To Stop the Fraud, PSA Calls for Regulation of MLM

July, 2006

Pyramid Scheme Alert has made three key recommendations to the FTC that would enable consumers to tell the difference between legitimate direct selling companies and pyramid recruitment schemes (our research shows that virtually all MLMs operate as pyramid recruitment schemes, not direct selling companies.).

The FTC announced that it is going to adopt "rules" to oversee Multi-Level Marketing (MLM) and other promotions of "business opportunities." The new rule may require disclosure of key financial information so a consumer could make a valid judgment about investing or joining.

Please write the FTC now to support "full disclosure". Send your email to FTC Attorney, Frank Gorman, Ast. to the Director of Consumer Protection, at FGorman@FTC.gov or call him at 202-326-2156. Cut and paste these recommendations (in red) to include them in your email.

The FTC should adopt rules that require:

1. All multi-level marketing companies must comply with earnings-claims disclosure rules. No multi-level marketing company should be given an option of making "no earnings claims".

2. Multi-level marketing companies must disclose the average retail-based income earned by participants in each level of the hierarchy.

3. Income disclosures of multi-level marketing companies must include:
-- The total number of all participants who joined in the past year, not just the so-called "active participants" in one part of a year.
-- The average NET, not gross, income of participants in each level.
Average net income is the average of all monies received from the company by participants minus the average of all moneys paid to the company by participants in each level. Expenditures paid to the company include product purchases, renewal fees, shipping costs, books, audio and video tapes, training and motivation seminars, computer fees, etc.

These recommendations would curb the massive deception about "unlimited income." They would expose MLMs that are based on pyramid recruiting not retail selling. Such recruitment scams are only disguised as "direct selling" businesses. And the rules would expose the deceptions of "average income" that exclude business costs and other fees that the schemes get from recruits. When these COSTS are added, more than 99% of all MLM recruits lose money!

The full PSA report to the FTC that includes these recommendations and explains their importance.
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