Frank VanderSloot is a board member of the U.S. Chamber of Commerce’s executive committee and the founder and CEO of Melaleuca, a $1.75 billion health products manufacturer based in Idaho Falls, Idaho.
The Hill is a top US political website and Frank VanderSloot is one of the contributors and he published the next article:
We’ve all heard the phrase, “a wolf in sheep’s clothing.” H.R. 3409, is exactly that. Crafted by the Direct Selling Association (DSA) and sponsored by Rep. Marsha Blackburn (R-Tenn.), H.R. 3409 has been inappropriately named the “Anti-Pyramid Promotional Scheme Act of 2017.”
In reality, this bill is anything but anti-pyramid. To the contrary, among other problems, it gives protection to pyramid schemes by redefining the term “pyramid scheme” in a way that allows almost any pyramid scheme to escape the definition.
We are not alone in that assessment. FTC Commissioner, Terrell McSweeney wrote that H.R. 3409 would “fundamentally damage the ability of the Federal Trade Commission to protect consumers from pyramid schemes” and “entirely stop the FTC from shutting down these kinds of scams.” Several reputable consumer organizations agree.
Blackburn had it right in her op-ed on Aug 28 when she wrote: “Every year, far too many unsuspecting Americans fall victim to pyramid schemes. Sold on the hopes of economic freedom that direct selling can deliver, many find themselves stuck with unmovable inventory and mountains of debt. Worse, operating under the guise of a reputable direct selling business, these schemes often target the most vulnerable among us such as single parents, immigrants and retirees…they need to be stopped.”
We couldn’t agree more. We would enthusiastically support legislation that would actually prevent the practice of inventory loading and illegal pyramid schemes. But in its current form, H.R. 3409 does the opposite. We do not doubt Blackburn’s intent. But she erred in accepting the carefully crafted language authored by the DSA, which is currently dominated by companies who, themselves, practice inventory loading.
For over 30 years, I have had the rare experience of having a front row seat to the direct selling industry. My company, Melaleuca, is a member in good standing in the DSA. My involvement as a member of the Board of Directors of the DSA has allowed me to witness firsthand the inner workings of the industry and to observe that many DSA members are heavily involved with inventory loading.
Melaleuca’s attorneys were on the DSA drafting committee that drafted H.R. 3409. We argued against much of the language now found in the bill. And we heard the arguments as to why some companies felt that this exact language was necessary. Those companies known to load inventories were the most insistent on the exact wording.
To accomplish their objective, these companies inserted language into H.R. 3409 stating that if a company has a “bona fide inventory repurchase program,” it can never be deemed a pyramid scheme.
The problem is that the bill’s definition of a “bona fide inventory repurchase program” allows for serious mischief. In fact, DSA companies who are loading inventories and operating pyramid schemes know full well how to tout such a buyback program and yet assure that they will never have to repurchase any inventory because the definition allows them to implement requirements and processes that deter any distributor from actually requesting a buyback.
This language is similar to the DSA’s current “Code of Ethics” that many DSA members currently use as a shield as they implement their various inventory-loading schemes. Herbalife had a “bona fide inventory repurchase program” and was in full compliance with the DSA’s Code of Ethics while it was recently sanctioned by the FTC and had to pay back $200 million to its own distributors. Had H.R. 3409 been law, it would have protected Herbalife, and its distributors would have had no redress.
HR 3409 is written in a way that any company can easily be in compliance and still load inventories. It is written that way on purpose. If anyone were to doubt this point, we would invite any representative to propose adding language to the bill that would give real teeth to the concept of preventing inventory loading and watch for serious pushback from the DSA and some of its most prominent members.
Because H.R. 3409 gives cover to pyramid schemes, if enacted, bad operators will be emboldened. This will lead to more consumers being harmed, more lives being ruined, and more financial devastation to those who fall prey to yet another scheme. We know that is not what Blackburn intended.
We do agree with Blackburn’s position that our nation needs serious legislation against pyramid schemes and inventory loading. H.R. 3409, isn’t it. It is the opposite.
It’s a wolf in sheep’s clothing.
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