Myth vs Fact

Call On Congress To Finally Crackdown On Pyramid Schemes

Myth Vs Fact


by Critics of the Direct Selling Industry


MYTH Any bill that would define a “pyramid scheme” undermines legal precedent.
FALSE. In fact, this legislation is built precisely on existing federal case law that defined key elements of a “pyramid scheme,” including Koscot (1974), Amway (1979), and BurnLounge (2014), which helped shaped current state laws outlawing “pyramid schemes.”

All states have laws banning pyramid schemes. Further, more than 20 states have adopted model anti-pyramid scheme legislation, each of which uses the same definition used around the world, including by the European Union. This legislation simply codifies at the federal level what is already working.

MYTH The legislation does not acknowledge the Federal Trade Commission’s (FTC) recent industry enforcement positions.

Recent FTC guidance in a specific case issued by the Obama Administration is not codified law and more important, it did not follow standard regulatory procedure and does not reflect judicial precedent.

A punitive, tailored settlement negotiated in private between the FTC and a single company found to have problematic business practices cannot form the basis for a federal standard to regulate an entire industry.

This bipartisan bill addresses both consumer protection issues and industry concerns, ensuring a balance that is consistent with judicial precedent, and state-level and international norms for the direct selling industry. Importantly, it also ensures elected officials, and not unelected federal regulators, are defining the standards to protect consumers and entrepreneurs.

MYTH This legislation would make it nearly impossible for the FTC to challenge illegal pyramid schemes.
FALSE. Clarifying what constitutes an illegal pyramid scheme would not alter the FTC’s existing enforcement authority [Section 5, FTC Act -15 U.S.C. Sec.45]

This bipartisan legislation is a roadmap that will help consumers steer clear of scams and provide long overdue guidance to America’s entrepreneurs about what constitutes legal business practices.

MYTH Direct selling disproportionately takes advantage of minorities, including Hispanics.

FALSE. More Hispanics are buying homes, going to college, and making over $50,000 a year than ever before. Their purchasing power has increased by 167 percent since 2000, and it is expected to reach $1.7 trillion this year.

Hispanic-owned businesses are opening at a rate 15 times faster than the national average and it should not surprise anyone that Hispanic-Americans also represent 20% of the more than 20 million entrepreneurs involved in direct selling.

However, there are bad actors who will seek to take advantage of those in the marketplace which is why it’s more important than ever to address this issue at the federal level. As Hector Barreto, who served as the 21st Administrator of the Small Business Administration and whose father founded the Hispanic Chamber of Commerce, wrote in The Hill in support of this legislation, “[I]t will offer much needed support to the growing ranks of Hispanics involved in direct selling — honest entrepreneurs and their customers — and protect them from bad actors in the marketplace.”

MYTH The legislation is opposed by national consumer organizations.

FALSE. This legislation is supported and welcomed by consumers across the country. Unfortunately, several so-called “consumer groups” in Washington, D.C. rarely “endorse” legislation that draws a needed balance between consumer protections and industry concerns, and they never will.

In fact, some of the most vocal so-called “consumer advocates” are unabashedly critical of the direct selling industry in its entirety, and if allowed to succeed would destroy the millions of income-earning opportunities that the industry supports.

MYTH The bill will eliminate years of progress to protect consumers from fraudulent “pyramid schemes” portraying themselves as legitimate direct selling companies.

FALSE. The proposed legislation is based on tried-and-true global regulatory norms that have been developed in over 20 states and have been exported around the world.

The concrete definition of “pyramid scheme” contained in the proposed legislation has proven to be an effective tool for enforcement agencies going after operators of these fraudulent schemes.

MYTH Industry critics argue the bill is intended to protect industry, not consumers.

FALSE. The entire purpose of bill is to protect consumers, and distinguish bad actors from legitimate commercial activities carried out by direct sellers.

Critics of direct selling will use any means, including consumer protection to justify their attacks on the industry until it no longer exists and 20 million income-earning opportunities are lost.