Opinion: Feds get it wrong on Fortuna
In a unanimous decision by the FTC commissioners, the FTC
agreed to settle its claim that the Fortuna Alliance had been
operating a pyramid scheme.
On the face of it, it looks like the FTC is burying its head in
the sand by refusing to call a spade a spade.
But the circumstances suggest that their hands may have been tied,
and call into question the ability of the Federal government
to enforce U.S. laws in any business transaction
that involve persons in other countries.
The typical FTC consent agreement stipulates that the defendant shall not
do the illegal things it had been accused of doing.
For instance, Coppertone was recently barred from misrepresenting
the results of a study in its advertising.
But what was the point of this, since false advertising is already illegal?
Although the agreement with Fortuna specifies that Fortuna may not operate
a pyramid scheme, an unusual aspect of the agreement is that it states
that Fortuna may operate a multi-level marketing program.
But the agreement includes a definition of a multi-level marketing program
the provisions of which would probably meet the legal definition of a pyramid scheme
under the laws of many states!
Why would the FTC do this?
Could it be that the FTC went along with this provision to settle
the lawsuits against it in Antigua and other countries, which were
filed after its heavily-publicized action to temporarily halt Fortuna
in May 1996?
If so, the implication would seem to be that the federal government
can be intimidated from effectively enforcing federal law, if the
defendants can find some basis for initiating lawsuits against it
in countries that may be unsympathetic to U. S. law.
Multi-national companies can make it difficult to enforce tax laws,
because they can manipulate things so as to move their profits to low-tax
countries.
Now multi-national con artists can make it difficult to enforce laws
against fraud, by claiming economic injury in other countries from
enforcement actions in the U.S.
Cagey Consumer's opinion
Whether you believe in strong consumer protection laws (which I do) or
laissez faire is more to your taste, no system of contract
law can succeed in an environment that precludes legal action against
fraud.
The FTC has this day surrendered to these other nations control
as to what laws against fraud shall be enforced in this country.
From a purely practical point of view, the economic impact of this
policy is severe, because it means that no representations made
that involve residents of other countries, directly or indirectly,
can be relied upon by U.S. residents.
Basically, if you make a reservation for a hotel in Antigua, and send
a deposit to reserve your room, and your reservation is not honored,
you have no recourse.
If you put that deposit on a credit card and dispute the charge with
the bank, the bank will have no recourse either.
This will affect both consumers and businesses.
Perhaps I am oversimplifying things just a wee bit, but my opinion is
that the government must not walk away from such lawsuits -- they must
go to trial.
The stated policy of the U.S. government should be that the verdict of
such trials will be evaluted by the State Department to determine if it is
consistent with an ongoing economic relationship with that country.
If it is, then everything's fine and we pay the damages.
I realize that this is an over-simplification, but we
cannot continue to transact business with countries which prevent us from protecting
ourselves against fraud.
We can start this policy with Nigeria, which has allowed the
Nigerian letter scam
to go on for years, and Moldova, which is collecting enormous
telephone charges placed to it as a result of the
trojan horse dialing program
which "infected" the computers of many people who visited certain web sites.
Related links:
Consumer Alert: Fortuna Alliance
Cagey Consumer's home page back to consumer alerts
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