About 24,000 Americans lost a reported $1 billion to romance scammers during 2021, the FBI estimated Thursday, marking what the Federal Trade Commission said was the most lucrative year for romance scammers on record—with many scam artists luring their victims into sending cryptocurrency.
The FTC—which only counts scams reported to its Consumer Sentinel Network, a database for scams and crimes like identity theft—said Thursday losses from romance scams rose to $547 million in 2021, up from $307 million in 2020 and $202 million in 2019.
About 25% of losses from scams reported to the FTC last year were paid in cryptocurrency, with the median individual cryptocurrency loss at $9,770, and the agency said a growing number of scammers have tricked victims with fake cryptocurrency investment advice.
Though reports of romance scams increased for every age group, the increase was greatest for people ages 18 to 29, though people in that group reported a median loss of only $750, compared to $9,000 among people age 70 and up, the group for whom losses were greatest.
Though the number of cryptocurrency-related scams grew almost fivefold from 2020 to 2021, gift or reload cards were the most frequent method of payment, used in about 28% of last year’s scams, compared to cryptocurrency at 18%, payment apps or services at 14%, bank transfers or payments at 13% and wire transfers at 12%, according to the FTC.
Many people targeted by romance scammers are initially contacted on dating apps, but more than a third of last year’s victims told the FTC they were first contacted on Facebook or Instagram.
The precipitous increase in online romance scams has coincided with a pandemic-driven increase insocial isolation and a reliance on technology to meet social needs. Tinder users sent 19% more messages per day in February 2021 compared to February 2020, and conversation length grew 32% over pre-pandemic levels, the company said.
Romance scammers create fake online profiles using photos swiped from the web, often creating identities with built-in excuses for not being available to meet in person, such as serving in the military overseas. Once a scammer has gained the trust of their victim, they may request money to help resolve a supposed crisis, such as paying for medical treatment for a sick child or resolving “processing fees” to release funds that would otherwise be in jeopardy.
To guard against these scams, the FBI said anyone looking to start a romantic relationship online should “go slowly and ask lots of questions,” consider researching the other person’s photos to see if they have been used elsewhere and avoid sending money, cryptocurrency or gift cards before meeting in-person.“We need to be wary about casting certain groups as the ‘natural’ victims of scams,” Sarah Rutherford, senior director of portfolio marketing, global, fraud and compliance at analytics firm FICO, toldForbes.
“The idea of the lonely, old woman struggling to use a computer to connect with the world can make others feel it would never happen to them and lower their defenses.”
In 2012, pioneering particle physicist Paul Frampton was arrested in Buenos Aires after checking a suitcase with 2 kilograms of cocaine concealed in the lining. Frampton, who was convicted of drug smuggling in Argentina and sentenced to four years and eight months in prison, said he was lured into becoming a drug mule by a romance scammer posing as a professional swimwear model.
Though the FBI on Thursday published an approximate figure of $1 billion in reported losses to romance scammers in 2021, a precise figure will not be available until the Internet Crime Complaint Center’s annual report is finalized. Additionally, many victims of romance scams likely did not report their losses, the FBI said.
I cover breaking news for Forbes. Previously, I was editor for The Cordova Times newspaper in Cordova, Alaska. In 2018, I obtained a Master of Journalism degree at the University of Melbourne. From 2015-2017, I headed Chess For The Gambia, a youth development project.
Internet fraud is a type of cybercrimefraud or deception which makes use of the Internet and could involve hiding of information or providing incorrect information for the purpose of tricking victims out of money, property, and inheritance. Internet fraud is not considered a single, distinctive crime but covers a range of illegal and illicit actions that are committed in cyberspace.
It is, however, differentiated from theft since, in this case, the victim voluntarily and knowingly provides the information, money or property to the perpetrator. It is also distinguished by the way it involves temporally and spatially separated offenders.
According to the FBI‘s 2017 Internet Crime Report, the Internet Crime Complaint Center (IC3) received about 300,000 complaints. Victims lost over $1.4 billion in online fraud in 2017. According to a study conducted by the Center for Strategic and International Studies (CSIS) and McAfee, cybercrime costs the global economy as much as $600 billion, which translates into 0.8% of total global GDP.
Online fraud appears in many forms. It ranges from email spam to online scams. Internet fraud can occur even if partly based on the use of Internet services and is mostly or completely based on the use of the Internet.
On the heels of yet another year of record sales, Amazon is dealing with a couple of unwelcome updates in the new year. The Senate Judiciary Committee has announced it will soon be marking up the American Innovation and Choice Online Act, an antitrust bill targeting Amazon and other Big Tech companies. This follows reports that the Federal Trade Commission is ramping up its years-long antitrust investigation into Amazon’s cloud computing arm, Amazon Web Services, or AWS.
It’s clearer now than ever that Amazon, which was allowed to grow mostly unhindered for more than two decades, is caught in the middle of an international effort to check Big Tech’s power.
The Senate bill, one of several bipartisan antitrust bills in Congress, would prohibit Amazon from giving its products preferential treatment, among other things. It’s the bill that would affect the company the most, and the one it has been fighting hardest against. Meanwhile, the renewed scrutiny from the FTC about alleged anti-competitive behavior from AWS, which represents a significant and largely invisible source of Amazon’s profits, could threaten Amazon’s long-term dominance in a number of industries.
Just because a company is successful and dominates a market (or even several markets) doesn’t mean it’s violating any antitrust laws. But Amazon’s critics say it illegally uses its power to harm competition and consumers, particularly with its Marketplace, where outside, or third-party, businesses can sell their products to Amazon customers alongside Amazon’s own wares.
Amazon has been accused of copying popular products to sell under its own labels, using non-public seller data to inform its own decisions, and forcing sellers into agreements that essentially prohibit them from offering lower prices elsewhere. Amazon denies some of these allegations and says other actions are simply meant to provide the services its customers want at the best price.
Some of these complaints have been around a while, but 2022 may be the year that Amazon faces meaningful and real consequences for them. There are still caveats. State attorneys general are rumored to be looking into some of Amazon’s business practices, but only one has filed a lawsuit so far.
The FTC is still waiting for the confirmation of a fifth Democratic commissioner who would break up the deadlock of two Republican and two Democratic commissioners. And while antitrust bills are making progress in Congress, Democratic lawmakers currently seem focused on other initiatives ahead of the midterm elections — elections that could give Republicans a majority in one or both houses of Congress.
Amazon isn’t the only Big Tech company that’s been targeted, but it might have more reason than anyone else to worry about the FTC in particular. One of two federal agencies that enforce antitrust laws, the FTC is now run by Lina Khan, who basically built her career on research surrounding her 2017 Yale Law Journal paper, “Amazon’s Antitrust Paradox.”
The paper detailed how Amazon’s rise showed the flaws in antitrust laws and led to Khan becoming known as Amazon’s antitrust antagonist. Since her appointment to the FTC last June, it hasn’t seemed like the question is whether the agency will take on Amazon, but rather when and how. Amazon, meanwhile, has asked that Khan recuse herself from any antitrust matters involving the company.
Khan “is best suited to understand the various issues and problems with Amazon,” said Alex Harman, a competition policy advocate at Public Citizen, a consumer advocacy group. “And we are very excited that she will be able to bring a significant action against them.”
In response to questions about whether its size and market share were too big in too many sectors, Amazon told Recode it faces “intense competition” in all of its lines of business. It says its expansion is part of a long-running strategy to make “big bets over the long term to reinvent the customer experience.”
Sarah Miller, executive director of the American Economic Liberties Project, an anti-monopoly advocacy group, sees it differently: “Amazon leverages its power in one space to take over a new space, which is core to their business practice. They have the ability to combine the competitive advantages of different aspects of their business to take over new sectors of the economy.”
While the FTC, for now, seems interested in AWS (and Amazon’s attempt to buy MGM), most of the antitrust attention we’ve seen elsewhere is focused on Amazon’s retail business and how it treats the businesses that sell products through its Marketplace platform. Critics say Amazon uses its power to give its own wares an unfair advantage over third-party sellers, and effectively forces them to pay for extra services and make agreements that could inflate prices everywhere.
“That’s where there’s a lot of obvious harms, and where you have businesses who are unhappy with how they’re being treated,” Miller said.
Consumers may be paying more and missing out on new products, companies, and innovations that a more competitive retail space would have produced. And that may be a violation of the antitrust laws we have now, or those to come.
How Amazon’s power might lead to higher prices
Many antitrust complaints about Amazon’s practices are based on its position as both a platform and a seller on that platform. This gives Amazon a great deal of power over the companies it’s competing against, as well as an incentive to favor its products over theirs. About 60 percent of Amazon’s online sales come through Marketplace.
This can be a mutually beneficial relationship. Marketplace’s sellers — currently more than 2 million of them — get access to Amazon’s huge customer base, and Amazon gets a vastly expanded selection that has helped make it the first and only website many online shoppers visit.
This model brings in hundreds of billions of dollars in revenue every year for Amazon, which now has an estimated 40 percent share of the e-commerce market in the United States. The company with the second-largest e-commerce market share, Walmart, has just 7 percent.
At the same time, Amazon likes to say it has but a small sliver — 1 percent — of a competitive global retail market. But that’s online and offline combined, and it includes many industries in which Amazon doesn’t sell anything at all. Amazon is also on track to edge out Walmart and become the most dominant retailer, online and off, in the United States as soon as this year.
No company has the kind of ecosystem Amazon built around its retail business beyond Marketplace. Amazon collects tons of data about its shoppers — data it uses to optimize its services and to fuel its burgeoning and increasingly lucrative advertising business.
Meanwhile, Amazon Prime and its fast free shipping has not only created an intensely loyal customer base but also compelled Amazon to build up its own shipping and logistics arm, Fulfillment by Amazon, to reduce its reliance on outside services and give it more control over its sellers. Many of Amazon’s rival retailers — namely, Walmart and Target — do some or all of these things to a lesser extent, but they’re just playing catch-up.
Smaller companies simply don’t have the scale or money to offer such services. Amazon, which has turned itself from a bookstore to an “everything store” to an everything platform, is in a class by itself.
“There are dynamics in digital that are fundamentally different,” Andrew Lipsman, principal analyst at eMarketer, told Recode. “Access to data is fundamentally different than we’ve ever had before. And all the other things that has enabled — all these digital businesses that Amazon has spun off — are underpinned by completely different economics than traditional retail economics.”
Amazon is happy to tell you how good it’s been for the small- and medium-sized businesses making money using its platform and how proposed antitrust actions could harm them. Others argue that Amazon makes even more money off of third-party sellers who have to play by Amazon’s rules because their businesses wouldn’t survive without the e-commerce giant and its customer base. And those rules, they say, aren’t always fair.
Last May, the attorney general of Washington, DC, Karl Racine, sued Amazon for antitrust violations over its treatment of Marketplace sellers. In September, he amended that lawsuit to include the wholesalers, or first-party sellers, from which Amazon buys products before selling them to its customers.
Racine told Recode that he started to wonder what the price of Amazon’s much-touted “customer obsession” was, especially after seeing accusations that Amazon copied popular products on its platform and then sold its own similar products for a lower price. (Amazon says it’s standard practice for retailers to use data about customers’ interests to help determine what to make for their own private labels.)
“I found that offensive,” Racine told Recode. “I felt like Amazon was just a copycat and burying a creative source. They were not focused only on the customer. They were also focused on their bottom line.”
The DC attorney general’s office investigated and found that “Amazon, the dominant player, seeks to maximize its profits at the expense of consumers, third-party sellers, and wholesalers,” Racine said. “It’s kept prices for goods artificially high, hampered competition, stifled innovation, and illegally tilted the playing field, all in its favor.”
Racine’s suit echoes some of the issues raised in other lawsuits and investigations as well as those identified in a recent report from the Institute for Local Self-Reliance, a nonprofit that advocates for locally owned businesses.
The big sticking point is that Amazon’s policies can effectively force other companies to give Amazon the lowest price for their goods. This is due to Amazon’s “fair pricing” policy, which says it can downgrade or stop sales of third-party sellers’ products if they’re priced “significantly higher” on Amazon than at other outlets.
Meanwhile, wholesalers have to agree to give Amazon a certain cut of their products’ sales. But Amazon also sets the prices of those products. If it reduces them to price match another outlet, the wholesaler may end up eating the difference and even losing money. That keeps wholesalers from selling their wares to anyone else for less.
Amazon sees all this as looking out for its customers and making sure they’re getting the lowest prices. But Racine and those who have filed similar lawsuits believe sellers and wholesalers are being stopped from selling their products for lower prices in other stores.
Because of this, competitors can’t offer lower prices to get an advantage over Amazon, and customers end up paying Amazon’s prices even if they don’t shop at Amazon — and paying more. Sellers and wholesalers can choose not to sell to Amazon, but few of them have the size and brand recognition needed to survive in a world where so many shoppers do most, if not all, of their online shopping on Amazon.
“That’s the power of brands: Nike is able to say, ‘You know what, Amazon? We don’t need you,’” Lipsman said. “The more commoditized your product is, the more likely you have to sell through Amazon, and you’re dependent on that channel.”
Amazon has filed a motion to dismiss the DC attorney general’s lawsuit, arguing that it’s simply making sure its customers are getting the lowest prices. The policies don’t force sellers to offer the lowest price on Amazon, Amazon says; they simply discourage them from offering higher prices on Amazon than they do elsewhere. But this hasn’t always been the case.
Just a few years ago, Amazon had a price parity policy, which more explicitly said sellers couldn’t offer lower prices anywhere else. Amazon ended this practice in Europe years ago amid scrutiny there, and then did the same thing in the United States in 2019. Racine says the fair pricing policy that replaced it serves the same function and is similarly anti-competitive.
How Amazon uses its power over sellers to squeeze them for money and data
Even though one of Amazon’s selling points is its low prices, critics say those aren’t necessarily the lowest prices possible, in part due to the increasing costs to sell on Marketplace. Amazon charges sellers a referral fee, typically 15 percent, for items sold. Then it piles on optional services that many sellers feel compelled to buy if they want their businesses to survive, cutting into their margins and forcing some to raise their prices to maintain a profit.
Fulfillment by Amazon, or FBA, is one example of this. Amazon doesn’t require that its sellers use its fulfillment and shipping service, but doing so makes them eligible for Prime, and it’s exceedingly difficult to qualify for Prime if they don’t.
That recognizable Prime badge is important. There’s a higher likelihood that Amazon’s customers will buy Prime products, because the shipping is free for Prime members and because Amazon gives preference to Prime items when it assigns what’s known as the “Buy Box.” When multiple sellers offer the same product, the Buy Box winner is added to carts when customers click “buy.” More than 80 percent of an item’s sales go to the Buy Box winner, so sellers are very motivated to do everything possible to get it. That may include using FBA even if it costs them more than shipping items themselves.
This practice has already gotten Amazon into trouble abroad. In December, Italy’s antitrust regulators fined Amazon about $1.3 billion for giving sellers who use FBA benefits over those who don’t. Amazon says it’s planning to appeal the decision, but more trouble could be on the way: The company is facing a similar investigation from the European Union’s European Commission, and India is also investigating Amazon for violating its antitrust laws.
Sellers have also complained about ads, which give their items better placement in search results. Reports say that Amazon hasincreased the number of ads, upping its revenue and pushing organic results down even further — which, in turn, compels sellers to buy ads to regain the prominent placement they used to get for free. Amazon told Recode that sellers wouldn’t use FBA or buy ads if those services didn’t add value or come at the best price, as they can always use other fulfillment services and buy ads elsewhere.
But it’s not just fees that Amazon gets from its sellers. Critics say the company uses data it collects from third-party sellers to give itself a competitive advantage. This was the subject of a “statement of objections” from the European Union, and as the DC attorney general has made clear, Amazon is notorious for creating its own versions of popular products sold by third parties.
The company recently opened up some of its data to sellers, possibly in an effort to ward off some of this criticism, and says it prohibits the use of non-public data about individual sellers to develop its own products. But founder Jeff Bezos told Congress he couldn’t guarantee that policy has never been violated, and multiplepressreports suggest that it has.
The company has also been accused of self-preferencing, or giving its products preferentialtreatment — and a competitive advantage — over those sold by third parties. This could take the form of giving its own products the Buy Box or prominent search rankings they didn’t earn. Amazon has total control over its platform, so the company can really do whatever it wants, and there isn’t much sellers can do about it.
Self-preferencing has become a catch-all term for many of Amazon’s alleged anti-competitive practices. It’s attracted the most attention from regulators so far. The company denies that it gives preference to its own items in search results and says the reports that it does are inaccurate. Many legislators aren’t buying that and have proposed bills forbidding self-preferencing, with Amazon specifically in mind.
How Amazon could be changed by new antitrust laws
Per its policies, the FTC has stayed mum on what, if anything, it’s investigating on Amazon. Congress, on the other hand, has been very public.
The House Judiciary Committee spent 16 months looking into competition and digital markets, focusing on Amazon as well as Apple, Google, and Facebook. Last year, a bipartisan and mostly bicameral group of lawmakers proposed a package of Big Tech-focused antitrust bills. The House’s bills made it through committee markup last June, but have yet to be put to a vote.
The American Innovation and Choice Online Act is the only Senate bill to be scheduled for markup so far. The House’s Ending Platform Monopolies Act, which still doesn’t have a Senate equivalent, is likely the most expansive of the bills in the antitrust package, forbidding dominant digital platforms from owning lines of business that incentivize them to give their own products and services preference over third parties. Should that bill become law, it could have a huge impact on Amazon, forcing it to split off its first-party store from its sales platform.
Amazon has fought back against the bills. It has sent emails to certain sellers and set up an informational website warning them about how the bills, if they become law, could negatively impact them. Amazon claims that it might have to shut down Marketplace or limit its ability to offer Prime services. The bills’ supporters say that companies would still be able to offer all of those services, but could finally compete on a level playing field.
“We urge Congress to consider these consequences instead of rushing through this ambiguously worded bill,” Brian Huseman, Amazon vice president of public policy, told Recode in a statement. He added that the bills should apply “to all retailers, not just one.”
While Amazon waits to see what the FTC and Congress do, its antitrust battles, real and potential, haven’t seemed to harm its bottom line. Business is good, growing, and disruptive. Amazon is even reportedly preparing to take on Shopify, a platform that helps businesses create their own online shops and has grown exponentially during the pandemic, with a similar offering that could come out as early as this year. If true (Amazon wouldn’t comment), it shows that Amazon isn’t afraid of going after potential threats even while under more scrutiny than it’s ever experienced.
That’s exactly the attitude Racine, the DC attorney general, takes issue with. “Amazon claims to be all about consumers,” he said. “What our evidence shows is that Amazon is all about more profit for Amazon, at the cost of competition and at the expense of consumers. And we’re looking forward to proving that in court.
Sara Morrison covers Big Tech and antitrust regulation, in addition to personal data and privacy. She previously covered technology’s impact on the world for Vocativ. Her work has also appeared in the Atlantic, Jezebel, Boston.com, Nieman Reports, and Columbia Journalism Review, among others.
Say I’ve got a business selling bananas, and I want you to sell bananas, too. Presumably, you’d want to know some details about this banana business opportunity, such as whether I’ve ever been sued for lying about my business, whether the amount of money I say you would earn is accurate, and what happens if, after selling for a while, you want to quit. Perhaps you’d want to take a week to think about it before signing on.
For most business opportunities in the United States, that’s the legal standard I would have to follow to get you on board. It doesn’t apply to multilevel marketing companies (MLMs), though. They’re exempt — at least for now.
A decade ago, the Federal Trade Commission (FTC) put in place the “business opportunity rule,” which basically describes a set of requirements for people trying to get others involved in a business opportunity, such as a work-from-home job (some of which are scams). The rule says that people offering such opportunities have to provide support for any income claims — if I tell you that you can make $1 million a year in my banana business, I have to prove it.
They must also disclose whether they’ve been involved in certain legal actions (such as any involving fraud), and list them out if they have; detail their refund and cancellation policy (if they have one); and provide a list of at least 10 other people who have bought in, all seven days before the person they’re recruiting pays any money or signs anything.
There were plenty of people who believed that MLMs should be included in the FTC rule when it was enacted a decade ago, but they were granted an exception following massive pushback from the industry. “That’s the power of lobbying for you,” said Douglas Brooks, an attorney who specializes in MLMs.
That could be about to change. The FTC announced in June that it would review the business opportunity rule as part of a revised 10-year review schedule — and there is hope that, this time around, MLMs might be roped in.
Earlier this year, then-FTC Commissioner Rohit Chopra (who was recently confirmed as director of the Consumer Financial Protection Bureau), put out a statement urging that MLMs and gig-economy platforms be included in the rule. Now that Chopra’s at the CFPB, the other commissioners — including FTC Chair Lina Khan, a protégé of Chopra’s, and Noah Phillips, a Republican-appointed commissioner who has criticized MLMs in the past — are expected to take a look at the issue.
MLMs are certain to push back against their inclusion. One lawyer I spoke to, who asked to withhold their name because they have clients in the industry, told me that the rule would be “disastrous” for MLMs and likely “decimate” the industry. Whether the FTC actually makes any changes to the rule is uncertain, and the process could take months or even years. But it’s a start.
MLMs lobbied their way out of regulation a decade ago. It’s not clear whether they’ll be so lucky now.
To back up a bit, multilevel marketing is a business model where sellers derive profits in two ways — by selling a product or service, and by recruiting other people to sell that product or service. Generally, the latter is more lucrative than the former.
It’s a big industry. The Direct Selling Association (DSA), a trade group representing MLMs, says it was worth $40 billion in 2020 and encompasses millions of sellers. It’s also a controversial one: The vast, vast majority of sellers make little, if any, money in MLMs (they often lose money), and consultants and companies have been caught on multiple occasions making misleading claims about earnings potential and product effectiveness.
Critics say MLMs are in essence pyramid schemes, where only people at the top make money, and do so by constantly recruiting new members. MLMs reject this characterization, but at the very least, some MLMs have gotten into trouble with regulators for bad behavior, including Amway, AdvoCare, and Herbalife.
MLMs aren’t completely unregulated — the FTC and Securities Exchange Commission, for example, have some purview over them. But it’s hard not to wonder whether there could be more guardrails, including with something like the business opportunity rule, which MLMs have vociferously opposed.
First proposed in 2006 and finalized in 2011, the business opportunity rule is meant to protect consumers from “bogus business opportunities” by laying out some basic requirements about what potential recruits need to be told and when.
When the rule was first proposed, the MLM industry went into overdrive to try to make sure it wouldn’t apply to them. As The Verge outlined in 2014, the DSA got over 17,000 people to send comment letters to the FTC opposing the then-forming rule being applied to MLMs. (By comparison, MLM critics sent under 200 letters.) MLMs also boosted lobbying expenditures and got dozens of members of Congress to write to the FTC urging it to let MLMs be.
“They just swamped the FTC with things basically saying, ‘If you do this to us, it’ll destroy the industry,’” Brooks said.
MLMs were successful: The FTC decided that they should be exempted from the rule, determining that it “would have imposed greater burdens on the MLM industry than other types of business opportunity sellers without sufficient countervailing benefits to consumers.” An FTC staff report said that some MLMs do engage in bad practices and are pyramid schemes, but that would better be determined on a case-by-case basis and the “record developed was insufficient as a basis for crafting MLM disclosures that would effectively help consumers make an informed decision about the risks of joining a particular MLM.”
Looking at how MLMs operate, critics have questioned whether the FTC’s decision was the right one — and hope they’ll decide differently now. There’s been increased scrutiny by the public on MLMs in recent years, and regulators have continued to take notice of their practices. The FTC has sent out warning letters to MLMs during the pandemic over their earnings and product claims (companies and sellers have taken advantage of the crisis). The regulator is currently enmeshed in a lawsuit against Neora, which sells skin care and wellness products, over allegations that it is a pyramid scheme.
The public has taken more notice of MLMs and the business model as well. For a long time, many people who were involved in MLMs and failed (which most do) didn’t talk about it — they were embarrassed, or they felt guilty over roping their friends and family into it, too. Former sellers and experts say that MLM culture is one where leaders place blame for failure fully on the shoulders of the individual.
Sellers are told that if it doesn’t work out, it’s their fault and their fault alone. But there has been an explosion of growth in anti-MLM communities on the internet, and there seems to be a greater awareness of the drawbacks the business model brings with it.
In other words, the FTC won’t just be flooded with comments from the pro-MLM community this time around, it’s also likely to hear more from the anti-MLM community as well.
“I would expect that there are going to be many comments, and I would expect that the MLM industry will gather its troops,” said Bonnie Patten, executive director of Truth in Advertising, a consumer advocacy nonprofit.
The FTC’s exact timing here is unclear. Patten said she expects action to begin in December, though she acknowledges it’s a bit of an “informed guess.” Even then, there’s a long road ahead, as the FTC will have to solicit public comments, send notices to lawmakers, and could hold arguments regarding changes. “This is a slow and laborious process,” Patten said.
Now that Chopra is at the CFPB, there have been some doubts among MLM critics as to how efforts to include MLMs in the business opportunity rule will proceed at the FTC. Chopra was the commissioner who had explicitly mentioned including MLMs under the rule, and now, the FTC has four commissioners instead of the usual five, so votes could come down to a two-two split.
Still, Patten said she’s relatively optimistic. “If we’re focused on MLM, I think of all the deceptive marketing issues in a deck of cards, MLM is the one that it appears all commissioners agree is an issue,” she said.
The FTC declined to comment on the matter, noting that they generally don’t speak publicly about rule-making processes as they are underway.
People should know what they’re getting into with MLMs
When you watch something like the LuLaRoe documentary or listen to a podcast like The Dream, it’s sometimes hard not to land in the same spot: How in the world can this be legal? Or at the very least, why isn’t more being done to look out for people before they get sucked in?
Most people don’t make money; plenty lose money. Some companies make earnings disclosures available, but they’re generally really difficult to read and understand. Even if it’s relatively clear that eight in 10 consultants make less than $10 a month, recruits are sold on the hope that they’ll be one of the lucky few to make $100,000.
Many MLMs don’t really know where their products go once they arrive at the sellers, who are often encouraged to buy in order to stay active in the company and show their commitment. (Their uplines, the people above them, make money when they buy.) Whether sellers are actually offloading those lotions or essential oils or earrings to other people, or just piling them up in their garage, the corporate office often is unaware.
Including MLMs in the business opportunity rule wouldn’t be a panacea, but at the very least, experts say it could be a good start. “All this rule would have required were some pretty basic disclosures and a seven-day cooling-off period, and you’re saying this is going to destroy the industry?” Brooks, the MLM attorney, said. “What’s going on here? Why would that be so destructive?”
A sample disclosure form on the FTC’s website doesn’t look that complex. Yet, Brooks said he expects it to be a “knock-down, drag-out” fight if it looks to the industry like MLMs will get included in the business opportunity rule. “I don’t doubt that they will go to Congress and try to get a law passed that will sort of preempt that effort,” he said. Indeed, there is a direct selling caucus in Washington, DC, with more than three dozen members, Republican and Democrat alike.
In a statement to Vox, Joseph Mariano, president and CEO of the DSA, said the organization “looks forward to a constructive engagement with the FTC on any prospective rule-making that might apply to direct sellers.” He said the DSA “has a long history of encouraging self-regulation and consumer protection as a complement to appropriate and reasonable government regulation” and pointed to the DSA’s code of ethics, which member companies and sellers must abide by, and the DSA’s self-regulatory council.
Brooks thinks efforts to curb MLM activity should go further than the business opportunity rule and other tools currently in the FTC’s toolbox. (Earlier this year, the Supreme Court curbed some of the FTC’s ability to seek monetary relief, which has prompted some of the conversation around the business opportunity rule.) In his view, regulators need to have harder lines around what MLMs can and can’t do in the first place.
“The FTC should prohibit certain types or aspects of MLM compensation plans, because the real problem with these companies is in the compensation plans, it’s the whole structure of the thing,” Brooks said. “People end up spending thousands and tens of thousands of dollars having thought that this was originally a $50 investment.”
So back to my banana business. At the very least, many experts say, I should have to tell you if the banana sellers under me are making $1 or $1 million a month. If I promise you that you’ll be a banana billionaire, I should have proof, and also tell you if there was a banana-related fraud lawsuit in my past, and give you a few days to decide if you want to get in on the bananas — whether I’m an MLM or not.
The harder question — and one the FTC isn’t looking at now, but perhaps should — is whether I should be able to get you in on the banana business at all if I know you’re almost sure to fail. If 99 of 100 sellers are in banana bankruptcy, just how hard can I sell you on the 1 in 100 dream of being a banana billionaire? That’s a question for another day.
A federal judge has given Mark Zuckerberg and Facebook investors a trillion or so reasons to smile.
Judge James E. Boasberg on Monday tossed aside several antitrust cases brought by the FTC and state authorities, turning away the most concerted campaign yet to police the social network. The decision sent Facebook’s stock sharply higher, allowing the company to cross the $1 trillion threshold in market value for the first time. These rising shares were a boon for common shareholder and billionaire alike: The 4.1% in stock price during after-hours trading added $5.1 billion to Zuckerberg’s fortune.
Boasberg’s decision—and the stock movement—underscore the complexities about Facebook’s future. The social network has developed a wide swath of critics from both sides of the political spectrum and received a major black eye for its handling of user data.
Led by New York Attorney General Letitia James, some of the company’s opponents had hoped antitrust legal action might deliver what they’ve long craved: A blow to Facebook to reduce its ballooning scale and importance and deliver a measure of regulation. The antitrust case revolved around Facebook’s 2012 acquisition of Instagram and its WhatsApp purchase two years later.
But bringing Facebook to heel won’t be as easy as its detractors might’ve hoped. Boasberg dismissed the states’ case over timeliness, saying it too much time had elapased since those acquisitions. Meanwhile, Boasberg tossed out the FTC’s argument and argued in a 53-page opinion that regulators hadn’t produced enough facts to support their argument. The FTC could still tak
The other thing is: Despite a steady drum beat of negative news for much of the past four years, Facebook’s stock has been a winner. Its shares have doubled since March 2018, when the full ramifications of the Cambridge Analytic become public, igniting this new era in Facebook’s history. Over that period, the S&P 500 went up less than 60%—while Zuckerberg, his position at the company bolstered by the company’s increasing share prices, has watched his fortune go from less than $60 billion to nearly $100 billion.
An antitrust suit against Facebook by the FTC and several states had the wind taken out of its sails today by a federal judge, who ruled that the plaintiffs don’t provide enough evidence that the company exerts monopoly control over social media. The court was more receptive, however, to revisiting the acquisitions of Instagram and WhatsApp, and the case was left open for regulators to take another shot at it.
The court decision was in response to a Facebook motion to dismiss the suit. Judge James Boesberg of the D.C. circuit explained that the provided evidence of monopoly and antitrust violations was “too speculative and conclusory to go forward.” In a more ordinary industry, it might have sufficed, he admits, but “this case involves no ordinary or intuitive market.”
It was incumbent on the plaintiffs to back up their allegation of Facebook controlling 60 percent of the market with clear and voluminous data and a convincing delineation of what exactly that market comprises — and it failed to do so, wrote Boesberg. Therefore he dismissed the complaints in accordance with Facebook’s legal argument.
The company wrote in a statement that it is “pleased that today’s decisions recognize the defects in the government complaints.”
On the other hand, Boesberg is sensible that lack of evidence in the record does not mean that the evidence does not exist. So he his giving the FTC and states 30 days to amend their filing, after which the complaints will be reevaluated.