AvidA
March 9th, 2006, 03:13 PM
Here is another interesting article. The fact that Kim is selling advertising to all his investors may make it hard to prosecute...
City Week - March 9, 2006
On the (Multi) Level
Utah multilevel marketers make sure lawmakers got their back.
by Ted McDonough
e-mail a link to this article
Jon Taylor got burned by a multilevel marketing company in the 1990s. So he’s spent the last 10 years warning the world against one of Utah’s largest industries.
It’s been a losing battle.
In the legislative session that just ended, Taylor’s Consumer Awareness Institute was the lone voice against modifications to Utah’s Pyramid Scheme Act sought by multilevel marketer Nu Skin and the Direct Selling Association, DSA, the multilevel marketing industry’s national lobbying group. If signed by Gov. Jon Huntsman Jr., the new law will exempt companies from prosecution under the state pyramid-scheme law if pyramid-like pay-outs are backed up by the sale of products or services.
Before the 2006 session, Utah’s law said any setup where payouts were based primarily on recruiting other participants were pyramid schemes. The new version makes it clear that payouts for selling products to new recruits don’t count.
“This makes it official,” complained Taylor, a Bountiful resident. “We’re already the scam capital of the country. Now, we’re accepting it by law.”
In the classic pyramid scheme, participants invest money in order to receive kickback payments from future participants. Nothing is bought or sold. Payment is based entirely on the numbers of other people recruited into the network.
Robert FitzPatrick, who criticized the proposed modifications to Utah law from his North Carolina-based Pyramid Scheme Alert, alleges many Utah multilevel marketing companies are simply pyramid schemes pretending to sell products. In reality, the only people who buy the products are the salespeople themselves. And those salespeople aren’t buying the products in order to resell them at a mark up. Rather, they make purchases just so they can collect promised commissions on sales made by future recruits.
Very few of the products sold by such companies are ever purchased by anyone outside of the company, FitzPatrick claims, and nearly everyone involved loses money—except those at the top.
“The essence of the pyramid is still present fully,” he said. “It has simply been disguised a little bit in the guise of a sales company. If the money is coming ultimately from the new sales people and not from customers, you’re dealing with a simple, endless chain pyramid scheme.”
The law passed in Utah is similar to amendments DSA has passed in Idaho, North Dakota, South Dakota, Texas, Louisiana, Oklahoma, Maryland, Kentucky and New Mexico.
It’s part of what FitzPatrick sees as a changing regulatory climate as multilevel marketing gains increasing acceptance.
Rep. Mike Noel, R-Kanab, who sponsored the Utah law change in the House, said he first introduced the DSA bill last year at the behest of a multilevel company that has brought hundreds of jobs to his district. In his youth, Noel once sold for a multilevel, but soon quit, losing only the price of his initial starter kit. It wasn’t for him, but supporting Utah multilevels in the Legislature was a no-brainer. “It’s a pretty significant business in the state of Utah,” he said.
Nu Skin referred questions to the DSA. Joseph Mariano, executive vice president and legal counsel of the DSA, said the change to Utah law will help consumers and law enforcement better distinguish between pyramid schemes and legitimate businesses. In a pyramid scheme, the only thing that changes hands is money, he said, but legitimate multilevel marketing companies are based on sale of products. It shouldn’t matter under the law if most people purchasing the products are company salesmen, he said.
“My sister used to sell for one of our companies,” Mariano said from Washington, D.C. “She sold a little bit on the side to her friends and neighbors and made a little bit of money that way, but primarily what she did is purchase the product—and got a discount on it, by the way, for being involved.
“She was an active participant in the plan in that she was a seller, but she also was a customer, and she really used the product. … There was no reason why that personal use and consumption by my sister shouldn’t have provided the basis of the compensation for the people who recruited her into this particular company.”
Utah Attorney General Mark Shurtleff spoke in favor of the change. Pyramid Scheme Alert points out that he accepted $73,000 in 2004 campaign contributions from multilevel marketing companies and the DSA.
Shurtleff rejects the suggestion that the campaign money influenced his testimony. He noted he has prosecuted companies in other industries that have donated to his campaigns. Shurtleff said Taylor has it all wrong. Product-based multilevel marketing companies are perfectly legal and were before the law change. As long as real products are being sold, he said, there’s nothing wrong with business models that compensate salesmen for recruiting other salesmen.
“Jon Taylor and the other folks screaming dire consequences want people to believe every direct selling organization, every multilevel organization, is an illegal pyramid scheme. They clearly are not,” Shurtleff said.
Shurtleff particularly likes a second change made in the law that will make it a misdemeanor to participate in a pyramid scheme by recruiting others. In the old version, the only penalty was a possible felony charge for pyramid scheme organizers.
The Utah Division of Consumer Protection gets few complaints about multilevel companies, said its director Francine Giani. “We just don’t see the fraud,” she said. “We continue to say, if consumers feel they have been victimized, we want to know about it.”
FitzPatrick doesn’t argue that Utah, home to many multilevel head offices, makes bank on direct-selling businesses. But there are victims, he alleges. The big company offices in Utah are paid for by hundreds of thousands who lose money in other states and countries.
“Utah doesn’t have gambling or a lottery, but it has a better one. It has multilevel marketing schemes,” he said. “There, the house wins more often than the house in Las Vegas.”
City Week - March 9, 2006
On the (Multi) Level
Utah multilevel marketers make sure lawmakers got their back.
by Ted McDonough
e-mail a link to this article
Jon Taylor got burned by a multilevel marketing company in the 1990s. So he’s spent the last 10 years warning the world against one of Utah’s largest industries.
It’s been a losing battle.
In the legislative session that just ended, Taylor’s Consumer Awareness Institute was the lone voice against modifications to Utah’s Pyramid Scheme Act sought by multilevel marketer Nu Skin and the Direct Selling Association, DSA, the multilevel marketing industry’s national lobbying group. If signed by Gov. Jon Huntsman Jr., the new law will exempt companies from prosecution under the state pyramid-scheme law if pyramid-like pay-outs are backed up by the sale of products or services.
Before the 2006 session, Utah’s law said any setup where payouts were based primarily on recruiting other participants were pyramid schemes. The new version makes it clear that payouts for selling products to new recruits don’t count.
“This makes it official,” complained Taylor, a Bountiful resident. “We’re already the scam capital of the country. Now, we’re accepting it by law.”
In the classic pyramid scheme, participants invest money in order to receive kickback payments from future participants. Nothing is bought or sold. Payment is based entirely on the numbers of other people recruited into the network.
Robert FitzPatrick, who criticized the proposed modifications to Utah law from his North Carolina-based Pyramid Scheme Alert, alleges many Utah multilevel marketing companies are simply pyramid schemes pretending to sell products. In reality, the only people who buy the products are the salespeople themselves. And those salespeople aren’t buying the products in order to resell them at a mark up. Rather, they make purchases just so they can collect promised commissions on sales made by future recruits.
Very few of the products sold by such companies are ever purchased by anyone outside of the company, FitzPatrick claims, and nearly everyone involved loses money—except those at the top.
“The essence of the pyramid is still present fully,” he said. “It has simply been disguised a little bit in the guise of a sales company. If the money is coming ultimately from the new sales people and not from customers, you’re dealing with a simple, endless chain pyramid scheme.”
The law passed in Utah is similar to amendments DSA has passed in Idaho, North Dakota, South Dakota, Texas, Louisiana, Oklahoma, Maryland, Kentucky and New Mexico.
It’s part of what FitzPatrick sees as a changing regulatory climate as multilevel marketing gains increasing acceptance.
Rep. Mike Noel, R-Kanab, who sponsored the Utah law change in the House, said he first introduced the DSA bill last year at the behest of a multilevel company that has brought hundreds of jobs to his district. In his youth, Noel once sold for a multilevel, but soon quit, losing only the price of his initial starter kit. It wasn’t for him, but supporting Utah multilevels in the Legislature was a no-brainer. “It’s a pretty significant business in the state of Utah,” he said.
Nu Skin referred questions to the DSA. Joseph Mariano, executive vice president and legal counsel of the DSA, said the change to Utah law will help consumers and law enforcement better distinguish between pyramid schemes and legitimate businesses. In a pyramid scheme, the only thing that changes hands is money, he said, but legitimate multilevel marketing companies are based on sale of products. It shouldn’t matter under the law if most people purchasing the products are company salesmen, he said.
“My sister used to sell for one of our companies,” Mariano said from Washington, D.C. “She sold a little bit on the side to her friends and neighbors and made a little bit of money that way, but primarily what she did is purchase the product—and got a discount on it, by the way, for being involved.
“She was an active participant in the plan in that she was a seller, but she also was a customer, and she really used the product. … There was no reason why that personal use and consumption by my sister shouldn’t have provided the basis of the compensation for the people who recruited her into this particular company.”
Utah Attorney General Mark Shurtleff spoke in favor of the change. Pyramid Scheme Alert points out that he accepted $73,000 in 2004 campaign contributions from multilevel marketing companies and the DSA.
Shurtleff rejects the suggestion that the campaign money influenced his testimony. He noted he has prosecuted companies in other industries that have donated to his campaigns. Shurtleff said Taylor has it all wrong. Product-based multilevel marketing companies are perfectly legal and were before the law change. As long as real products are being sold, he said, there’s nothing wrong with business models that compensate salesmen for recruiting other salesmen.
“Jon Taylor and the other folks screaming dire consequences want people to believe every direct selling organization, every multilevel organization, is an illegal pyramid scheme. They clearly are not,” Shurtleff said.
Shurtleff particularly likes a second change made in the law that will make it a misdemeanor to participate in a pyramid scheme by recruiting others. In the old version, the only penalty was a possible felony charge for pyramid scheme organizers.
The Utah Division of Consumer Protection gets few complaints about multilevel companies, said its director Francine Giani. “We just don’t see the fraud,” she said. “We continue to say, if consumers feel they have been victimized, we want to know about it.”
FitzPatrick doesn’t argue that Utah, home to many multilevel head offices, makes bank on direct-selling businesses. But there are victims, he alleges. The big company offices in Utah are paid for by hundreds of thousands who lose money in other states and countries.
“Utah doesn’t have gambling or a lottery, but it has a better one. It has multilevel marketing schemes,” he said. “There, the house wins more often than the house in Las Vegas.”