February , 2006
Pyramid Scheme Alert has sent letters to the Attorney General offices of all other states warning them to be vigilant regarding any chain selling schemes that are headquartered in Utah.
The Utah state legislature has passed a "safe harbor" amendment to its anti-pyramid scheme statute that legalizes the types of schemes that have been prosecuted by the FTC and other states over the last 30 years. Utah has the highest concentration of multi-level marketing scheme headquarters per capita of any state in America.
PSA conducted an analysis of the proposed new Utah and found it to be the opposite of what it claims to be. Promoted as a consumer protection bill that tightens restrictions on pyramid schemes, the proposed law is, in fact, a special interest bill written by the pyramid sales scheme industry and designed to benefit pyramid sales schemes at the expense of consumers. The proposed law legalizes sales schemes that previously would have been prosecuted in Utah under the existing law.
Utah is already notorious for scams. An Associated Press story in 2000 stated:
"Salt Lake City -- Welcome to Utah. Now watch your wallet.
The Olympic vote-buying scandal was in keeping with a state known for its dubious financial dealings and frauds, both petty and grand. So prevalent are the scams that Salt Lake City has a U.S. Securities and Exchange Commission office that fights investor fraud. It is by far the smallest city with such a presence."
The new law that provides safe haven to these pyramid sales schemes was endorsed by the Utah Attorney General. He had just received a $50,000 campaign contribution from the most controversial of all chain-selling schemes, Pre-Paid Legal. This company is currently under a "sweeping investigation" by the AG office of Connecticut. It has been sued more times by its distributors and investors than any other company of this type. It was just ordered by a jury to pay $9 million in restitution to consumers for deceptive practices.
The Utah amendments seek to change the definition of illegal pyramid schemes. Specifically, the law exempts endless chain schemes in which the investments and rewards are laundered through "product" purchases. As a reason for passage, the lobbying group that promoted the law, the Washington DC-based Direct Selling Association, cited the large amounts of revenue that Utah gains from these schemes. Among DSA membership have been some of the most notorious pyramid sales schemes including Equinox International and Trek Alliance, which were prosecuted and shut down by federal and state (other than Utah) prosecutors.
The amendment states that the schemes are allowed as long as the payments are based on product purchases by "anyone." This clever change seeks to contradict three federal court rulings, the statutes of many other states and the enforcement policy of the FTC over the last 30 years. The wording change means that the scheme can be based on selling products only to newly recruited salespeople who may never resell the products on a retail basis. Each new recruit is then allowed and induced to recruit other salespeople and receive rebates on their purchases and those of the people they, in turn, recruit.