On Feb. 17, the Federal Trade Commission (FTC) announced it would begin a long-term process of possibly making a rule against deceptive “earnings claims.” Many opponents and critics of multi-level marketing are hopeful this first step in possible FTC rule-making will lead to law enforcement against MLM’s fake data and misleading promises of income. These false claims lure millions of people into MLM where they inevitably lose money. More than 99% of all MLM participants, each year, make no net profit from MLM’s hyper-promoted “business opportunity.”
MLMs are structured as “endless chains”, which the FTC treats as “legitimate.” MLMs are the only “business” that operate as endless chains, like a chain-letter. Therefore, by their pyramid structure, all MLMs can always promise, imply or claim that every recruit has potential for “unlimited” income, based on the “infinite” expansion of the recruiting chain. In MLM, as in all pyramids, money from new recruits, the “last ones in”, flows up the chain. Based on MLM’s extremely top-weighted reward formula, the few recruiters at the peak of the pyramid receive 50-80% of the total “rewards, dooming those below. The “multi-level” structure, with each level larger than those above, by design, places the vast majority in the bottom, where “bonus” income from a “downline” is not available. The bottom ranks churn 50-80% of recruits in and out each year who gain no income because they do not have, and could never have had, a large “downline.” Last ones in always lose.
Despite MLM’s predatory structure and operations, and the millions of harmed consumers, the FTC’s historical record and current practices undercut hope for consumer protection. Opposing any substantive law enforcement is the full array of MLM lobbyists. Many of these lobbyists recently served in the FTC and used their public positions to gain high paying jobs with companies the FTC is supposed to enforce the law upon.
Further discouraging is the glaring omission of the term “multi-level marketing” from the FTC’s rule-making announcement. Also, the emphasis on “earnings claims” signals the FTC is abandoning an earlier plan that might have brought MLMs under the FTC’s “Business Opportunity Rule.” The FTC had proposed this rule to require extensive disclosure requirements on MLM and other companies not classified as “franchises”. Then, following an intense lobbying effort by MLM to escape regulation. the FTC reversed course and infamously “exempted” MLMs, During that “Biz Op” rule-making, like today’s “earning claim” hope among consumer protection activists was ignited. The outcome of the Biz Op process dashed that hope and, for many consumers, entrenched views of systemic corruption at the FTC.
The announcement of the new “earnings claim” rule-making was quickly publicized in a blog published by Kelly Drye, one of the law firms heavily involved in protecting MLM. A co-author of the blog is Jessica Rich, now working for this law firm. She was formerly the head of the FTC’s Consumer Protection Bureau. Her co-author, John Villafranco, was counsel of record for the MLM, Herbalife, which extracted a favorable settlement from the FTC, enabling it to escape pyramid scheme prosecution. The favorable settlement for Herbalife was negotiated with the FTC by the FTC’s own former chairman, Jon Liebowitz, who had left the FTC and gone directly to work for Herbalife, just before the FTC launched an investigation of the company.
Kelly Drye publicly boasts of its “insider” influence with the FTC. From its website:
“Our team includes five former FTC officials, providing us with a level of expertise from the inside: Jessica Rich and Bill MacLeod are both former Directors of the Bureau of Consumer Protection (BCP); Laura Riposo VanDruff is a former Assistant Director in BCP’s Division of Privacy and Identity Protection; Dana Rosenfeld was an Assistant Director of BCP; and Aaron Burstein was a senior legal advisor to FTC Commissioner Julie Brill. Jodie Bernstein, yet another BCP Director, remains a trusted advisor to the practice group.”
Jodie Bernstein, the former director of the FTC Consumer Protection Bureau and referenced by the law firm as “trusted advisor” later became a lobbyist for Amway. In that role, she pushed the FTC, where she recently served as a top official, to exempt Amway (MLM) from regulation, which it did.
With influence “from the inside”, Kelly Drye boasts “helping clients avoid FTC scrutiny” and “persuading the FTC to close investigations” and “litigating to a favorable outcome.”
Of course, MLM is not the only area where FTC officials pass through “revolving doors” and peddle their “inside” influence to companies subject to possible FTC law enforcement. In a 2019 investigation, Public Citizen found over 75 percent of top FTC officials over the last 20 years have “either left the agency to serve corporate interests confronting FTC issues, or joined the agency after serving corporate interests on these issues, or both.”
According to the report, “Of the 25 FTC Commissioners, two-thirds have corporate revolving door conflicts” or “were hired by companies facing FTC investigations, including Amway (and) Herbalife.”
