The WatchDog (including reporters) has fought for years to shut down pyramids. The Equinox battle took over 4 years of publishing and spending hundreds of hours helping people file complaints with both state and federal authorities. 2XP (2 Extreme Performance) was another one that consumed hundreds of hours and nothing was done until the scam was dead. Global Prosperity ran for years and years (Aussie 2up I don't consider MLM just a scam) but it would have been covered by the buy back requirements. There are hundreds hours I spent on the phone pushing regulators and helping people file complaints to shut down scams. H.R. 1220 below would have helped immensely in all cases. My favorite part of H.R. 1220 is that if someone wants their money back in the first year they should get it back. Any good company with good products or services will not mind doing this. Reasonable amounts of purchase of product can be looked at as less than $500 since 22 or more states have business opportunity laws that require heavy paperwork, documentation and bonds to go over that amount. My favorite law (not proposed yet) would be to make me MLM czar and let me shut down scam companies disguised as MLM programs! Seriously we have to do something to speed up the process on stopping scams.
YOUR COMPANY -- WHATS WRONG NOW!
The FTC walked in and took over YOUR COMPANY -- a great MLM Company! They froze their accounts and shut the doors. The FTC in getting a restraining order against YOUR COMPANY quoted precedent law (law established in prior cases) from the 1999 2Xtreme/Jewelway shutdown and final judgement. YOUR COMPANY was in violation of that precedent (established by court case law) because they did not have (1) over 50% were customers that were NON-Participants in the pay plan.
The FTC also quoted the 2Extreme case (case law again) to show that the (2) company requiring autoship by participants was evidence of a Pyramid scheme. The FTC also went on to say that the (3) compensation plan monthly minimum purchase requirements were evidence of inventory loading and a Pyramid Scheme so clearly since this was prominent in YOUR COMPANY compensation plan that -- it was a pyramid scheme (once again determined by past case law precedent).
The Judge in the Federal Central District Court (who doesn't like MLM companies) agreed with 3 issues presented and verified by precedent case law and issued the Temporary Restraining and seizure orders against YOUR COMPANY. This allowed the FTC to shut the doors of YOUR COMPANY!
Ed. Note: This article is an example of what can and may happen! You need to get hot supporting HR 1220 below! The way the FTC has been approaching the MLM Industry is poor stewardship. They won't lay out any ground rules when asked. When governments (and their agencies) start doing that they are going down the road to dictatorship. Not that I have any big grief with anything the FTC has done so far except they are slow in shutting down real scams. The future is unknown with the bad precedents that the FTC keeps using to shut down scams. Use the link at the very bottom of this proposed bill to contact your congressman!!!!!!! 911! Ask them to Co-Sponsor the bill.
THAT IS WHY WE NEED THE FOLLOWING
Anti-Pyramid Promotional Scheme Act of 2003 (Introduced in House)
HR 1220 IH
108th CONGRESS OF THE UNITED STATES
H. R. 1220
To prohibit pyramid promotional schemes, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
March 12, 2003
Mr. BARTON of Texas (for himself, Mr. HALL, Mr. FROST, Mrs. MYRICK, Mr. ENGLISH, Ms. PRYCE of Ohio, Mr. SESSIONS, Mr. TIBERI, and Mr. EHLERS) introduced the following bill; which was referred to the Committee on Energy and Commerce
To prohibit pyramid promotional schemes, and for other purposes.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the `Anti-Pyramid Promotional Scheme Act of 2003'.
SEC. 2. FINDINGS.
The Congress finds the following:
(1) Pyramid promotional schemes, chain letters, and related schemes are enterprises--
(A) that finance returns to participants through sums taken from newly attracted participants; (B) in which new participants are promised large returns for their investments; and (C) involve unfair and deceptive sales tactics, and lead to the victimization of unwitting individuals.
(2) Pyramid promotional schemes, chain letters, and related schemes constitute a threat in interstate commerce and to the financial well-being of the citizens of the United States.
(3) The advent of the global Internet makes pyramid promotional schemes international threats.
(4) The Ninth Circuit Court of Appeals erred in defining a pyramid promotional scheme in Webster v. Omnitrition Int'l, Inc. (79 F.3d 776; 9th Cir. 1996).
SEC. 3. DEFINITIONS.
In this Act:
(1) APPROPRIATE INVENTORY REPURCHASE PROGRAM- The term `appropriate inventory repurchase program' means a program by which a plan or operation repurchases, upon request at the termination of a participant's business relationship with the plan or operation and based upon commercially reasonable terms, current and marketable inventory purchased and maintained by the participant for resale, use, or consumption, and such plan or operation clearly describes the program in its recruiting literature, sales manual, or contracts with participants, including the manner in which the repurchase is exercised, and disclosure of any inventory that is not eligible for repurchase under the program.
(2) COMMERCIALLY REASONABLE TERMS- The term `commercially reasonable terms' means the repurchase of current and marketable inventory within 12 months from date of purchase at not less than 90 percent of the original net cost to the participant, less appropriate set-offs and legal claims,if any. In the case of service products, the repurchase of such service products must be on a pro rata basis (unless clearly disclosed otherwise to the participant) to be within the meaning of `commercially reasonable terms'.
(3) COMPENSATION- The term `compensation' means a payment of any money, thing of value, or financial benefit.
(4) CONSIDERATION- The term `consideration' means the payment of cash or the purchase of goods, services, or intangible property, and does not include--
(A) the purchase of goods or services furnished at cost to be used in making sales and not for resale; or
(B) time and effort spent in pursuit of sales or recruiting activities.
(5) CURRENT AND MARKETABLE-
(A) The term `current and marketable' includes inventory that--
(i) in the case of consumable or durable goods, is unopened, unused, and within its commercially reasonable use or shelf-life period; and
(ii) in the case of services and intangible property, including Internet sites, represents the unexpired portion of any contract or agreement.
(B) The term `current and marketable' does not include inventory that has been clearly described to the participant prior to purchase as seasonal, discontinued, or special promotion products not subject to the plan or operation's inventory repurchase program.
(6) INVENTORY- The term `inventory' includes both goods and services, including company-produced promotional materials, sales aids, and sales kits that the plan or operation requires independent salespersons to purchase.
(7) INVENTORY LOADING- The term `inventory loading' means that the plan or operation requires or encourages its independent salespersons to purchase inventory in an amount that unreasonably exceeds that which the salesperson can expect to resell for ultimate consumption, or to use or consume, in a reasonable time period.
(8) PARTICIPANT- The term `participant' means a person who joins a plan or operation.
(9) PERSON- The term `person' means an individual, a corporation, a partnership, or any association or unincorporated organization.
(10) PROMOTE- The term `promote' means to contrive, prepare, establish, plan, operate, advertise, or to otherwise induce or attempt to induce another person to be a participant.
(11) PYRAMID PROMOTIONAL SCHEME- The term `pyramid promotional scheme' means any plan or operation in which a participant gives consideration for the right to receive compensation that is derived primarily from the recruitment of other persons as participants in the plan or operation, rather than from the sales of goods, services, or intangible property to participants or by participants to others.
SEC. 4. RULES TO PROHIBIT OPERATING PYRAMID PROMOTIONAL SCHEME.
(a) IN GENERAL- Not later than 1 year after the date of the enactment of this Act, the Federal Trade Commission shall promulgate a rule under section 18(a) of the Federal Trade Commission Act (15 U.S.C. 57a(a)) providing that it shall be an unfair or deceptive act or practice under section 5 of such Act (15 U.S.C. 45) for any person, by the use of any means or instrumentality of transportation or communication in interstate or foreign commerce, to promote, offer, sell, or attempt to sell a participation or the right to participate in a pyramid promotional scheme.
(b) LIMITATION- Nothing in this Act or in the rule to be promulgated pursuant to this section shall be construed to prohibit a plan or operation, or to define such plan or operation as a `pyramid promotional scheme', based upon the fact that participants in the plan or operation give consideration in return for the right to receive compensation based upon purchases of goods, services, or intangible property by participants for personal use, consumption, or resale, and the plan or operation does not promote inventory loading and implements an appropriate inventory repurchase program.
SEC. 5. STATE ENFORCEMENT.
(a) ACTIONS UNDER STATE LAW- Nothing in this Act or the Federal Trade Commission Act prohibits an authorized State official from proceeding in State court on the basis of an alleged violation of any civil or criminal statute of such State.
(b) ACTIONS UNDER FEDERAL LAW- The attorney general of any State or territory of the United States may, upon finding any person is engaged or is about to engage in any act or practice that constitutes a pyramid promotional scheme in violation of the rule promulgated under section 4, bring an action in the appropriate district court of the United States to enjoin such act or practice and to obtain other appropriate relief. The attorney general of a State or territory of the United States may seek such relief on behalf of residents of such State or territory, and an authorized Federal official may seek such relief on behalf of residents of all such States and territories. Such court may grant a temporary restraining order, or a preliminary or permanent injunction, or other appropriate relief.
SEC. 6. NO LIMITATION ON OTHER FEDERAL CLAIMS.
Nothing in this Act or the rule promulgated under it shall limit the authority of any Federal official from proceeding against pyramid promotional schemes for other violations of Federal law.
Editors notes: This law aimed at stopping pyramid schemes and defining good MLM companies is a great step forward. Versions of it have been passed on the state level to slow down pyramid scheme activities. At the same time it helps define real MLM companies. Your Editor is death on pyramid schemes for two major reasons (1) The last in are sure to lose their money in a pyramid scheme (2) Pyramid schemes steal opportunity seakers from good MLM companies.
PLEASE CONTACT YOUR LOCAL REPRESENATIVE AND ASK THEM TO CO-SPONSOR THIS BILL!