Every see something and think, “I wish I had done that. I had that idea years ago.” I felt that way when I saw HotOrNot.com years ago. What 20-year old male hasn’t said, “Wow that woman is a 9!”
I had the same feeling a couple of days ago, but it isn’t about a business. It is about an article. I’ve been writing articles and comments on this topic for years now. I’ve just never seen it covered so well in so few words that I’m tempted to quote the whole thing here.
The article is a Former FTC Economist calling for a Federal Pyramid Scheme Rule. Instead I’ll cover just a few quotes:
“Now is time for ever greater clarity in the prosecution of pyramid schemes; case in point, Vemma. The FTC’s analysis of Vemma shows an organization that rewards participants primarily for recruitment, while its products (nutrition drinks) are just incidental to the proposed money-making venture. What is evident from the presentation of the facts is just how blatantly this scheme operated.”
So at least it is great that we caught Vemma and there wasn’t too much damage right? Here’s the next part of the quote:
“Outrageous income representations all over the Internet and other venues, $200 million in annual revenues for the past two years, operating for more than 10 years, and involving multi-thousands of participants. The FTC will surely prevail and I laud its action.”
Oh so it went on for 10 years! I’ve read the estimates of closer in the millions over that time. Still this was something so easy that someone as “Lazy” as me could see it. For some reason law enforcement needed 10 years to see it.
“Yet, it is also an example of the limitation of case-by-case prosecution. Certainly, Vemma was aware of the FTC’s clear victory in BurnLounge (2008 – 2014) and other similar recent actions (e.g., in FHTM and Global Information Network, both in 2013) but none of these strong actions, as well as a string of other FTC prosecutions, deterred this organization from blatantly continuing on.”
Bing, bing, bing! We have a winner! This was essentially the point I made a year ago when I wrote: Is Every MLM a Scam?. These organizations compete for distributors ruthlessly. It can be a race to the bottom, because if one organization is going to cheat the others need to in order to stay competitive. With no law enforcement to speak of, what do you expect the organizations to do? It’s like putting the wolf in charge of the hen-house and expecting nothing to go wrong.
This has lead to the FTC executive to state the following:
My thesis is this: while case-by case prosecution always remains necessary, it is not sufficient to deter pyramid schemes — and all the more in the face of continuing public misinformation that simply muddies the waters. We need the clarity that would be granted by a federal pyramid rule.
No [poop] Sherlock! This has been an obvious need for a long, long time.
It’s not even difficult to do, it’s just that no one tasked with getting it done.
“Presently, the government generally faces two types of circumstances: (I) cases in which it presents overwhelming up-front evidence that shutters the company immediately via a court injunction (e.g., FHTM and other ex parte actions, such as Vemma)…”
Essentially a company would have to be as incompetent as the NFL was in trying to punish Brady to be caught by the FTC. It’s like saying, “We are only going to go after bank robbers who are dumb enough to not wear masks. If they are going to wear a mask, well that’s a crime that’s too difficult to solve, so we won’t try.”
“… or (ii) the government faces protracted litigated cases in which the agency argues, each time again, for a line of demarcation between a legitimate MLM and pyramid scheme and that the line has been crossed.”
This just costs the taxpayers tons of money while lawyers get rich leaving no real relief for the victims. Also, with well over a thousand such organizations, it’s really inefficient and impractical to get protracted legal cases with each of them.
This leads to Vander Nat to claim:
“The first circumstance is effective in stopping a limited number of slam-dunk pyramid schemes, while the second is not sufficient to deter the ongoing propagation of pyramid schemes. We need the promulgation of a federal pyramid rule if we are ever to combat ongoing pyramid scheme harm.”
Unfortunately Vander Nat’s suggestion breaks down from there. He focuses on making the companies show retail sales and putting the burden of proof on companies to show that they really are focused on sales. It’s certainly better than the situation that exists now, but it won’t solve the problem because you still have a 1000+ protracted lawsuits.
It seems to come at the problem as if there’s some form of MLM that is legitimate. As Rogier van Vlissingen conclusively proves to me here, there isn’t. It simply isn’t something that exists.
It’s a pretty simple legal fix. Just set fire to the whole MLM system (even China has been able to do it). You can still have sales people who use word of mouth, throw their Tupperware/Pampered Chef parties. It’s just that they’d get a simple sales commission when they make sales. They wouldn’t get money for recruiting people into endless chains where they are creating competition for making such sales. (Yes the very idea of creating competition against to limit your own sales is nuts!)
So straight-up sales commissions. It’s this easy to solve an annual $50 billion pyramid scheme issue in the United States alone.
No one wants to hear about it or is paid money to do anything about it… and so it continues.
P.S. Bet you read the title and thought this was going be about Tom Brady. I would have accepted many of the articles on that as being the core article you should read today too.