Multilevel marketing is usually bad news

On July 1, a bill (SB182) went into effect that effectively nullifies Utah's Pyramid Scheme Act. You can start a pyramid scheme, make millions and get away with it because now it's perfectly legal. Of course, you must live with knowing that thousands of victims will lose time and money to enrich you.

But there's a catch. You must offer a consumable product. In a cleverly worded amendment, sales to legitimate customers are not required. You can sell exclusively to an endless chain of downline participants, so long as sales are in the form of goods or services "for actual use or consumption."

So what's the harm in selling primarily to a downline of recruits? The problem is that the compensation plans in these chain-selling programs (labeled "multilevel marketing" or "MLM" for short) reward a handful of people at the top of a pyramid at the expense of thousands of downline recruits, 99 percent of whom lose money.

Utah already has a reputation among many consumer advocates as "the scam capital of the world." This is due primarily to the proliferation of Utah-based MLM programs that cause millions of victims across the world to lose billions of dollars. Utah leads the nation in MLM participation and sponsorship. This was brought to the attention of legislators in committee hearings, but statistics on victims were ignored when the bill's sponsors claimed that Utah's "direct selling" (MLM) industry brings in four times as much income as the ski industry.

Who was behind this deceptive bill? The Direct Selling Association, which has been essentially taken over in recent years by MLM, has been going from state to state with amendments designed to exempt MLM companies from prosecution as pyramid schemes. Local MLMs teamed with the Direct Selling Association to get the bill passed. One of their strategies is to donate to the political campaigns of candidates for top law enforcement positions, who testify for the bill in committee hearings — without disclosing the conflict of interest.

So where does a consumer go for advice when recruited by an MLM enthusiast? Not the Division of Consumer Protection, which merely responds to complaints. Unfortunately, victims of all types of chain-selling schemes rarely file formal complaints, blaming themselves for their "failure" and fearing self-incrimination or consequences to close friends or relatives.

Forget about asking the Better Business Bureau for guidance. Most MLMs are members, and the BBB is careful not to offend them. They also report only unresolved complaints — which again are seldom filed against MLMs. And the Federal Trade Commission rarely takes action, unless there is a massive outcry of complaints. The FTC still has egg on its face for having ruled in 1979 that Amway was not a pyramid scheme.

The best place for independent and reliable information is the Internet. Do a Google search on "MLM-the truth" or "Is (name of company) a pyramid scheme?" Or go to our Web site: www.mlm-thetruth.com. And if you really want to earn a legitimate income outside of the standard job market, there is a link to an article titled "1,357 Ways to Make a LOT More Money than in MLM/Network Marketing."

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Jon M. Taylor is president of the Consumer Awareness Institute.