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DSA's Pyramid Scheme Bill in Florida

May 1, 2005

The DSA (Direct Selling Association), which has been promoting HR 1220, a federal bill that would seek to legalize all product-based pyramid schemes, is backing an effort to legalize MLM-style pyramid schemes in Florida. Due to the vigilance of Florida State Senator, Dave Aronberg and some work by Pyramid Scheme Alert, the bill died in the committee during the 2005 session. It could come back in 2006 or later.

Proponents said SB 2648 would strengthen anti-pyramid scheme laws and help consumers. SB 2648 would actually legalize pyramid schemes and harm millions of consumers.

SB 2648 focuses primarily on the issue of inventory loading, where MLM participants lose money by purchasing excess product. The bill would force companies to buy back excess inventory.

This sounds helpful to consumers. In fact, it is meaningless. Today, very few pyramid sales schemes engage in front loading. The new tactic for scammng the consumer is to get them to buy inventory every month, often with an "auto-order" on a credit card. A minimum level of monthly purchasing is required in order to remain qualified for the promised "rebates" that are supposedly to be gained from the "downline" of new recruits. These purchases are called "purchases for personal use or consumption" and are not considered "front loading" even though they amount to the very same thing.

In the end, 99% of recruits never earn a profit. The cost of "gradual front loading" far outweighs whatever rebates, if any, the recruits gain. Under this new law, this type of fleecing the public would have been legal.

The bill also sought to change the basic definition of a pyramid scheme so as to allow schemes in which the only people buying the scheme's products are the sales people. No retailing or very little retailing occurs. The effect of this change would have been to effectively legalize all pyramid schemes that offer products. As with HR 1220, this Florida bill would place sales to participants for personal consumption on the same footing as sales to end users, allowing an "endless chain" recruitment scheme to become legal.

Such a loophole would have helped to legalize schemes like Equinox International, Trek Alliance, Destiny Telecom, and Heritage International, all of which have been shut down in recent years.

Contact your legislators to make sure this bill stays dead and never rears its ugly head again.

This page last updated on 3/2/06