On December 3, 2013, the House Energy and Commerce Committee Subcommittee on Commerce, Manufacturing, and Trade held a hearing entitled “The FTC at 100: Where Do We Go From Here.” Twenty-two of the twenty-five Congressmen on the Committee attended the hearing. All four Commissioners of the Federal Trade Commission (“FTC”) testified at the hearing.

The Commissioners provided joint testimony regarding the enforcement actions the FTC has taken in the past, the jurisdiction of the FTC and the FTC’s priorities for the coming years. They focused primarily on protecting consumer privacy, protecting consumers from fraud, and anticompetitive activity.

Only two Congressmen asked questions specifically related to multilevel marketing companies or pyramid schemes. Congressman Gregg Harper (R-MS) asked the Commissioners their position regarding “the deceptive use of Internet-based lead generation in which email addresses are sold to people running multilevel marketing distributions at premium prices and the lead is the email address of someone who has clicked on a website and may not be a bona fide customer.” Chairwoman Ramirez responded she is an advocate of developing a “do not track” registry for consumers to allow consumers to protect their online data. She said the FTC was concerned with entities tracking consumer data in the mobile arena and the FTC was adequately monitoring the issue.

The final Congressman to ask questions at the hearing was Congressman Adam Kinzinger (R-IL). He began by saying he was pleased the Securities and Exchange Commission (“SEC”) released an Investor Alert in October warning consumers about pyramid schemes posing as multilevel marketing programs. He asked if the FTC coordinates enforcement activity with the SEC. Chairwoman Ramirez responded the FTC coordinates with sister agencies but she could not comment on specific enforcement activities or companies.

Congressman Kinzinger asked what the FTC had done recently to combat illegal pyramid schemes. For the first time during the hearing, Chairwoman Ramirez was uncertain of the answer.  She stated the FTC had not brought any enforcement actions against pyramid schemes in the past year and looked to the other Commissioners for confirmation. Congressman Kinzinger asked why the FTC hadn’t brought any actions. After consulting with the other Commissioners, Chairman Ramirez responded the FTC had prosecuted one pyramid scheme in the past year but she didn’t recall the case. Congressman Kinzinger followed up by asking why the FTC had only brought one action against a pyramid scheme during the past year. Commission Julie Brill responded by saying she started her career in the North Carolina Attorney General’s office by prosecuting pyramid schemes and such prosecutions were incredibly complicated, time consuming and resource intensive. She said such cases were important in sending messages to both the investor community and consumers.

The FTC Commissioners were ill prepared to respond to any questions regarding pyramid schemes. They told Congressman Kinzinger they would provide information to him following the hearing regarding the FTC’s prosecution of pyramid schemes.

As you are aware, the FTC currently has two enforcement actions pending against alleged pyramid schemes – BurnLounge and Fortune Hi-Tech Marketing, neither of which are members of DSA. Oral arguments are scheduled for December 6, 2013, in the Ninth Circuit Court of Appeals in the FTC’s action against BurnLounge. DSA filed an amicus brief in that case to educate the Ninth Circuit regarding the legitimacy of internal consumption within the direct selling industry.

The FTC entered into a preliminary stipulated injunction with Fortune Hi-Tech Marketing and the parties are in the process of negotiating final terms.

DSA staff will schedule a meeting with Congressman Kinzinger’s office to determine his impetus for his line of questioning regarding pyramid schemes. We will be providing him with information regarding the industry’s activities to help eliminate illegal pyramid schemes and protect consumers from fraud.