Frelinghuysen leading effort to legalize fraud

Congressman Rodney Frelinghuysen

A broad coalition of consumer organizations is calling on the United States House of Representatives to oppose efforts to weaken the Federal Trade Commission’s (FTC) ability to protect consumers from fraudulent pyramid schemes.

On Thursday, July 13, an amendment offered by Congressman John Moolenaar (R-MI) was added by Congressman Rodney Frelinghuysen (R-NJ) to the House Financial Services and General Government Appropriations bill which would eliminate long-standing requirements that direct selling companies establish a viable retail business instead of relying on a churning base of new recruits.

“The courts have consistently stated that the critical difference between a legitimate MLM business and a pyramid scheme is that a MLM’s revenues must come primarily from the sale of products and services to retail customers unaffiliated with the business opportunity,” wrote the groups.

“Unfortunately, the Moolenaar amendment would undermine this critical tenet and create numerous carve-outs and exemptions that would prevent the FTC from prosecuting all but the most blatantly fraudulent pyramid schemes,” they said.

“Our financial system thrives on stability, and this bill provides the funding necessary for federal regulators to do their jobs in a timely and appropriate manner, while stopping burdensome regulations before they can damage our economy irreparably,” said Frelinghuysen, the House Appropriations Chairman who adopted the Moolenaar amendment on a voice vote..

While the Moolenaar amendment purports to establish a federal definition for “pyramid promotional schemes,” the language in fact blurs the line between legitimate business opportunities and illegal pyramid schemes.

The consumer groups urged Speaker Paul Ryan (R-WI) and Minority Leader Nancy Pelosi (D-CA) to remove the Moolenaar amendment from the financial services appropriations bill when it comes to the House floor for a vote.

“The Moolenaar amendment was slipped into the appropriations bill in the dead of night,” said John Breyault, Vice President, Public Policy, Telecommunications, and Fraud at the National Consumers League, which organized the letter. “This direct selling industry knows that this bill stands little chance of becoming law on its own, so instead they are trying to hide it in must-pass legislation. If the bill is as pro-consumer as they would like us to believe, why are they trying to sneak it through at the last minute? The answer is that they know it is a gift to an industry with a long history of pyramid scheme behavior that would relieve it of any meaningful oversight by the FTC.”

Signatories on the letter included Consumer Action, Consumers Union, Consumer Federation of America, Consumer Watchdog, League of United Latin American Citizens, National Association of Consumer Advocates, National Consumer Law Center (on behalf of its low income clients), National Consumers League, Public Citizen, U.S. PIRG, William W. Keep, PhD, and Peter J. Vander Nat, ?PhD.

To view the full letter, click here.

Martin Hewitt, a private practice securities lawyer, is challenging Frelinghuysen for the Republican nomination for Congress.

Several Democrats are lining up to challenge Frelinghuysen, among them: Montclair resident Mikie Sherrill, a military officer and a federal prosecutor, 26-year-old Jack Gebbia, a Boonton resident with a history of military service and policy work, and John Bartlett, a two-term Passaic County freeholder.

An independently wealthy heir to the Procter & Gamble fortune, Frelinghuysen is likely to face his first well funded challenge for the time in 25 years so he hired a top GOP consultant, Mike DuHaime, to guide his campaign next year.



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