Note: The published comments of Dr. Lasdwun N. Luzes may be found on the FTC website: https://www.regulations.gov/comment/FTC-2022-0020-0028
The published comment is also archived HERE.
The recent report by staff of the FTC Consumer Protection Bureau related to a proposed rule on MLM “Earnings Claims” confirms the economic analysis of Dr. Lasdwun N. Luzes that such a rule would be useless and unworkable. Dr. Luzes is the author of the ground-breaking booklet, In Defense of the Pyramid Scheme.
Dr. Luzes argues that multi-level marketing (MLM) is an obvious pyramid scheme, and that pyramid schemes are now conventional businesses and should be legalized. He points to other areas of the economy also based on “robbing Peter to Pay Paul”, including crypto, real estate flipping, the banking system, the stock market, consumer credit, and the federal budget.
In the case of MLM, which he views as the most obvious pyramid scheme directly affecting the most people, the extreme loss rates, he has shown, are consistent with trends in the general economy today for the rate of “losers.” In his view, “deception” in a MLM pyramid scheme is not different or worse than blatant lies told every day in general advertising and in political campaigns. Most importantly, he notes that pyramid schemes are extremely lucrative for founders and top recruiters, and so pyramid schemes are very good businesses.
Dr. Luzes points out that more than 40 years ago, the FTC legalized the MLM “business model”, which is definitively a pyramid scheme, and the FTC has consistently endorsed the MLM pyramid as it grew to global proportions. In all that time, the FTC never monitored loss rates or deceptive “earnings” claims. Yet, the FTC also, on rare occasion, prosecutes an MLM as a “pyramid scheme”. Dr. Luzes believes the FTC should drop the pretense and just openly support pyramid schemes as businesses, which it is doing anyway in practice.
The FTC report confirms that a workable, enforceable “rule” on MLM “earnings claims” is impossible, as Dr. Luzes has explained. After studying “data” from 70 MLMs – which they characterized as incomplete, sometimes incomprehensible and inaccurate – the FTC staff was led, as Dr. Luzes predicted, to an erroneous and misleading “conclusion,” portending a useless, misleading “rule.”
The “take-away” of the report is that the vast majority of MLM participants earn “less than a thousand dollars in a year.” This is like saying “not many” people win lotteries, or “most people live less than 200 years.” It misrepresents reality. The FTC “conclusion” erroneously implies most recruits gain, or could gain, some “earnings”, up to $1,000, per year. In fact, almost no one gains even one-cent in net profit. It also implies most MLM recruits continue for a year or more. Most new recruits quit and are replaced within a year, every year, making “annual” data invalid.
In plain language, as Dr. Luzes explains in his provocative book, there are no “earnings” in MLM. There are financial gains for those at the extreme top, owners, founders, and early recruiters, based on the losses of all others, That is the nature of the pyramid scheme “business.” The losses for new recruits are “by design,” and can never change. So, there is nothing to “regulate.” A “rule” on “earnings claims” is a pretense that there are “earnings.”
MLM’s unique “business model” – consistently endorsed by the FTC since 1979 – is based on the “endless chain”. This model, as Dr. Luzes eloquently explains in his book, permits MLMs – only MLMs – to make the electrifying promise of “unlimited income potential” for all recruits, regardless when they are enrolled or how many others are already enrolled. This FTC-approved “plan” authorizes MLMs to claim to be “the greatest income opportunity in the world,” even if data show more than a 99% loss rate, every year. Because MLM is based on the metaphysical concept of “infinite expansion,” it can claim it is not bound by markets or math. Recruits are told they succeed with “belief” (as long as they also pay and recruit).
In his book, Dr. Luzes shows that what MLMs actually promote is not “earnings,” but the “opportunity” to be part of an “endless” money-chain that “transfers” money, the opposite of “earnings.” Promises and claims of an “unlimited opportunity” could never be regulated.
Dr. Luzes further backed his recommendations by citing the FTC’s official view that “earnings claims” by MLMs don’t have to be true. He quotes what the FTC wrote about MLM earnings claims in 1979 when it legalized the MLM “endless recruiting chain” model:
“References to the achievement of one’s dreams, having everything one always wanted, etc. are primarily inspirational and motivational; to the extent that they dangle the likelihood of financial security and material success before the potential distributor, they constitute vague ‘puffs’ which few people, if any, would take literally.”
Dr. Luzes also notes, since an “earnings claims rule” would imply systemic deception, it insults and discredits all the FTC officials who now work or may in the future work for MLMs or MLM law firms or for the Direct Selling Association.
Robert FitzPatrick (copyright 2024)
Perfect!!! The ftc is a sick joke!!!
ReplyDeleteThe analysis of these mattters by 'Dr. Luzes' would be hysterically comical, if it wasn't for the tragic results of the Big 'MLM' Lie.
DeleteFederal Trade Commission officials effectively raised the white flag of surrender to abusive criminals when, starting in the 1970s and despite mounting-complaints from the public, they set aside an established legal precedent which had automatically banned endless-chain recruitment frauds (previously labelled as, 'pyramid selling schemes'); for, even though it was under investigation and facing prosecution, they chose not to shut-down the corporate-front for the original 'MLM/commercial' cult upon which all subsequent versions were to be modelled. This was evidently because the bosses of 'Amway,' Messrs. Richard DeVos and Jay Van Andel, with a Bible in one hand and the Stars and Stripes in the other, had purchased association their local congressman (fifth Michigan district) with significant quantities of stolen money. The beneficiary of these ill-gotten gains was none other than Gerald Rudolph Ford Jnr. - a politician not exactly noted for his intellectual capacity, but nonetheless someone of great influence.
For those readers who are perhaps too young to remember him, Gerald Ford was leader of the Republican party in the House of Representatives 1965-1973, US vice-president under Richard Nixon 1973-1974, eventually becoming US president 1974-1976 after Nixon was forced to resign. He is also the president who granted a pardon to Nixon, for the crimes he'd committed whilst in office.
There can be absolutely no doubt that, culminating in 1979, the chiefs of an important civil regulatory agency of the US federal government played politics, and in so doing, completely failed in their appointed task of protecting the American public. As a consequence, the FTC actually brought about the birth of the meaningless phrase, 'Multi-Level Marketing is legal.' Thus, an insidious, and highly profitable, endless-chain recruitment fraud was effectively authorized in the USA. Furthermore, this major American regulatory-lapse allowed the profitable racket of 'MLM/commercial' cultism not only to be extensively duplicated, but also to be exported around the world, now hidden behind the outrageous false-claim that the 'Amway's MLM business model had been examined and approved by the US government.'
Not surprisingly, subsequent generations of politically appointed senior FTC officials have all flatly refused to admit publicly to their predecessors' catastrophic failure and their own negligence - for which, one day, a sitting American government might possibly find itself liable. Meanwhile, this eyes-wide-shut federal policy enabled the Big 'MLM' Lie to transform and expand into a well-oiled machine for stealing and laundering money on a global scale - each year bringing billions of dollars into the USA, and all right under the noses of regulators who have been allowing this plunder to be falsely-declared (with the paid-compliance of some of the world's largest accountancy firms) as 'retail sales revenue.' However, plenty of senior FTC officials, as well as high-ranking US politicians (including a certain Donald John Trump), have all had their snouts planted in this almost bottomless trough of foreign and domestic loot. This has been set before them by the bosses of various 'Amway' copy-cat 'MLM' rackets whose camouflaged criminal activities they have conveniently refused to identify. Indeed, the number of senior FTC officials who have accepted, and continue to accept, tempting offers of well-paid employment from 'MLM' front-companies, or law and accountancy firms contracted to play along with the Big 'MLM' Lie, is truly astonishing.