Sales Gone Wild: Will the FTC’s Proposed Rule Put an End to Pyramid Marketing Schemes?


Americans who have seen “The Music Man” may believe that they easily can spot a Harold Hill; that is, a traveling salesman intent on defrauding people to make his fortune. Yet day after day, many Americans, and others around the world, fall prey to a similar type of deception – supposed “opportunities” in which 99.9 percent of investors lose their entire investment. In the United States alone, over one and a half million people per year are victims of these pyramid marketing schemes. Although little data is available concerning total losses experienced by victims of these schemes, a recent class action settlement against Herbalife revealed an average loss of $7,953 per claimant in connection with the scheme at issue in that case. Furthermore, these schemes consistently rank in the top ten list of fraud complaints received by the Federal Trade Commission (the “FTC”) and state consumer protection divisions. Unlike the sale of stock, bonds, and franchises, the sale of these “opportunities” is unregulated and occurs with virtually no government oversight.
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