| Comment Number: | 522418-06415 |
| Received: | 7/6/2006 10:02:21 AM |
| Organization: | Pyramid Scheme Alert |
| Commenter: | Robert FitzPatrick |
| State: | NC |
| Subject: | Business Opportunity Rule |
| Title: | Notice of Proposed Rulemaking |
| CFR Citation: | 16 CFR Part 437 |
| Attachment: | 522418-06415.pdf Download Adobe Reader |
Comments:
Please accept the official comment of Pyramid Scheme Alert (PSA), a non-profit consumer organization. It is attached as an Acrobat PDF. Additionally, PSA requests to be invited to testify and offer its research at Hearings scheduled on the Business Opportunity Rule. Pyramid Scheme Alert (PSA) is the largest and most active non-profit consumer organization with the mission of analyzing, exposing and educating consumers about pyramid marketing schemes. Formed in November 2000, PSA assists thousands of consumers each year with email or direct phone assistance. Its website, http://www.pyramidschemealert.org, offers tools, research, and news for distinguishing pyramid schemes from direct selling. PSA directors and advisors have served as expert witnesses for the US Dept. of Justice and numerous state Attorney General offices in pyramid scheme prosecutions. The "pyramid marketing schemes" referenced in the FTC proposed rule harm more people than any other type of "business opportunity" fraud. They employ mass meetings to entrap consumers. They falsely promise income based on the trick of "geometric expansion" of an endless chain. They claim to offer viable income opportunities while inflicting losses upon 99% of all participants each year. "Pyramid marketing schemes" disguise themselves as "direct selling". All such scams operate as "multi-level marketing (MLM)". In a separate mailing, Pyramid Scheme Alert has provided its statistical report documenting that more than 99% of all participants in major multi-level marketing schemes never earn a profit. Pyramid Scheme Alert proposes three components of the FTC rule requiring disclosures from multi-level marketing "business opportunity" schemes. 1. Disclosure of Retail-based Income Averages: The distinguishing feature of an MLM pyramid scam is the lack of profitable retail sales among most participants. Recruiting versus retailing is the dividing line between bogus, deceptive scams and legitimate direct selling. This standard has been applied consistently by the FTC in more than a dozen prosecutions, written into state laws, and repeatedly upheld by federal courts. Pyramid Scheme Alert, therefore, proposes that the FTC adopt rules that require the disclosure of average retail-based income for participants in each level of an MLM scheme. This data can be gathered by survey or direct reporting by participants. The FTC must insure that the data is verifiable. 2. Require that all multi-level marketing schemes make "income claim" disclosures: An "income claim" is inherent in all multi-level marketing operations, which, by definition, are "income opportunities." Therefore, no option should be allowed for any multi-level marketing company to check the box indicating it makes "no earnings claim". 3. Disclose total number of participants and average costs to participate: A common deception of pyramid marketing schemes is to provide recruits with a mean average of "income" for each level in the scheme’s hierarchy or an overall mean average of "income" only for "active" participants. These mean averages are misleading and deceptive. They skew the average upward by excluding large numbers of participants that drop out during the year - as many as 60% of the actual total. An even more harmful practice is the omission of all costs - money paid out by participants to the income-opportunity-scheme - thus hiding large-scale losses by nearly all participants "Money paid out" includes incentivized product purchases and associated costs that are presented as mandatory or necessary to success, such as motivation seminar registrations, audio and video tapes, etc. When such costs are factored, 99% of participants lose money. Thank you for the opportunity to offer comment. We are prepared to answer questions and to offer additional information. Sincerely, Robert L. FitzPatrick, President PYRAMID SCHEME ALERT RFitzPatrick@PyramidSchemeAlert.org