jokach
October 24th, 2006, 08:33 AM
Matrixwatch has reported before about the passing of Utah's State Bill 182 (SB182) that actually weakens the pyramid scheme laws in that state. Here is one consultants view of the troubles that Utah is now feeling due to the bill that was passed in mid-summer.
Originally posted from:
http://www.sltrib.com/opinion/ci_4493957
Multilevel marketing peddlers now under reduced oversight
Jon Taylor
A cleverly worded law, SB182, that seriously weakens Utah's Pyramid Scheme Act, went into effect July 1. The motivation of the bill's backers was apparent. At least 35 multilevel marketing companies that were in violation of the Pyramid Scheme Act are now exempt from prosecution.
MLMs that emphasized income from recruitment of distributors, not product sales, were illegal, but they are now exempt so long as they offer consumable products, even though they have no customers outside the chain of participants and are money traps for 99 percent of recruits.
Many assume that MLMs offering legitimate products are harmless. Attorney General Mark Shurtleff told a legislative committee just that in hearings on the bill, a position likely influenced by his campaign donations from MLM companies that were technically illegal. Lawmakers accepted his testimony.
However, research shows that product-based MLMs do far more harm than naked, no-product pyramid schemes by any measure - loss rates, aggregate losses and number of victims. Recruits are induced to buy expensive products, often on the basis of misrepresentations, with no government agency requiring honesty in MLM promotions.
In fact, when one finds five "red flags" in an MLM compensation plan, 99 percent of participants lose money. The odds of profiting are far greater playing craps or roulette in Las Vegas.
The Direct Selling Association, with the aid of Utah MLMs Nu Skin and Stampin' Up!, promoted the bill. The DSA - dominated by the MLM industry - has managed to deceive several state legislatures into passing such legislation in the name of "consumer protection."
So I was not surprised when I received a call the other day from a disgruntled Stampin' Up! participant saying that on July 1, the company changed its compensation plan. Payout from the company is now weighted to reward primarily those who aggressively recruit a downline of subordinate sellers - which would have been illegal before July 1.
The very next day a person called me who was being recruited into a new MLM called PureWorks (that should sell well to religious prospects) that uses a compensation plan that would have been illegal before July 1. More such companies are surely coming.
Why have so many MLM schemes flourished in Utah? Francine Giani, who until this year headed Utah's Division of Consumer Protection, said the division gets too few complaints to justify action.
What she fails to recognize is that it is extremely rare for victims in these MLM recruitment chains to file complaints. Not only do they blame themselves, but in any entrepreneurial chain, every major victim is also a perpetrator, recruiting aggressively to recover his or her investment.
They fear self-incrimination and consequences from or to those still in the program, many of whom are friends and relatives. They also believe that if the MLM were illegal, it would have been shut down.
So MLM abuse is low on the radar screen for law enforcement at both federal and state levels. There is virtually no consumer protection against these Utah-based money traps, which far exceed all fraudulent scams combined.
Those of us opposing the bill offered to share research showing that millions of people, mostly out of state, have lost billions of dollars. However, the fact that this industry, regardless of how unethical, brings in four times as much revenue to the state as the ski industry, plus thousands of "jobs" (and votes), impressed the lawmakers more.
Caveat emptor! Let the buyer beware, while Utah builds a reputation as "the scam capital of the world."
---
* JON TAYLOR is founder of the Consumer Awareness Institute and has published his research on multilevel marketing for the National White Collar Crime Center and the 2004 Economic Crime Center Summit Conference. He has consulted on pyramid scheme cases for federal and state courts and in private cases.
Originally posted from:
http://www.sltrib.com/opinion/ci_4493957
Multilevel marketing peddlers now under reduced oversight
Jon Taylor
A cleverly worded law, SB182, that seriously weakens Utah's Pyramid Scheme Act, went into effect July 1. The motivation of the bill's backers was apparent. At least 35 multilevel marketing companies that were in violation of the Pyramid Scheme Act are now exempt from prosecution.
MLMs that emphasized income from recruitment of distributors, not product sales, were illegal, but they are now exempt so long as they offer consumable products, even though they have no customers outside the chain of participants and are money traps for 99 percent of recruits.
Many assume that MLMs offering legitimate products are harmless. Attorney General Mark Shurtleff told a legislative committee just that in hearings on the bill, a position likely influenced by his campaign donations from MLM companies that were technically illegal. Lawmakers accepted his testimony.
However, research shows that product-based MLMs do far more harm than naked, no-product pyramid schemes by any measure - loss rates, aggregate losses and number of victims. Recruits are induced to buy expensive products, often on the basis of misrepresentations, with no government agency requiring honesty in MLM promotions.
In fact, when one finds five "red flags" in an MLM compensation plan, 99 percent of participants lose money. The odds of profiting are far greater playing craps or roulette in Las Vegas.
The Direct Selling Association, with the aid of Utah MLMs Nu Skin and Stampin' Up!, promoted the bill. The DSA - dominated by the MLM industry - has managed to deceive several state legislatures into passing such legislation in the name of "consumer protection."
So I was not surprised when I received a call the other day from a disgruntled Stampin' Up! participant saying that on July 1, the company changed its compensation plan. Payout from the company is now weighted to reward primarily those who aggressively recruit a downline of subordinate sellers - which would have been illegal before July 1.
The very next day a person called me who was being recruited into a new MLM called PureWorks (that should sell well to religious prospects) that uses a compensation plan that would have been illegal before July 1. More such companies are surely coming.
Why have so many MLM schemes flourished in Utah? Francine Giani, who until this year headed Utah's Division of Consumer Protection, said the division gets too few complaints to justify action.
What she fails to recognize is that it is extremely rare for victims in these MLM recruitment chains to file complaints. Not only do they blame themselves, but in any entrepreneurial chain, every major victim is also a perpetrator, recruiting aggressively to recover his or her investment.
They fear self-incrimination and consequences from or to those still in the program, many of whom are friends and relatives. They also believe that if the MLM were illegal, it would have been shut down.
So MLM abuse is low on the radar screen for law enforcement at both federal and state levels. There is virtually no consumer protection against these Utah-based money traps, which far exceed all fraudulent scams combined.
Those of us opposing the bill offered to share research showing that millions of people, mostly out of state, have lost billions of dollars. However, the fact that this industry, regardless of how unethical, brings in four times as much revenue to the state as the ski industry, plus thousands of "jobs" (and votes), impressed the lawmakers more.
Caveat emptor! Let the buyer beware, while Utah builds a reputation as "the scam capital of the world."
---
* JON TAYLOR is founder of the Consumer Awareness Institute and has published his research on multilevel marketing for the National White Collar Crime Center and the 2004 Economic Crime Center Summit Conference. He has consulted on pyramid scheme cases for federal and state courts and in private cases.