Multilevel Marketing in the United States - The Federal Trade Commission and Pyramid Schemes -

Multilevel marketing is a multi-billion dollar business in the United States. Someof the most famous and largest MLM companies include such heavyweightcompanies as Amway, Avon, Tupperware and Herbalife. While most MLMcompanies are legitimate, many others operate as illegal pyramid schemes. However, distinguishing a legitimate MLM from an illegal pyramid scheme is difficult. Differentiating a legitimate enterprise from and illegal pyramid is complicated bythe fact that there is no legislation, rule, or regulation at the federal level definingan illegal MLM business or business activity. Consequently, the task has fallen tothe Federal Trade Commission (FTC) to make that determination through its generalfederal enforcement authority on a case by case basis. The FTC issues periodicnotices concerning MLM and illegal pyramid schemes through its website, however,the notices are not law and operate as mere suggestions. The cases brought by theFTC have provided some common clues and guidance, but the results have notprovided the public with a clear definition of an illegal pyramid scheme. The mostrecent settlements with Vemma and Herbalife have given some indication of whatthe FTC wants, but not with any certainty. This article discusses past and current law concerning MLM businesses andillegal pyramid schemes. The article discusses previous attempts at federallegislation, all of which have failed. This article also looks recent FTC regulatoryreforms, including the new Business Opportunity Rule, which, according to the FTCdoes not apply to MLM companies. Finally, this article will analyze and discussthe most significant cases brought by the FTC beginning with Koscot Interplanetaryin 1975, and culminating with Vemma and Herbalife at the end of 2016, whichrepresent a refinement as to what the FTC is looking for concerning illegalpyramid activity.