Consumers Defeat Law in Utah that Favored Amway-Type Sales Schemes

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Consumers scored a victory over pyramid scheme fraud. The Utah Senate rejected a state bill to exempt multi-level marketing schemes from its definition of pyramdi schemes. The bill was pushed by the Direct Selling Association with Amway/Quixtar as its largest member.

Consumers and those concerned about integrity in the marketplace won an important victory on March 2. The Utah State Senate voted down HB269 a bill that would have legalized "product-based" pyramid schemes in Utah. The victory for consumers is especially significant in that Utah has the highest concentration of MLM companies per capita of any state in the country.

The Washington DC-based Direct Selling Association promoted the bill with Amway/Quixtar as its largest member. Some members of the Direct Selling Association have been prosecuted, fined and shut down for operating "non-retail" multi-level marketing operations or disguised pyramid schemes.

Versions of this bill have passed in several state legislatures in recent years. Other states, such as North Carolina, have rejected it. A working group of regulators in several states have issued warnings of its harmful effects. The DSA has also promoted this type of legislation in China and other countries that are plagued by multi-level marketing scams and other pyramid schemes.

A federal version of the Utah bill, HR1220, has also been introduced into the US Congress. Pyramid Scheme Alert is notifying all federal lawmakers of the bill's tricky wording and its harmful consequences.

Like versions in other states, the proposed federal law and the DSA-proposed laws in other countries, the Utah bill was disguised as a consumer-friendly "anti-pyramid scheme" measure. Its prime objective, however, was to legalize "non-retailing" multi-level marketing (MLM) schemes, the most widespread and fastest growing type of "business opportunity" fraud. Non-retailing MLMs, by design, cause financial losses to more than 99% of all sales representatives that are recruited. The claims of "income opportunity" in these schemes are inherently deceptive and misleading.

"Non-retailing multi-level marketing schemes must be defined, exposed and prevented," stated Robert FitzPatrick, president of Pyramid Scheme Alert, the group that is opposing the DSA lobbying. "They are a distinct new form of pyramid scheme and should take their rightful place among other modern scams such as "gifting clubs", women-helping-women pyramid schemes, "bait and switch" and the "Nigerian scam."

In non-retailing MLMs, the majority of "purchases" are made by participants – sales representatives – to gain or hold positions on the endless recruitment chain. Recruits are promised that the investments in products can be recouped and huge profits gained by recruiting other participants who must also make "purchases" and continue the recruitment process. Commissions from the purchases made by an "endless chain" of recruits are paid to organizers. The vast majority of 'sales' are made ultimately to the "sales representatives" not to the public on a retail basis.

The "Truth Campaign" that resulted in the bill's defeat was led by Dr. Jon Taylor, a Pyramid Scheme Alert Advisor and former Director. He is author of a book on deceptive marketing and unethical practices in the multi-level marketing industry as well as resources for aiding consumers in identifying pyramid scams.

"Hidden" Language Exposed

Backed by letters and evidence gathered by Pyramid Scheme Alert members, Dr. Taylor relentlessly exposed the "hidden" clause in the bill that would have legalized "product-based" pyramid schemes.

The hidden provisions - 13 seemingly innocuous words – were identical to what the DSA has inserted in bills in some other states which unwitting legislators have allowed. They are also being promoted in other countries.

"Pyramid scheme" means any operation in which a participant gives consideration for the right to receive compensation that is derived primarily from the recruitment of other persons as participants into the operation rather than from the sale of goods, services, or intangible property to participants or by participants to others."


Those 13-words mean that as long as the endless chain scheme solicits purchases of goods from participants instead of just cash, it would be legal. HB269 would have eliminated the requirements for retail selling. Disguising the investments as "monthly purchases or training fees" as many MLMs do, is little more than money laundering.

The operation of non-retail multi-level marketing violates laws in many other states. It is contrary to three federal court rulings that have defined them as illegal pyramid schemes. It is also diametrically opposed to 35-years of policy of the Federal Trade Commission that has defined non-retailing MLMs as "unfair and deceptive trade practices." It is on this policy and definition that notorious multi-level marketing scams such as International Heritage and Equinox International were shut down.


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Robert L. FitzPatrick
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