New Proposed Rules for Pyramid Marketing Companies Slated

The Federal Trade Commission has been monitoring pyramid-marketing schemes for many years now it may have found all sorts of fraud, which often occurs. Not always, but often enough to catch their attention and fill up their agency with complaints. Indeed, there are many operators of pyramid marketing companies who are Legitimate. However, the Federal Trade Commission wants to protect consumers against the ones that are should we say less than ethical.

This is why the Federal Trade Commission is proposing new rules for Pyramid marketing companies; below is an explanation in a recent report on the proposed rule changes of why they wish to enforce new rules of the pyramid marketing sector;

Pyramid marketing schemes

“Like business opportunities covered by the existing Franchise Rule, pyramid schemes often deceive consumers with the promise of large potential incomes. It is not uncommon for promoters of these schemes to claim potential incomes of thousands a dollars a week or month. Because of the claimed high earnings potential, pyramid schemes are highly successful in attracting prospective investors. For example, one pyramid program attracted more than 150,000 consumers who collectively paid over $80 million during the course of three years. Indeed, cases brought under Section 5 against pyramid marketing promotions have resulted in huge consumer redress, such as $40 million in Equinox and $20 million in SkyBiz.com. The prevalence of false earnings claims is not the only similarity between pyramid schemes and business opportunity frauds covered by the current Franchise Rule. Many induce new recruits with the promise of an ongoing commercial relationship that will enable recruits to operate their own business selling various products or services. Typically, they promise to provide recruits with promotional assistance. Some also offer training. Few, however, reveal their high drop-out rates, much less the fact that the vast majority of those who have joined the program – often 90 percent or more – will not recoup their investment. Further, since 1990, the Commission has brought 20 cases against pyramid schemes under Section 5.79 These matters have involved a wide range of purported product sales or investments, ranging from the mundane (nutritional supplements, beauty aids, weight-loss products, and water filters) to the unusual (auto leasing, charitable giving, unsecured credit cards, credit repair, travel agency credentials, Internet malls, and Internet access). Indeed, pyramid fraud has gone high-tech, flooding the Internet and consumers’ email boxes. The Commission staff’s analysis of consumer fraud complaint data also demonstrates the prevalence of deceptive pyramid marketing schemes. For the period January 1997 through December 2005, Commission staff found that consumers lodged 17,858 complaints against pyramid schemes, reporting alleged aggregate injury level of over $46 million ($46,824,347).”

In reading this you can certainly understand why the Federal Trade Commission is going to so much trouble to make rule changes in business opportunities which to do with pyramid marketing schemes. It is truly unfortunate that so much fraud has taken place in this sector, because from a business model standpoint, it more resembles how human groups naturally form and evolve. Humans are social animals and pyramid marketing makes sense for so many reasons. Unfortunately, as the Federal Trade Commission has pointed out through observation and experience it is also one of the most of the abused business models of our present. Consider this in 2006.

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