD
Dean, School of Business
The College of New Jersey

The views, opinions, and positions expressed in this blog post do not necessarily reflect the views, opinions, and positions of TINA.org.

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The Direct Selling Association (DSA) is a national trade association for direct selling companies that primarily use multi-level marketing compensation plans.

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One Response to An Open Letter to Congress on H.R. 5230

  1. Ken K. says:

    º0³ Δ∞8Melaleuca CEO Frank VanderSloot Denies to Lead a MLM Company –

    ” It is my belief, “Frank VanderSloot’s Melaleuca inc., is a illegal pyramid scheme.I’m calling on our federal government for unbiased judicial review and protections, ‘ Summary of penalties sanctions and terminations actions as well as new consumer protection laws. (250m500m+)=(claimed.cc? (cozyAG) Δ∞8https://www.google.com/search?q==malfeasance? Yes, As I See It!

    Here’s what Melaleuca is AS I SEE IT!

    If participants must recruit and buy products to be successful, or if the pay plan’s primary rewards are for building a downline, it should be considered a recruitment-driven MLM, and hence an illegal pyramid scheme. √≡ Melaleuca “NoRecruitNoPay™

    √Recruitment-driven MLM – an MLM with a compensation plan that rewards primarily distributors who recruit huge downlines, and is therefore a product-based pyramid scheme. Updates blogged here ~>https://kenklocke.wordpress.com/ My motivation? (1)Consumer Protection.

    (2) Common law. (3)Constitutional law. (4) A Reckoning.

    kenklocke@gmail.com “confidential” #NoRecruitNoPay™ #FearNoMore™ “The Billion Dollar Question Remains? How Do They Get Away With It?” ~KK #ObamaAdministrationCabinet KK© 2015 All Rights Reserved
    Update added by user Apr 27, 2015
    I coined “Melaleuca’s” compensation scheme –

    (RBI™) Recruiting Based Income.(RBIs™) only pay for recruiting and/or helping recruit.

    Only with recruiting can you potentially be paid on your “MLM.downline group.” “Limited pay on personals, caps apply w/o pandering/recruiting. “Sick huh?

    Hence [NoRecruitNoPay™] Keep in mind my business was a $2’000’000 + annual business…and, I’m sure it still is!
    Now, what a (RBI™) plan pays you w/o recruiting is your-

    (TRI™)True Residual Income.

    I was part of Melaleuca, Inc. for sixteen years – a few of those years actually weren’t all that bad. However, things became very sketchy… . (Meaning: It’s A Mess) & it’s a “DECEPTIVE MLM PYRAMID SCHEME MESS”
    *ºº https://www.google.com/search

    “In 1991 Melaleuca received a cease-and-desist order for violating Michigan’s anti-pyramid scheme laws. https://www.google.com/search….
    *ºº https://www.google.com/search?q=melaleuca+deception

    Google_ Melaleuca politics, scams, frivolous lawsuits, discrimination concerns… lies about not being MLM/ Multilevel-Marketing, Melaleuca’s, cancellation problems and complaints.

    Don’t be a fool like me… research every detail of this _MLM_SCHEME.

    Goodluck, you’ll need it. #KK

    PS. NO DUE PROCESS/ I was terminated/ after 16 years of service – with a phone call by- Alan Pariser -Melaleuca’s top, Outfited/ MLM/ Shill… Then I was threatened, if I exposed the perpetrator- “alan pariser” and/or his company, Melaleuca, Inc. would put a restraining order against me! #GoSellYourRacket #DOJ #DSA

    *ºº https://www.google.com/search
    *ºº https://www.google.com/search… 04.01.16 2:09p
    *ºº http://melaleuca.pissedconsumer.com/
    *ºº http://awumoms.com/sample/index_en.php (AWU/ persented by` Alan D. Pariser)
    *ºº https://www.google.com/search?q=alan+pariser

    ~*~ https://en.wikipedia.org/…/First_Amendment_to_the…

    Ken Klocke “Grounded_Thesis” Copyright KK© All Rights Reserved. ~e~™ http://ic3.gov Terminated by a shameless *Mela_shillº “messenger”

    *ºº https://www.google.com/search?q==senate+vote+on+yelp+reviews
    *ºº https://www.google.com/search
    *ºº http://www.motherjones.com/…/mother-jones-vandersloot…
    *ºº https://www.google.com/search?q=combative+bitter+foe
    impetus~*~ https://en.wikipedia.org/wiki/Common_law

    https://www.google.com/search
    Melaleuca *convenience *certificates? or convenient ripoff? – Ken Klocke ~e
    https://kenklocke.wordpress.com/…/melaleuca-convenience…..

    “The truth is incontrovertible. Malice may attack it, ignorance may deride it, but in the end, there it is.” – Winston Churchill

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