Consumers Group Consumer Protection

In a wholesale crackdown on deceptive marketing in cyberspace, the Federal Trade Commission has charged nine companies that market their products and services on the Internet with making false or unsubstantiated advertising claims. The FTC negotiated settlements to halt the deceptive practices of eight of the companies and is pursuing the ninth case in federal district court.

“Cyberspace is a new frontier for advertising and marketing,” said Jodie Bernstein, Director of the FTC’s Bureau of Consumer Protection. “But the Internet will not achieve its commercial potential if this new frontier becomes the “Wild West” of fraudulent schemes,” she said. “These FTC cases target deception in on-line marketing, and our focus on this area makes clear that the laws prohibiting fraud also apply to the information superhighway.”

The nine cases announced today involve on-line marketing for a range of phony schemes including credit repair ripoffs, bogus income opportunities, a phony grant assistance offer and a computer equipment supply scam.

The FTC charged five of the companies and their principal officers with making false claims about repairing consumers’ credit records. Using ads that made claims such as, “Guaranteed Credit Repair,” and “How to remove judgments, including BANKRUPTCY from your credit file,” the companies urged consumers to send fees ranging from $19.95 to $750 to get instructions or assistance on how they could remove adverse items, such as reports of bankruptcy, from credit reports, even if the information was accurate and not obsolete. Two of the companies claimed that for a fee, they could provide consumers with instructions to establish new credit identities and files. The statements made by the five companies were false, the FTC alleged, and the instructions for creating new credit files could violate federal criminal law.

The proposed consent agreements to settle the charges would enjoin the defendants from misrepresenting any remedy for credit history problems, including the ability to remove accurate but adverse information from credit reports. Settlements with the defendants who advertised programs to create new credit files also would bar them from misrepresenting the legality of any credit repair product and require them to disclose that consumers who follow their programs may violate federal criminal laws.

Four defendants were charged with making unsubstantiated earnings claims for the work-at-home businesses they advertised online. Touting earnings such as, “Earn up to $4,000 or More Each Month!” and “Our HOME WORKERS FIRST YEAR INCOME averages $38,000…,” they sold programs at prices ranging from $9.95 to $147. The FTC charged that by using such statements the defendants represented that the earnings were representative of what consumers could expect to achieve and that they had a reasonable basis to substantiate them. In fact, the challenged earnings representations are false and unsubstantiated, the FTC said.

The proposed agreements to settle the charges would prohibit these defendants from misrepresenting the income, earnings or sales from any business opportunity and would prohibit any claims about past, present or future earnings or income unless at the time of making the representation, they possess and rely on competent and reliable evidence that substantiates the claim.

“We have seen business opportunity scams for everything from vending machines to FCC-licensed telecommunications projects,” Bernstein said. “Last week, we announced cases against seven companies that marketed fraudulent schemes for 900-number programs. We intend to be just as vigilant in policing the fraud that pops up on the Internet,” she said.

Another FTC complaint targeted an advertiser who claimed to match consumers with private foundations with “billions of dollars” to give away to consumers. Advertising touted “FREE CASH GRANTS BY MAIL…” and offered, for a fee, to match consumers with private foundations likely to give them money for business, travel, education or debt consolidation.

The FTC complaint alleges that through the use of statements like, “Most of our clients are approved for cash grants,” the defendant represented that the majority of his clients receive a cash grant. The claim is false and unsubstantiated, the FTC alleged.

The proposed agreement to settle these charges would prohibit the defendant from making similar false and unsubstantiated claims and from misrepresenting the services or assistance he provides for obtaining grants, loans or other financial products or services.

“We want our message to be loud and clear,” Bernstein said. “The Internet opens a world of opportunities for consumers. Unfortunately, it also presents opportunities for scam artists.

We intend to monitor the Internet rigorously and act decisively when we see deceptive and misleading marketing,” she said.

The final FTC case charged that a marketer of computer memory chips advertised on line and promised that the chips would be shipped or ordered from an overseas supplier as soon as the consumer’s check cleared the bank. In some cases, the FTC alleged, the company specified a delivery date of two weeks after the consumer paid for the order.

According to the FTC complaint in this case, the company failed to deliver the chips and failed to comply with the FTC’s Mail or Telephone Order Merchandise Rule, which requires companies offering goods that are ordered through the mail, by fax, over the telephone or via an on-line service either to deliver items when promised or to give consumers the option to cancel the order and receive a refund. Under this rule, these companies also must issue refunds automatically when these requirements are not met.

The defendants in the FTC cases announced today are:

• Randolf D. Albertson,d/b/a Wolverine Capital, FTC File No. 952 3437
• Timothy R. Bean, d/b/a DMC Publishing Group, FTC File No. 952 3429
• Martha Clark, d/b/a Simplex Services, FTC File No. 962 3027
• Bryan Coryat, d/b/a Enterprising Solutions, FTC File No. 962 3019
• Lyle R. Larson, d/b/a Momentum, FTC File No. 962 3016
• Rick A. Rahim, d/b/a NBDC Credit Resource Publishing, FTC File No. 952 3441
• Robert Serviss, d/b/a Excel
• Robert A. Brandzel and U.S.Telemedia, Inc., FTC File No. 952 3381, U.S.District Court for the Northern District of Illinois, Eastern Division in Chicago, Civil Action No. 96C 1440.

The FTC votes to to take these law-enforcement actions were 5-0.

In eight of the cases, proposed consent agreements will be published in the Federal Register shortly and will be subject to public comment for 60 days, after which the Commission will decide whether to make them final. The remaining case was filed in Federal District Court and is subject to court approval. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.

NOTE: Consent agreements and consent decrees are for settlement purposes only and do not constitute admissions of law violations. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $10,000. A court-entered consent decree also has the force of law when signed by the judge. A complaint is not a finding of guilt. The Commission files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.

Copies of the complaints and proposed consents in these matters are available from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 202-326-2502. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

This material was obtain from the FTC Web Site.

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State of Minnesota,
by its Attorney General,
Hubert H. Humphrey, III,                  

         Plaintiff,

    vs.                                        

International Network
and Frederick Homan,

         Defendants.

                          INTRODUCTION

    The State brings this  consumer  protection lawsuit against a

California  business   and   its   Minnesota  representative  for

violating Minnesota's consumer protection  laws in the conduct of

an illegal pyramid scheme advertised on an online service.

                              VENUE

    5.   Venue is proper in Ramsey County in which America Online

subscribers received  International  Network's advertisements for

its illegal pyramid scheme.

                       BUSINESS PRACTICES

    6.   Defendant International  Network  advertises its illegal

pyramid  scheme  through  America  OnLine,  an  on-line  computer

communication service.

    7.   International Network's America OnLine advertisement for

its illegal pyramid scheme states:  "This is exactly how the rich

and the  very  rich  have  transferred  tax  free  money to their

friends and family for  generations!    Itis [sic] as American as

Apple Pie!"  (Copy of advertisement attached as Exhibit A to this

Complaint.)  The advertisement  then  lists  the five "phases" of

                              - 2 -

the pyramid scheme.  For each phase, the advertisement states the

amount of money that a  participant  pays and the amount of money

the participant will "receive."   In "phase 5," the advertisement

states:  "You  receive  $2,500  from  54  people totaling a grand

total of $135,000 and  to  keep  the  program going, you gift out

$2500 to  4  designated  people."    The  advertisement concludes

"Yours in Wealth and  Prosperity,  Start Smart, Company ID #1173"

and then lists the address of the individual  seeking to subscribe

to the pyramid scheme.   This  form  also  contains a section called

"Sponsor Information."   This  section  contains  the name of

Homan, Frederick Harold  as  the  "Sponsor" for International

Network in Minnesota.

         b.   A  letter  from  International  Network  signed  by

    Frederick H. Homan (Homan signs the letter when it is sent to

    Minnesota residents) with  a  salutation "Dear Wealth Seeker:

    I believe, based on a reliable  source, that you are a person

    seeking a BRIGHTER  financial  future  for  yourself and your

    family.  As a result, I  would  like to extend a very special

    invitation to participate in  a program called `INTERNATIONAL

    NETWORK'."  (Copy  of  letter  attached  as Exhibit B to this

    Complaint.)  The letter continues by describing the steps the

    subscriber must take  to  participate  in the pyramid scheme.

                                - 3 -

    ("It's as easy as 1-2-3!")   First, the subscriber must pay a

    "subscription fee"  of  $50.    Second,  the  subscriber must

    sponsor three  "subscriber/gifters."    Third, the subscriber

    must send a gift of $50  to  a person to be designated by the

    International Network.  The letter also states "When you have

    completed the five stages, which takes approximately 12 to 14

    months, you will have received $157,900 & it's TAX FREE!"

         c.   A page with the heading  "IS THIS LEGAL?"  (Copy of

    page attached as  Exhibit C  to  this  Complaint.)  The first

    part of the page  describes  how  one person can give another

    person money tax-free  as  long  as  each  gift  is less than

    $10,000 and each gift  is  received  from a different person.

    The  remainder  of  the   page  states  "You  Start  By . . .

    voluntarily sending a gift of $50 to one person designated by

    the program, then . . .

    Phase 1        You receive $50  from  3  people totaling $150
                   and then you gift out  $100 to 1 person who is
                   designated by the program.

    Phase 2        You receive $100  from  9 people totaling $900
                   and you then gift out  $500 to 1 person who is
                   designated by the program.

    Phase 3        You  receive  $500  from  27  people  totaling
                   $13,500 and  you  then  gift  out  $1,000 to 3
                   people/$3,000.

    Phase 4        You receive  $1,000  from  27  people totaling
                   $27,000  and  you   gift   out   $2,500  to  2
                   people/$5,000.

    Phase 5        You receive $2,500 from  54 people for a grand
                   total of  $135,000  and  to  keep  the program
                   going, you  gift  out  $2,500  to 4 designated
                   people."

                                     - 4 -

    The page concludes  with  the  statement:   "Just think . . .

    once you  have  completed  the  five  phases,  you  will have

    voluntarily gifted out $18,650 and have received $157,900 and

    you may repeat this cycle as many times as you wish!"

                    DECEPTIVE REPRESENTATIONS

    9.   In connection with  International  Network's scheme, the

         defendants fail to disclose that:

         a.   The scheme is an illegal pyramid;

         b.   For every dollar received  by a "subscriber" in the

    scheme, there is a  dollar given by another "subscriber"--the

    scheme  involves   only   the   transfer   of  money  between

    participants;

         c.   Because of the geometric  increase in the number of

    partof all

    participants to  realize  the  promised  return  of $157,900,

    (iii) only "subscribers" becoming  involved  in the scheme at

    an early stage are likely to receive any return, and (iv) the

    scheme is destined  to  eventually  collapse because it would

    require an infinite number of new members to continue to fund

    the scheme;

         d.   The pyramid scheme will collapse at an unknown time

    and "subscribers" who have  not  received  a return, or gift,

    before the collapse will lose all their investment;

         e.   Participating in  the  International Network scheme

    violates Minnesota law.

    10.  In connection with the International Network scheme, the

defendants have affirmatively misrepresented:

         a.   That "subscribers"  take  any  money received under

    the scheme free of  any  federal  tax liability.  In reality,

    any money received  through  participation  in  the scheme is

    taxable income under federal and Minnesota law.

         b.   That the scheme is legal in Minnesota.

                             COUNT I
                     CHAIN REFERRAL SELLING

    11.  The Attorney General  realleges  paragraphs 1 through 10
         contained in this Complaint.

    12.  By engaging in  the  conduct  described  in paragraphs 6
         through 8 above, defendants have operated and continue to
         operate a plan for the  disposal  or  distribution  of property
         whereby a member gives or agrees to  give a valuable consideration
         in order to  participate  in  the  plan  and  for  the  chance to
         receive something of value  by  inducing  new  participants  to give
         such valuable consideration, i.e., a chain referral, pyramid sales, or
         multilevel sales  distributorship  plan,  in  violation  of Minn.
         State. 

                            COUNT II
                         CONSUMER FRAUD

    13.  The Attorney General  realleges  paragraphs 1 through 12
         contained in this Complaint.

    14.  By operating an  illegal  pyramid  scheme, by failing to
         disclose the facts set forth in paragraph 9, and by claiming
         that income generated  by  it  are  not  subject  to federal
         taxation, defendants have employed  fraud,  false  pretense,
         false promise, misrepresentations,  misleading statements and
         deceptive practices, with the intent that others rely thereon,
         in violation of Minn. Stat.  

                            COUNT III
                        FALSE ADVERTISING

    15.  Plaintiff  realleges   the   allegations   contained  in
         paragraphs 1 through 14 of this Complaint.

    16.  By operating an  illegal  pyramid  scheme, by failing to
         disclose the facts set forth in paragraph 9, and by claiming
         that income generated by it are  not  subject to federal taxation,
         the defendants  have   published   and   placed   before  the  public
         solicitations via America  OnLine  and  fax that contain material
         assertions and misrepresentations  of  fact and mutual omissions,
         which are untrue, deceptive and  misleading in violation of Minn.

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Case:

State of Minnesota, by
its Attorney General,
Hubert H. Humphrey III,

Plaintiff,

vs.

Susan Dean,
d/b/a Deans Executive Publishers, Inc.,
a/k/a Dean’s Executive Publishing,
and John Does 1-3,

NATURE OF CASE

This is a  civil  consumer  fraud  lawsuit  in which Attorney

General  Hubert H.  Humphrey  III,  on  behalf  of  the  State of

Minnesota, seeks declaratory  and injunctive relief, restitution,

civil penalties, costs and  reasonable attorney fees.  Defendants

engage in a  scheme  to  defraud  consumers  by  offering to sell

information on how to send  first  class letters through the U.S.

Postal  Service  with  two-cent  stamps.     Defendants  falsely

represent that the practices they  promote are lawful and fail to

disclose material  facts  concerning  their  offer, including the

fact  that  consumers  who  intentionally  underpay  postage  may

violate federal law and are subject to a fine of up to $5,000 per

piece of mail.

BUSINESS PRACTICES

8.   Defendants purport to offer  consumers  a legal means of

sending first class  mail  for  two  cents.  Defendants advertise

this program through one  or  more on-line computer communication

services.

9.   After receiving an  inquiry  from a prospective customer

via the on-line  service,  defendants respond with correspondence

through the U.S. m herein by reference.

10.  In their offer  to  consumers, defendants represent that

the offer “was sent .  .  .  by  the  US Postal Service via FIRST

CLASS MAIL FOR ONLY TWO CENTS.”

11.  Defendants’ offer arrived bearing  a two-cent stamp with

thirty cents postage due.

12.  In the  solicitation,  defendants  offer  to provide the

customer with a  “special  POSTAL  RESEARCH REPORT explaining how

this procedure is  possible  and  complete instructions for using

this special postal  procedure,”  and  also  to provide consumers

with “a non-exclusive  right  to  resale”  so  that consumers may

3

“market this information to others.”   The offer represents that,

“[w]ith almost  37,000,000  opportunity  seekers  and  mail order

entrepreneurs that are available  on mailing lists, we’re talking

about a very serious  money-making opportunity here.”  Defendants

also offer a “PROVEN  mail  order  marketing plan that can easily

earn you in excess of $300.00 per day….”

13.  Defendants  represent  to  consumers  that  “THIS  IS NO

GIMMICK!  THIS PROCEDURE WORKS!”

14.  To  obtain  information  about  defendants’  services in

addition to  that  contained  in  Exhibit 1,  consumers  must pay

defendants at least $15.00.

15.  After a  consumer  pays  the  fee,  defendants  send the

“postal research report.”   The  report  is attached as Exhibit 2

and incorporated herein by reference.

16.  In the  “postal  research  report,” defendants represent

that their instructions for  mailing  first  class mail with two-

cent stamps are legal.    Specifically, defendants represent that

federal statutes provide for  a  “non-domestic  mail” rate of two

cents and give instructions which purport to designate mail “non-

domestic.”

17.  While affirmatively representing that their services are

legal, defendants fail to disclose to consumers the material fact

that consumers  who  follow  defendants’  directions will violate

federal laws.

18.  Defendants’  advertising  materials  are  misleading and

deceptive because they create  the  false overall impression that

the scheme is a  lawful  means  of sending mail with insufficient

postage.  The United  States  Postal  Service processes most mail

with  automated   equipment   which   does   not   always  detect

insufficient postage, but when the insufficient postage is noted,

the mail is delivered postage  due.   If a consumer intentionally

underpays postage, the Postal  Inspector will notify the consumer

that the consumer’s actions are illegal.  Any further intentional

underpayment will result  in  civil  or  criminal  sanctions.  In

fact, individuals who  intentionally  underpay  postage have been

prosecuted by the  United  States  Postal  Service for mail fraud

pursuant to 18 U.S.C.A.

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Assembly or craft work. These programs often require you to invest hundreds of dollars in equipment or supplies. Or they require you to spend many hours producing goods for a company that has promised to buy them. For example, you might have to buy a sewing or sign-making machine from the company, or materials to make items like aprons, baby shoes or plastic signs. However, after you’ve purchased the supplies or equipment and performed the work, fraudulent operators don’t pay you. In fact, many consumers have had companies refuse to pay for their work because it didn’t meet “quality standards.”

Unfortunately, no work is ever “up to standard,” leaving workers with relatively expensive equipment and supplies - and no income. To sell their goods, these workers must find their own customers.

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In a record-setting financial settlement, a home-based computer business opportunity firm has agreed to pay $5 million in redress to settle Federal Trade Commission charges that the firms ad claims about potential earnings and profits were false and misleading. In addition to the financial settlement, Computer Business Services, Inc. (CBSI), would be barred in the future from misrepresenting the success rates or profitability of its clients and from using deceptive testimonials or other deceptive statements to entice consumers to buy its products and would be required to disclose that federal laws restrict the use of certain automatic telephone dialing systems it sells.

CBSI ads touted its “turnkey” business opportunity — a collection of computer hardware and software that cost investors between $3,000 and $16,000 — claiming investors could “Earn $4000 Per Month From Your Home With A Computer!” In fact, according to the FTC complaint detailing the charges, the vast majority of investors never earn $4,000 a month and never even earn $4,000 over the duration of their business. In fact, “. . . it is rare for CBSI Center Owners to recoup even their initial investments,” the complaint says. The claims appeared in magazines, newspapers, and postcards, and also appeared on commercial online services, including CompuServe and America Online. The deceptive claims were amplified in information packets mailed to those who responded to the ads, the FTC alleged. Since 1991, the firm has sold its products to approximately 15,000 consumers.

“This is a significant settlement that reflects the significant difficulties of overstated business opportunities promising sky-high earnings,” said Jodie Bernstein, Director of the FTC’s Bureau of Consumer Protection. “?Downsizing,’ ?right-sizing,’ ?streamlining,’ and plain old layoffs in business, industry and government have created a large pool of people with a little money and an interest in becoming independent entrepreneurs. Companies that appear to guarantee income from business opportunities prey on those people and countless others,” she said. “Tens of thousands of consumers invest in schemes like this one and lose their money — 15,000 invested in this one, alone. Some invest their life savings — some borrow money in the belief that they can take charge of their economic destiny and make money independently. All too often, money’s being made — unfortunately not by the investors.”

CBSI marketed computer hardware and more than 40 different software programs that it claimed investors — called CBSI “Center Owners” –could use to sell services to businesses and individual consumers in their communities. The services ranged from computerized monitoring for seniors and latchkey children to voice mail service. According to the FTC complaint, CBSI ads and marketing material carried claims such as:

• “Each one of the programs. . .provides a needed service to the people or organizations in your community. Each program is a proven money-maker, and is now being operated successfully by our present center owners”;
• “We right now have 30 services you can perform. We have thousands of center owners already earning good money”;
• “Our programs really work, and you can earn more money than you ever dreamed possible if you will work our programs”; and,
• “Each of these services is a proven money-maker in large cities, small towns and rural communities throughout the country.”

Through such claims, CBSI represents that “Center Owners” ordinarily operate profitable businesses out of their own homes. In fact, the FTC alleged, CBSI Center Owners do not ordinarily operate profitable business and it is rare for them to recoup even their initial average investment of approximately $9,000. Contrary to ad claims that Center Owners can earn substantial income and can reasonably expect to achieve a specific level of earnings, such as $4,000 per month, investors can’t expect to earn substantial income and the vast majority never earn $4,000 per month or $4,000 over the entire duration of their business. The claims also are deceptive, according to the complaint, because the company did not have substantiation for the earnings claims.

CBSI also used marketing materials that displayed endorsements by purported center owners to suggest that ordinary consumers could successfully start up and operate their own home-based businesses with CBSI hardware and software. The endorsements touted high income from businesses using CBSI products. In fact, according to the FTC complaint, the endorsements don’t reflect those Center Owners’ actual experience, and don’t reflect the typical experience of investors who have attempted to use CBSI’s products or services. Therefore, the claims are false or misleading.

The FTC complaint also alleges that promotional material for an automatic telephone dialing system CBSI sold Center Owners for unattended pre-recorded outbound sales pitches failed to disclose that federal law prohibits use of the system in unattended mode for unsolicited advertisement without the prior approval of the party being called. Because this fact would have been material to consumers’ decisions about whether to purchase the system, the failure to disclose the information is deceptive, the complaint says.

To settle the FTC charges, Sheridan, Indiana-based CBSI and three of its principals, Andrew L. Douglass, Matthew R. Douglass and Peter B. Douglass would pay consumer redress of $5 million — the largest FTC consumer redress settlement obtained prior to the filing of an administrative or court complaint. In addition, the settlement would bar them from misrepresenting the earnings or success rate of investors; the existence of a market for their products or services; the amount of time it would take investors to recoup their investments, and also would prohibit them from making any representation about the performance, benefits, efficacy or success rate of any product or service unless they possess reliable evidence to substantiate the claims. The settlement also would prohibit the use of misleading testimonials or endorsements and require that ads for automatic telephone dialing systems disclose federal restrictions on their use.

The Commission vote to accept the proposed consent agreement was 5-0. The proposed consent agreement will be published in the Federal Register shortly and will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580. This matter was handled by the FTC’s Chicago Regional Office.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $10,000.

Copies of the complaint and consent are available from the FTC’s Public Reference Branch, Room 130, at the address listed above; 202-326-2222; TTY for the hearing impaired 202-326-2502. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov

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The Minnesota Attorney General Hubert H. Humphrey III provided the following CONSUMER ALERT entitled, “Attorney General Warns Consumers of Claims of Marketing Company Operating in Minnesota.” Here are quotes and summations of AG Humphrey’s statement:

“Attorney General Hubert Humphrey III is warning consumers not to believe claims that his office has “approved” of a marketing plan now operating in Minnesota known as “Trudeau Marketing Group.” According to dozens of calls to the Attorney General’s Office from all across Minnesota, marketing representatives have claimed that the Minnesota Attorney General’s Office and other attorney generals around the country have “approved” the company’s business plan.

” ‘ If someone says that my office approved this or any other marketing plan, it’s simply wrong,’ Humphrey said. ‘We don’t lend our stamp of approval to any business conduct or pre-approve any type of marketing programs. Consumers should be highly suspicious of any companies that make these types of claims.”

“According to information provided by consumers, Trudeau Marketing promotes itself as a multi-level marketing company. Some consumers have called the Attorney General’s Office to ask whether Trudeau Marketing runs a legitimate marketing plan, or is an illegal pyramid scheme. Humphrey says his office is reviewing information it has received from consumers but has made no determination about the company’s status.”

Humphrey points out the distinction between an MLM and a pyramid scheme by saying that a legimate marketing plan emphasizes the selling of products while a pyramid scheme emphasizes recruiting new members. And, he cautions that many illegal pyramid schemes try to appear as legitimate MLM’s ‘by using a line of near-worthless products or newsletters and claiming to be in the business of selling them. In such cases, there may be little or no demand for the products and they are incidental to the recruitment of new members, who keep the pyramid alive by paying large fees to join.

“If you make money by bringing in new members, rather than selling a real product, it’s an illegal pyramid,’ Humphrey said. ‘All pyramids eventually collapse because they require an infinite supply of new members. The promoters may make a lot of money, but others down the line will end up holding the bag.’

“The Attorney General also cautioned consumers to be wary of paying large up-front fees to purchase products in any multi-level marketing plan… [that] generally requires each new participant to pay hundreds, or sometimes thousands, of dollars for products that they may have difficulty in selling.’

“The Minnesota AG advises MLM prospects to: (1) Take your time and don’t succumb to high-pressure tactics, including promises of high income potential; (2) Carefully review any contracts; (3) Be cautious about any large upfront fees or products purchases for resale; (4) Find out about the competency and experience of the company and its officers, the products and your market, start-up fees, buy-back provisions, and actual earnings of current distributors; (5) Check to ensure that the products are actually being sold; and (6) “Don’t ever believe that a program has been examined and approved by the Attorney General’s Office.” If you hear this contact your AG’s office. Such claims are illegal in many states.

“Trudeau is the leading Nutrition for Life distributor.”

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