Big Dreams and Pyramid Schemes: The FTC’s Path to Improving Multi-Level Marketing Consumer Protections in Light of AMG Capital Management and the 2016 Herbalife Settlement

Authors

Camille H. Mangiaratti

Abstract

Multi-level marketing, also known as “MLM,” is a type of sales business that relies on both sales to consumers and recruitment of sellers into the company’s tiered commission structure. MLMs are wildly and enduringly popular, especially because they claim to be a flexible and easy source of income for people who need it most. However, almost everyone who joins an MLM will lose money, and many MLMs are illegal pyramid schemes. Millions of Americans are harmed by MLMs every year. Despite this, the government does very little to punish MLMs who lie to prospective participants about their odds of success. How are MLMs allowed to operate relatively unchecked? MLMs have a powerful political lobby which has ensured that state and federal regulations remain favorable to their operations. Furthermore, the Supreme Court’s 2021 decision in AMG Capital Management, LLC v. Federal Trade Commission abrogated the FTC’s power to pursue financial restitution for consumers harmed by MLMs. To overcome this setback, this Note argues that the FTC must frequently and aggressively use its Sections 5 and 19 powers to reimburse harmed MLM customers and deter further MLM misconduct, without falling into the pitfalls exemplified by its 2016 settlement with Herbalife, a nutrition MLM. The FTC must also require full disclosure of the odds of success in an MLM, obtain proportionate financial punishments against offenders, and more widely publicize the harmful nature of MLMs.

Recommended Citation

Camille H. Mangiaratti, Big Dreams and Pyramid Schemes: The FTC’s Path to Improving Multi-Level Marketing Consumer Protections in Light of AMG Capital Management and the 2016 Herbalife Settlement, 30 J. L. & Pol'y 228 (2021).
Available at: https://brooklynworks.brooklaw.edu/jlp/vol30/iss1/6