12 Reasons to defeat HB 269
HB 269 - "SALES MARKETING REQUIREMENTS" - or more appropriately, "THE PYRAMID SCHEME ACCEPTANCE ACT" - Should Be Defeated
FROM: Jon M. Taylor, Ph.D., President, Consumer Awareness Institute & Advisor to Pyramid Scheme Alert - which seeks to expose and prevent pyramid schemes world wide
For the sake of your children and grandchildren – and of the families of your constituents – vote "NO" to HB 269.
On Feb. 9, HB 269, was rushed through The Business & Labor Committee. The bill is deceptively simple and very appealing, but the reasons that millions of people in and out of Utah could be harmed by it are complex. Unfortunately, time was not allowed for the opposition (only myself on such short notice) to adequately express why – based on solid evidence – SB 269 is a dishonest and damaging piece of legislation – truly a "wolf in sheep’s clothing." If passed, this legislation could come back to haunt the families of you and your constituencies – for the following reasons (this is as short as I could make if for the complex issues it raises):
1. HB 269 is given the title "sales marketing requirements.". However, as now worded, a more appropriate title would be: "the Pyramid Scheme Acceptance Act."
For all the reasons below, the name should be changed to reflect what it actually does - HB 269 diverts attention away from the core problems of product-based pyramid schemes and provides justification for them not to be classified as pyramid schemes.
Let’s be clear on the hidden intent of HB 269 — When you understand what is behind this bill, it is clear that the true purpose of HB 269 is to shelter all MLM (multi-level or network marketing) schemes from prosecution as pyramid schemes.
2. It is deceptive in claiming to help clarify what is an illegal pyramid scheme.
It is written to appear to protect participants in MLM from getting stuck with unsold merchandise, due to "front-end loading." This would be OK if it stopped there. But it extends that provision to define an operation as NOT a pyramid scheme so long as it offers a one-year refund of unopened goods – which in many cases is but a tiny fraction of the money, time, and effort invested in the scheme. So – HB 269 nullifies or takes the teeth out of the current statute (Pyramid Scheme Act), especially 76-6a-2, which reads –
(4) "Pyramid scheme" means any sales device or plan under which a person gives consideration to another person in exchange for compensation or the right to receive compensation which is derived primarily from the introduction of other persons into the sales device or plan rather than from the sale of goods, services, or other property.”
To those who understand mathematical leverage in MLM compensation plans, this definition works fairly well. Pyramidal leverage is accomplished by weighting the pay plan towards those persons at the top of a pyramid of participants by rewarding aggressive recruitment over actual sales to end users. In other words, one simply determines whether the majority of the payout by the MLM company goes to the person selling the product – or to the upline as a group.
But again, the HB 269 amendment would suggest that an inventory repurchase program would make the MLM not a pyramid scheme.This is like passing a law that says that a person who commits armed robbery really is not committing armed robbery, so long as he returns what money is left over when he is finally caught. So the door would then be opened for anyone to commit robbery. Would you want to place your stamp of approval on that kind of statute?
3. The new definition of "compensation" in HB 269 means that a perpetrator can be paid to introduce people into a pyramid scheme as long as the money is laundered as an override on goods or services purchased by the victim.
Goods purchased for so-called "actual use of consumption" -- and never resold -- serve as the pyramid's currency of exchange. The new definition also includes wholesale sales to the scheme's own sales representatives as "retail," and thereby establishes the classic pyramid scheme pattern -- a closed system with fixed prices/fees to join the scheme. Without retailing, the business changes from a sales company to a pyramid recruitment scheme in which product purchases are part of the price to gain and hold a position in the chain
4. HB 269 contradicts the findings in prior pyramid scheme cases.
Some of the most notorious MLM scams charged or found to be pyramid schemes would have (with such a partial refund program) been off the hook, such as Equinox, Trek Alliance, Heritage Int’l, Skybiz, Destiny Telecom, Rennaisance, etc. – some of which were members of the Direct Selling Association (DSA), which is promoting the bill. Some of the most exploitive MLM scams have had refund programs for years. It has done little to diminish the defrauding of millions of victims out of billions of dollars every year – who were recruited via a myriad of misrepresentations to invest in an income "opportunity" – which was, in fact, a loss opportunity.
5. HB 269 ties the hands of law enforcement and of the courts.
They cannot even charge the worst scams with conducting a pyramid scheme, assuming they have an "inventory repurchase program." And individuals and families who have been defrauded of their means have less recourse for seeking redress in private court actions.
6 . HB 269 could add to Utah’s already high bankruptcy rate.
It is not uncommon for active involvement in a predatory "product-based pyramid scheme" (whether called MLM or network marketing) to lead to escalating debt, bankruptcy, home foreclosure, and/or divorce. We have reports of consuming recruitment contributing significantly to depression and even suicide.
7. Bills similar to HB 269 proposed in other states have been opposed by experts who understand the issues, including a working group from the National Association of Attorneys General, Pyramid Scheme Alert (a group dedicated to exposing and preventing pyramid schemes world wide), and top legal and regulatory experts on the subject.
8. HB 269 is perverse in that it accomplishes the opposite of what it purports to do.
The most predatory schemes, product-based pyramid schemes ("recruiting MLM’s"- see #8 below) with a 99.9% loss rate (99% of participants lose money) would be provided safe haven in Utah. Those promoting no-product pyramid schemes, which have only a 90% loss rate, will be charged with third degree felonies. Illegal no-product pyramid schemes have approximately100 times the odds of profiting as a recruiting MLM. So with HB 269, the least harmful pyramid schemes would be felonies, and the worst would get of Scott free. The bill is perverse in its stated purpose – versus actual effects.
By the way, these abysmal odds of MLM success were not just drawn out of the air, but reflect careful analysis of court records in MLM cases, financial filings with the SEC and FTC, and surveys of hundreds of tax professionals. Some of them came to us with the observation that with all the promises of MLM promoters of a substantial ongoing income, they rarely see an MLM participant report an ongoing profit on their taxes – except of course for those at the top of their respective pyramids.
9. Based on ten years’ research on this issue, I can tell you with confidence that many of the families of your constituents and of your children and grandchildren could eventually suffer terribly from the effects of this bill.
If you vote "yes" to HB 269, you could live to rue the day that you gave your stamp of approval to a type of fraud that could ravage those you love the most.
10. The numbers show that the loss rate for recruiting MLM’s far exceeds that for gambling.
A "recruiting MLM" is an MLM with a compensation plan that is heavily weighted towards participants at the top of their respective pyramids (99.9% below them lose money), requiring aggressive recruitment to recover their initial investments and the huge rewards held out to them.. In comparison, recruiting MLM’s make gambling look like a safe investment. If you vote for HB 269, you are voting to legalize a type of operation with odds much worse than many games of chance Las Vegas. For the numbers and more research, go to this web site – www.mlm-thetruth.com
11. This bill is promoted by the DSA, which should be a red flag in itself.
The DSA was essentially taken over by MLM companies to promote their agenda. They realized that if MLM’s could be associated with legitimate "direct sellers," then they would not be perceived as pyramid schemes by so many. But a pig is still a pig, no matter how much money is spent positioning a pig as a horse!
When the DSA’s Dean Heyl introduced the DSA to the House B&L Committee, he said they "represented 90,000 direct sellers in the state of Utah." We know from randomized household surveys of Utah County that there are four MLM "distributors" for every one bona fide customer.
The 90,000 MLM participants are not sellers, but buyers of expensive merchandise that they were induced to buy with promises of earning substantial ongoing income. We also know from tax preparers that only one in a thousand at most will earn a significant profit – and far fewer the income promised by their MLM recruiters. So the vast majority of the 90,000 MLM participants are not earning money; they are losing money – except for a handful of participants at the top of their respective pyramids, who make a LOT of money – as much as $1 million a month (according to tax preparers), all at the expense of their hapless downliners.
ALSO – The DSA has had some of the most notorious product-based pyramid schemes among its members. It engages in web identity theft (see * below), as well as lawsuits to silence its critics – who are working of a voluntary basis and have to struggle to defend themselves. And the DSA promotes deceptive legislation at the national and state level – like HB 269.
12. Utah already has the reputation as one of the scam capitols of the world. HB 269 would be a sanction of a very subtle and insidious form of economic crime. I think it is a dangerous precedent to be sanctioning economic crime by statute.
Everything I have told you can be validated for those willing to study it out carefully with an open mind. With a bill with such potentially destructive consequences, it deserves serious study. It should be defeated outright – or assigned to an interim study committee. I would be happy to share my research and point you to others who understand the downside of this type of legislative ruse.
In the meantime, if you really want to get informed on this issue, go to this web site –
and read the research and consumer guides posted there, including information on the state of law enforcement on this issue. It is hard to see how any reasonable person who wanted to do the right thing would vote for HB 269 after reading these reports.
You can also gain much useful information by going to www. pyramidschemealert.org. This was an effort of experts who volunteered their time and money to educate and warn consumers. As a non-profit, they were told to use the .org suffix. *But what do you get if you key in the following? pyramidschemealert.net, pyramidschemealert.com, or pyramidschemealert.info? You guessed it – You get the DSA’s self-serving definition of what is a pyramid scheme. The DSA takes great care to avoid telling you about the endless chaining of recruitment, the "pay to play" provisions that defraud participants, the weighting of the pay plan to those at the top of their respective pyramids, etc. But what you should notice is this web version of identity theft – by the very organization that is promoting HB 269!
Thank you for reading this. Since you are elected by the citizens of your district, I felt it was important that you have more correct information than what was handed to you by industry representatives and lobbyists of what is known to be a highly questionable MLM industry that causes widespread suffering and loss by participants world wide.