The Moolenaar Amendment: Why is the DSA pushing pro-pyramid law?
Personally I think MLM regulation in the US is in a pretty good place.
Other than the host of affiliate autoship recruitment scams that still need to be cleaned up (nutrition niche, I’m looking at you), there hasn’t been any major Ponzi or pyramid scheme launches in the US since the Vemma and Herbalife busts.
With 50% or more retail sales volume the cornerstone of current regulatory enforcement (other than outright securities fraud on the Ponzi side of things), all the FTC and SEC need to do is enforce the law.
Not so according to the DSA, who for some reason believe the industry desperately needs to kill off any retail sales volume requirements.
While I don’t personally take the DSA very seriously (far too many nutrition niche autoship recruitment schemes in their member-base), it’s undeniable they have political clout.
Among others, the DSA website lists Repulican Congressman John Moolenaar as a “Direct Selling Caucus Member”. That means he can be counted on to push the DSA’s agenda as required.
As I mentioned earlier, the DSA’s current agenda is to put into law that MLM companies don’t have to generate retail sales.
And so we have the “Moolenaar Amendement”, quietly tacked onto the House Financial Services and General Government Appropriations bill.
What does the MLM industry have to do with financial services and government appropriations?
Nothing. That legislation has to be passed though, and the idea is that by attaching the Moolenaar amendment to it, a pro-pyramid scheme law might fly under the radar.
Moolenaar’s amendment ‘proposes that direct selling does not require selling products primarily to people who are not distributors‘.
That is to say an MLM company could generate 100% of sales revenue from recruited affiliates and ignore retail sales altogether.
This is problematic for what should be obvious reasons. Pyramid schemes and Ponzi schemes that utilize pyramid recruitment, by design have little to no retail activity taking place.
There is no distinction between a pyramid scheme and an MLM company without retail sales taking place and generating commissionable revenue.
In an attempt to justify their support of the Moolenaar amendment, DSA President Jospeh Mariano framed his response as a defense of the MLM industry as a whole.
“Direct selling is no pyramid scheme” writes Mariano, who then proceeds to sell you on why the US needs to legalize pyramid schemes.
Everyone who engages in or is considering engaging in direct selling, be they consumer or business builder, needs better protection from the reputational and financial harm caused by pyramid schemes that masquerade as legitimate businesses.
An amendment proposed by Rep. John Moolenaar (R-MI) to the FY 2018 Financial Services and General Government Appropriations bill, July 13, would define a pyramid scheme under federal statute for the first time and make clear that direct sellers buying products for their own personal use is a legitimate business practice.
Everyone wants pyramid schemes prosecuted to the fullest extent of the law, but nowhere in federal statute is it clear to consumers or anyone else what constitutes a scheme.
No retail sales? You’re running a pyramid scheme. It’s that simple.
Perhaps not so coincidentally, both Herbalife and Vemma are DSA members.
Here we go…
While the bulk of Mariano’s justification wastes your time with a general defense of the MLM industry nobody asked for, the real problem for the DSA is they’re aware most of their member companies don’t generate significant retail sales activity.
I can’t support this claim with evidence, as no MLM company I’m aware of publishes retail sales volume data (funny that).
But Vemma and Herbalife were not small companies, and if they permitted to retain DSA membership and operate as pyramid schemes – it follows that regulatory investigation into other DSA member companies would lead to enforcement actions.
And so, instead of acknowledging some of their members are running pyramid schemes, the DSA, company membership fees in hand and politicians by their side, are now lobbying to legalize the pyramid scheme business model.
Make no mistake, having to ignore a lack of retail sales would have thwarted regulation of Zeek Rewards ($850 million dollar Ponzi scheme), TelexFree ($3 billion dollar Ponzi scheme), Vemma ($200 million dollar pyramid scheme) and Herbalife (billion dollar company fined $200 million for being a pyramid scheme).
With potentially billions of dollars in losses by the general public at stake, the Moolenaar Amendment cannot stand.
As someone who covers the MLM industry day in and day out, without doubt the biggest threat the industry faces is the emergence of cryptocurrency scams utilizing MLM business models.
Probably 70% of new MLM companies I review these days are in the cryptocurrency niche or utilize cryptocurrency as a method of payment. Yet you wont find anything about cryptocurrency scams on the DSA’s website or in their lobbying efforts.
Not a peep. They’re far too busy trying to legalize pyramid schemes through sneaky dead of the night amendments.
Just imagine, MLM companies operating with little to no retail sales activity with full impunity from the law.
That’s a disgraceful enough proposal on its own. That the Direct Selling Association is advocating it?
How about the DSA stop representing the interests of dodgy company owners paying their bills and try representing the best interests of the industry for a change?
And if that’s not sustainable, maybe it’s time to do away with the DSA altogether.
I’ve been writing about the MLM industry for over seven years. During that time I don’t recall even one instance the DSA has had a meaningful impact worth covering.