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Pyramid Scheme Alert (PSA) provides current and historical news items that are of interest to our members and visitors. None of the reports or commentaries is intended to imply that any of the referenced companies have been charged or convicted as illegal pyramid schemes.


March 8, 2005

After the "Amway industry" managed to ramrod a deceptive "anti-pyramid scheme" bill through several state legislatures in recent years, consumers have stopped the Deception Train in its tracks in Salt Lake City, Utah. The Utah State Senate defeated HB269 in the final hours of the legislative session. The victory is especially significant in that Utah has the highest concentration of MLM companies per capita of any state in the country. Additionally, an army of MLM paid lobbyists and the state's Attorney General -- a recipient of generous MLM campaign contributions -- backed the bill.

Defeat of this "wolf in sheep's clothing" bill was the direct result of consumer opposition and revelation of the bill's true intent -- to legalize recruitment scams -- and its harmful consequences -- the financial fleecing of thousands of Utah residents.

The Truth Campaign 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. Pyramid Scheme Alert volunteers provided backup letters and other evidence for Dr. Taylor 's effort.

Standing up against the Direct Selling Association (DSA), the Washington-based MLM trade group, Dr. Taylor relentlessly exposed the "secret" clause in the bill that was aimed at legalizing "product-based" pyramid schemes (recruitment scams that masquerade as direct selling companies).

Effectively, this deceptive bill would have legalized "business opportunity" fraud. Some members of the DSA have been prosecuted, fined and shut down for operating non-retail scams or disguised pyramid schemes. The Utah bill they were promoting would have allowed such scams to operate with impunity in Utah.

Secret Language Exposed

The hidden provision in the defeated Utah bill is identical to what the DSA has deceptively inserted in bills in some other states. It stated:

"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 12 words mean that, as long as the endless chain scheme solicits purchases of goods from participants instead of plain cash, it would be legal in Utah. HB269 would have eliminated the requirements for retail selling. This -- not consumer protection -- was its real purpose. Disguising the investments as "monthly purchases or training fees" as many MLMs do, is little more than money laundering.

Allowing non-retail MLMs to operate 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 Federal Trade Commission policy which has defined non-retailing MLMs as unfair and deceptive trade practices. It is on this policy and definition that scams such as International Heritage and Equinox International were shut down.

In a non-retailing MLMs, which is now the most prevalent type, the majority of "purchases" are made by participants primarily to gain positions on the endless chain. These investments in product purchases are to be recouped mostly by recruiting other participants who must also make "purchases." This is a "disguised" pyramid scheme, posing as a "direct selling" business opportunity. The vast majority of "sales" are made ultimately to the "sales representatives," not to the public on a retail basis.

The Deception Train Moves to Other States and Congress

This tricky language that the pyramid promoters failed to get into the law in Utah is also being pushed by the DSA in a federal bill, HR 1220, to cover the whole country.

What Can You Do?

PSA is seeking consumers in each state to serve as watchdogs for any efforts by DSA to spread this bill to more states and to alert the US Congressional representatives in every state of this campaign of deception.

Because Dr. Taylor was alerted in time, he was able to launch a concerted consumer campaign that proved successful. We can do this in other states and we can stop the federal effort to legalize pyramid scams. Watchdogs are needed. Contact us and we can provide more details.

More Information About the DSA Pyramid Scheme Bill

DSA Attempts to Legalize Product-Based Pyramid Schemes

The Bill's Effect on Consumers

Text of DSA Bill

Printable One-Page Summary of
"Anti"-Pyramid Promotional Scheme Act Analysis

Download Information About DSA Bill

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This page last updated on 3/14/2005