Pyramid scam alert

Once again, thousands of consumers have been duped by a “multi-level marketing” scheme, based in the USA. More than 50,000 consumers are now caught up in a federal prosecution. The US Federal Trade Commission (FTC) has filed a complaint in the U.S. District Court for the Central District of California against BurnLounge, Inc. and is seeking a permanent halt to the illegal pyramid practices alleged in the complaint

The Sunday Times FT has been in the forefront in alerting the public of pyramid scams including GoldQuest that swamped Sri Lanka some years ago.

As a result of these reports and investigations by the newspaper, the Central Bank stepped up public awareness against the scam and the probe against pyramid schemes is an ongoing process.

In a new column today titled ‘Pyramid Scam alert”, the newspaper will provide news and information about MLM scams across the world as an when new stories like these are available. The information is provided courtesy Robert L. FitzPatrick, President of the PYRAMID SCHEME ALERT in the US. The organisation’s website is: http://www.PyramidSchemeAlert.org.

FTC charges MLM – BurnLounge
Once again, thousands of consumers have been duped by a “multi-level marketing” scheme, based in the USA. More than 50,000 consumers are now caught up in a federal prosecution. The US Federal Trade Commission (FTC) has filed a complaint in the U.S. District Court for the Central District of California against BurnLounge, Inc. and is seeking a permanent halt to the illegal pyramid practices alleged in the complaint. BurnLounge is one of the hottest multi-level marketing schemes. Its "product" is downloaded music, similar to i-Tunes. Some of its top promoters were previously recruiters with the MLM, Excel Communications. (now bankrupt). Burnlounge attracted superstars from sports, such as Shaquille O’Neal, and from the music industry – e.g. Justin Timberlake – to endorse it.

Evidence of scam against Usana
An investigative article in the prestigious New Zealand business magazine, National Business Review, reveals that thousands of New Zealand consumers are being solicited by Usana without getting true or complete facts about almost certain financial losses they will suffer in the scheme. Entitled, “Most People Won’t Get their Money Back” the article quoted government statistician Murray H Smith, who has served as an expert witness in New Zealand pyramid scheme cases, “you can make a very strong argument that this could be a pyramid scheme.”

A new report shows that Usana operates in a very similar manner to Burnlounge Inc. which is now being prosecuted by the Federal Trade Commission as a pyramid scheme. Very little revenue is gained from actual retail customers (consumers who are not in the pay plan) and even less distributors’ profits come from retail sales.

Texas AG wants to stop Mannatech from operating in Texas
The Texas Attorney General claims that Mannatech, a publicly traded multi-level marketing (MLM) company – very similar in product, size, operation, publicly traded status and many other features to Usana Health Science – is deceiving and misleading consumers with its product claims.

The Texas AG did not charge the company with operating a pyramid scheme as it did in a recent prosecution of the “gas mileage pill” company, BioPerformance, also a multi-level marketing company.

The Texas AG said BioPerformance was a pyramid partly because it had almost no retail revenue. Neither does Mannatech. Both companies gain most revenue from new participants in the pay plan, not from retail customers, and recruiting is crucial to earn a profit in the pay plan.

Why didn’t the Texas AG charge Mannatech with violations of its anti-pyramid scheme statute? One obvious reason is that the multi-level marketing industry’s lobbying organization, the Direct Selling Association – Mannatech is a member of the DSA! – lobbied to change the law in Texas in 2000 so that MLMs are now generally exempt. The law says that if payments and rewards are included in the price of products, the scheme is excluded from the law’s definition of a pyramid scheme.

Amway recruiting stopped in the UK?
Amway’s operations have been halted in the United Kingdom and Ireland. The government of England is prosecuting Amway for deceptive marketing. Some of the claims involve Amway’s infamous “tools” business in which distributors are lured into buying bogus “motivation and training” books, tapes and seminars in addition to large amount of Amway inventory. The promoters claim these tools help the distributor to be "successful". Much less than 1% of Amway’s distributors ever earn a profit. Millions of consumers worldwide lose money and quit the Amway scheme each year.

Is MLM a scam?
Questions pour in from all over the world asking about multi-level marketing companies. The answer is usually the same: If (1) recruiting other participants is the main basis for the scheme’s income promises; (2) the pay plan offers money from multiple levels of a “downline”; (3) most of the money is going to top levels (4) the income scheme requires you to make initial and/or monthly purchases and (5) there is very little retail selling (to people other than the salespeople) occurring --- it is a scam. This description fits nearly all MLM operations. Bottom line: A wise consumer should generally consider all MLMs a scam. Warning: Before you join any MLM, read the fine print of the “contract.”

Like Amway, most MLMs impose severe restrictions to limit “competition” and to prevent the consumer from seeking legal recourse. Few consumers understand these extraordinary restrictions on their freedom or their legal jeopardy when they sign up at an MLM “opportunity meeting.”