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Sales Gone Wild: Will the FTC's Business Opportunity Rule Put an End to Pyramid Marketing Schemes? 1-1-2008 Sales Gone Wild: Will the FTC's Business Opportunity Rule Put an End to Pyramid Marketing Schemes? Sergio Pareja University of New Mexico - School of Law Follow this and additional works at: https://digitalrepository.unm.edu/law_facultyscholarship Part of the Law Commons Recommended Citation Sergio Pareja, Sales Gone Wild: Will the FTC's Business Opportunity Rule Put an End to Pyramid Marketing Schemes?, 39 McGeorge Law Review 83 (2008). Available at: https://digitalrepository.unm.edu/law_facultyscholarship/148 This Article is brought to you for free and open access by the UNM School of Law at UNM Digital Repository. It has been accepted for inclusion in Faculty Scholarship by an authorized administrator of UNM Digital Repository. For more information, please contact [email protected], [email protected], [email protected]. Cite This Volume: 39 MCGEORGE L. REV. ___ (2008). Copyright © 2008 by University of the Pacific, McGeorge School of Law. The McGeorge Law Review, formerly titled Pacific Law Journal (ISSN 1520-9245), is published quarterly by selected students of University of the Pacific, McGeorge School of Law, 3200 Fifth Avenue, Sacramento, CA 95817. Periodical postage is paid at a Sacramento, California post office and at additional mailing offices. Postmaster: Please send address changes to the McGeorge Law Review, 3200 Fifth Avenue, Sacramento, CA 95817. The McGeorge Law Review prints all matter that it deems worthy of publication. Views expressed herein are those of the authors and do not necessarily reflect the policies or opinions of the McGeorge Law Review, its editors and staff, or the law school. The McGeorge Law Review welcomes the submission of unsolicited manuscripts. Manuscripts, along with computer disks (in Microsoft® Word), should be sent to the Chief Articles Editor, McGeorge Law Review, 3200 Fifth Avenue, Sacramento, CA 95817. 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The McGeorge Law Review has a limited supply of back issues available at a cost of $25.00 per issue. For more information about the McGeorge Law Review, please call our Editorial Office at (916) 739-7171 between the hours of 8:30 a.m. to 5:30 p.m. (PST). U N I V E R S I T Y O F T H E P A C I F I C Board Member, National Conference of Law Reviews BOARD OF EDITORS * VOLUME 39 JOSEPH F. KLATT Editor-in-Chief JENNIFER L. WILLIAMS MELISSA C. VAN RUITEN KARA BETH STEIN Chief Legislation Editor Chief Managing Editor Chief Comment Editor ANDREW SCHOUTEN JOANNE KIRCHNER MEGAN M. MOORE Chief Articles Editor Chief Technical Editor Chief Symposium Editor EDITORIAL STAFF ERIN C. BARMBY DANIEL CHO LAURA E. BROWN LAURA ENDERTON BROOKE PETERSEN HENNESSY DANIEL J. CROXALL JAMES D. PITNER DALE ORTHNER IAN M. HUNTER KARI RICCI ROBERT D. ROTH MELISSA M. MATHEWS MICHELLE L. TESSIER SUNNY SARKIS ALISSA PLEAU R. BROOKS WHITEHEAD DAVID VILLALBA LESLIE R. RAMOS Legislation Editors Managing Editors Comment Editors MATTHEW D. CARLSON KELLY MOSBY Web Editor SHAUN SPILLANE KELLY THOMAS Articles & Symposium Editors STAFF MEMBERS CHAD BACCHUS DEREK HAYNES ANDALYN PACE ISAAC BACHER JOSHUA HENDRICKSON GRACE PAK THOMAS BELL STEVEN HYMAS KELSEY PAPST AMANDA BERGSTROM REGINA CABRAL JONES STEPHEN PERISHO BRETT BITZER BENJAMIN KOEGEL JACLYN POWELL JAMES BOTHWELL YURY A. KOLESNIKOV TRICIA QUAGLIA DANIEL J. BOYLE PHILIP LEE LEE SHELDON ROBERT CARLIN ALANNA LUNGREN COLLEEN SNYDER MATTHEW CODY JUSTIN LUTZ PRITEE K. THAKARSEY ADRIAN CONTRERAS OONA MALLETT JOANNA VARNER SERENA CROUCH MELISSA METH STEPHANIE WATSON CAMERON DESMOND PRESTON MORGAN CHRISTOPHER WHITE RICHARD K. GILBERT DAVID MURADYAN JACQUELINE ZEE DAVID HAYNES COREY ORDOÑEZ GEORGE A. GOULD Faculty Advisor PAULINE RODRIGUEZ Computer Publishing Specialist Sales Gone Wild: Will the FTC’s Business Opportunity Rule Put an End to Pyramid Marketing Schemes? Sergio Pareja* TABLE OF CONTENTS I. INTRODUCTION .............................................................................................. 84 II. FTC ENFORCEMENT ACTIONS ....................................................................... 89 A. The Franchise Rule ................................................................................. 89 1. Work-at-Home Schemes.................................................................... 93 2. Pyramid Marketing Schemes ............................................................ 93 B. The FTC Act ............................................................................................ 94 III. SEC ENFORCEMENT ACTIONS ....................................................................... 96 A. Is There a Security?................................................................................. 97 B. Has Fraud Been Committed?................................................................ 103 IV. OTHER ENFORCEMENT ACTIONS ................................................................. 103 A. Other Federal Enforcement Actions...................................................... 103 B. State Enforcement Actions..................................................................... 104 V. THE FTC’S BUSINESS OPPORTUNITY RULE................................................. 105 A. Overview of the Proposed Rule............................................................. 106 B. Analysis of the Proposed Rule............................................................... 107 1. Solicitation to Enter into a Business............................................... 108 2. Consideration Paid......................................................................... 108 3. Earnings Claims or Business Assistance ........................................ 109 4. Disclosure Document...................................................................... 110 5. Earnings Claim Statement .............................................................. 115 C. Public Comments Regarding the Proposed Rule .................................. 118 VI. ACN: AN EXAMPLE OF THE PROBLEMS WITH THE PROPOSED RULE.......... 119 A. Comments of ACN, Inc. on the Proposed Business Opportunity Rule................................................................................... 122 B. How Will the Proposed Rule Impact ACN? .......................................... 127 VII. CONCLUSION .............................................................................................. 129 * Assistant Professor, University of New Mexico School of Law; University of California Berkeley, B.A., 1991; Georgetown University Law Center, J.D., 1996. The author wishes to thank Erik F. Gerding, Charles H. Gustafson, Wade A. Fredrick, Davin E. Heckman, Ph.D, Nathalie Martin, and Mary Leto Pareja for helpful comments on earlier drafts and Seth McMillan for research assistance. The opinions expressed in this Article are solely those of the author, as are any omissions
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