ANSWERS to TEN IMPORTANT QUESTIONS about Utah's HB 269 and Amendment 3
("Sales Marketing Requirements" – a.k.a. "PYRAMID SCHEME ACCEPTANCE ACT")
By Jon M. Taylor, Ph.D., President, Consumer Awareness Institute, and Advisor, Pyramid Scheme Alert, a non-profit organization that seeks to expose and prevent pyramid scheme fraud, which is growing at an alarming rate world-wide
1. Why has HB 269 been labeled the "PYRAMID SCHEME ACCEPTANCE ACT by its critics?"
HB 269 is deceptive in that it claims to strengthen the current Pyramid Scheme Act (76-6a-2) by amending it, when in fact, the language (lines 9, 24, 99, and 112-118) nullifies and takes the teeth out of the current statute. It does this by defining a pyramid scheme by a minor adjustment (refund on unopened goods), while sidestepping the root cause of abuse – the endless chaining of recruitment of participants as primary buyers.
2. Promoters of HB 269 claim it will protect consumers by requiring an "inventory repurchase program." What’s wrong with that?
Nothing – if it stopped there. But – deceptively hidden in the bill (lines 112-116) – is language that excuses promotion of investments in pyramid schemes when laundered via the clever device called "incentivized purchases." In other words, as long as purchases of products are made, it is not a pyramid scheme under HB 269 – even if such purchases were made as a result of a whole set of misrepresentations of fact regarding products, income opportunity, etc., and even if such purchases were tied to advancement in the scheme. These MLM products are usually "notions, potions, and notions" that are not competitively priced and thus difficult to sell, so investing participants are the primary customers who are buying to "build their business."
Also, buyers are encouraged to immediately open and use the products, pass them around as samples, "sell" them to family members, etc. Once opened, they cannot get a refund. So those who have purchased large quantities of merchandise from the company are not likely to get much of a refund – pennies on the dollar.
It should be noted that some of the most exploitive product-based pyramid schemes already have inventory repurchase schemes. In one major product-based pyramid scheme 99.94% of people lose money, but only 3.5% of the money is refunded.
3. Are all multi-level (MLM) or network marketing merely disguised pyramid schemes?
A distinction needs to be made between these two classes of MLM’s:
– "Retail MLM’s" use compensation plans with most of the company’s payout going to those who actually sell the products and who not encouraged to buy products without orders in hand, like Avon and Tupperware. Utah’s Stampin Up is similar.
– "Recruiting MLM’s use compensation plans which reward aggressive endless chain recruitment of a huge downline of participants who are "incentivized to purchase goods on an ongoing basis, whether or not they have orders in hand. These are technically illegal and can be considered "product-base pyramid schemes" because the investment in the scheme is disguised or laundered through product purchases – regardless of the quality of the products (usually "notions, potions, and lotions")f. Research shows that 99.9% of participants in recruiting MLM’s lose money. And the vast majority of MLM’s are "recruiting MLM’s – all given a green light by HB 269!
4. But are Utahns affected that much by product-based pyramid schemes?
Are they ever! Recent research finds that the highest concentration of product-based pyramid schemes are in Utah. Informed law enforcement, consumer advocates, and many investigative reporters outside our fair state see Utah as one of the scam capitals of the world. HB 269 would strengthen that perception because it would give safe haven to the worst pyramid schemes in terms of actual loss rates and collective losses suffered by victims.
We have reports in this state of addiction to MLM similar to gambling. "MLM junkies"often suffer from loss of credit, homes – and divorce and situational depression. At least one Utah suicide has been reported to us – due primarily to total commitment to the promises of a major MLM.
5. HB 269 is also labeled a "perverse" and "upside down" bill by its critics. Why?
Under HB 269, product-base pyramid schemes, with a loss rate of 99.9% would get off Scott-free, while promoters of no-product schemes with only a 90% loss rate could be charged with a third degree felony. A person has 100 times as great a chance of making money with the latter (illegal under the bill) as with the former (OK under the bill).
6. Utah lawmakers resist statutes that endorse gambling. How is that related to HB 269?
Product-based pyramid schemes, which are approved under HB 269, have loss rates far worse than many games of chance in Wendover or Las Vegas. This has been carefully researched based on statistics from the casinos themselves as compared with SEC and FTC filings and input from tax professionals. And experts on product-based pyramid schemes have observed pyramid scheme addiction and financial losses every bit as serious as gambling addiction. So if you vote for HB 269, you may as well be voting for gambling, since the odds are much worse for recruiting MLM’s than for gambling!
Voting for HB 269 would be like permitting gambling casinos in Nevada to post big bold signs above slot machines that shout "BUSINESS OPPORTUNITY"!
7. Who is behind this bill? Is it true that some of the worst product-based pyramid schemes in history are behind this bill – or would be excused by this bill?
The Direct Selling Association (DSA), which has essentially been taken over recently by well-financed MLM companies to promote its agenda, has been promoting MLM-friendly legislation at the federal and state levels. It has used Utah’s Stampin Up (a decent "retail MLM") and Rep. Mike Noel as pawns to introduce this deceptive legislation into Utah, as it has to uninformed legislators in other states. It is so complex that it often passes without serious consideration of the drawbacks due to its cleverly deceptive language.
Also, you should know that some of the most notorious product-based pyramid schemes (as MLM’s) have been or are members of the DSA, including Equinox, Trek International – plus at least two leading MLM companies with a long list of federal, state, and private claims against them – both for pyramid scheme abuse and for deceptive sales practices. And many other notorious pyramid schemes would likewise have been excused under this bill. For details, go to www.pyramidschemealert.org, www.mlmsurvivor.com, www.mlmwatch.com, and www.mlm-thetruth.com.
8. If HB 269 is so bad, why did our own Attorney General not try to stop it?
Mark Shurtleff is a good man and tries to do enforce the law, as he understands it. But he has made it clear to victims who raise this issue that on consumer issues he will only act when referred by the Office of Consumer Protection (DCP).
In law enforcement – and the DCP is no exception – the squeaky wheel gets the grease. Unfortunately, victims of product-based pyramid schemes (PPS) almost never complain. The latest statistics show that less than one in 30,000 victims of PPS’s ever file a complaint with the DCP. So as far as the DCP is concerned, the problem is a minor one.
But you should know that informed AG officials in many other states stand foursquare against bills like HB 269 coming to their state. These are officials that have made a serious study of product-based pyramid schemes and understand the fraud.
When confronted with the question of why he did not move to stop the bill, Mr. Shurtleff said he did not see it as a pro-pyramid scheme bill. Of course, the DSA and MLM’s who are DSA members as a group were the biggest contributors to his last campaign. Could that have something to do with his favoring HB 269 – which gives the green light to recruiting MLM’s?
9. Why don’t victims of product-based pyramid schemes (PPS) complain?
PPS victims have been led to believe that if they fail it was their fault for not trying hard enough. They also are fearful that coming forth with complaints will hurt those who recruited them or those they recruited – which was likely a friend of loved one. Also, every major victim in a PPS is a perpetrator. To recover their investment they must recruit others, so the finger of blame could wind up pointing back at them. Simple self-incrimination.
PPS abuses are like child abuse. If we acted only when the children complained, a lot of abuse would continue unchecked. So we have laws requiring people who see child abuse to report it. Just because victims of PPS’s almost never complain does not mean there are no victims. Those of us who volunteer our time fighting against deceptive legislation like HB 269 are acting as informed witnesses by standing up for those who remain silent.
10. Rep. Sheryl Allen has introduced Amendment 3. Does it not correct the problems with HB 269?
Unfortunately – no. Rep. Allen responded to our request for help and consulted with the DCP Director, who suggested a few minor changes to tweak the bill, but the only substantive change is lines 99-100, which does not allow sales to participants to be considered actual sales. (Of course, the DSA is fighting this one constructive change in wording.)
The change in lines 86 and 87 from "independent salespersons" to "participants" is constructive. But the most egregious and deceptive language, as found in lines 9, 24, and 112-118, which seeks to excuse MLM’s with a repurchase program from classification as a pyramid scheme remains intact under Amendment 3. As mentioned above, some of the most damaging of product-based pyramid schemes are MLM’s that have had repurchase programs for years. It is merely a diversion from the fraud associated with endless chain recruitment of participants as primary customers – who are encouraged to buy and use (open) products ASAP and to commit to purchases by automatic bank withdrawal – without any orders in hand.
Utah lawmakers – PLEASE DON’T BE DECEIVED. HB 269 is a fundamentally dishonest, even perverse, piece of legislation. If anything we are saying is true, you would not want HB 269 to go forward. At the very least, insist that it be sent back to the Rules Committee for interim study.