David Dayen
Donald Trump’s presidential campaign is rooted in the idea that, with him at the helm, Americans will all get rich. In many of his affiliated businesses, he also promised great fortunes, while instead leaving people in ruins.
We already knew about Trump Mortgage, Trump University, and a few other get-rich-quick ventures. But the Trump Network, a classic multilevel marketing scheme, perhaps best exemplifies this tendency of Trump to over-promise and under-deliver.
Trump licensed his name to Ideal Health, a seller of multivitamins, diet pills and energy drinks, turning it into Trump Network in late 2009. Trump Network charged its salespeople for the products upfront, and then paid them through commissions and for attracting new sales recruits. It operated like a pyramid scheme. The salespeople took on all the risk, spending thousands of dollars in materials that they could only make back by bringing other people into the company and getting them to pay as well. Although salespeople say they were led to believe that Trump was actively involved — and why wouldn’t they, with a name like Trump Network — he merely lent his name to the company and gave a few motivational speeches.
Ultimately, few salespeople ever recovered their investments in leadership seminars, marketing kits and promotional leads. The company made money by impoverishing its sales force. Eventually, even that didn’t work; the Trump Network’s owners filed for bankruptcy and sold off the company.
We can go on about the perfidiousness of Trump participating in these predatory con jobs that rely on giving false hopes to vulnerable people. But we should also point out that running this kind of business can beillegal. And we have an entire agency tasked with looking out for employees and consumers who get caught up in such a scam. The Federal Trade Commission (FTC) has the power to crack down on fraudulent multilevel marketing operations. The problem is that they frequently don’t.
The spate of articles about Trump Network that have come out recently all link to a cache of 56 FTC consumer complaints about Ideal Health dating back to 2002, years before Trump signed on with the company. Recruits complain of being pressured to spend thousands of dollars upfront for sales materials, and accuse the company of misrepresenting its products and the ability of the sales staff to make back their investment. “They try to use people’s hopes and dreams to empty their wallets,” one statement read.
Despite these years of complaints, the FTC did not shut down Ideal Health. In fact, it remains in business today, sold to another network-marketing company called Bioceutica.
The FTC had plenty of avenues of inquiry. Pyramid schemes are illegal. Companies distributing false advertising to employees or customers are breaking the law. Health experts have blasted the Trump Network’s signature product, a multivitamin customized after the consumer performs a urine test, as having no redeeming value despite costing hundreds of dollars a month. Incidentally, Trump’s recent endorser, former presidential candidate Ben Carson, also hawked nutritional supplements of dubious value, another business that the FTC could have gone after.
This leads one to ask whether the problem is with Trump or the FTC, which has a well-earned reputation for general indifference toward its basic mission. The lack of intensity on stopping consumer scams led Congress to create an entirely new agency for consumer financial protection.
But the FTC still carries a tremendous number of responsibilities. It polices unfair, deceptive and fraudulent activities in the consumer marketplace, from false advertising to data security. It runs the Do Not Call registry and manages identity theft complaints. It is one of two agencies with antitrust oversight, deciding whether to block mergers and break up companies in industries with too much concentration.
And it has mostly failed in meeting any of these goals for an extended period of time. Ralph Nader’s Raiders comprehensively criticized the FTC as a do-nothing agency in1968; that’s how far back this goes. The report characterized the agency as passive, unmoved by consumer concerns, behind the curve on enforcement and ineffective. None of these criticisms would be out of place nearly 50 years later.
In The Washington Post’s story on the Trump Network, an FTC attorney responded to decades of testimony against the commission’s practices by saying “the FTC does not reach out to companies to resolve individual complaints, but merely analyzes and compiles them.”
This passivity and inattention to detail epitomizes the agency’s culture. A report from last year shows how the FTC ignored privacy concerns while approving mergers for 15 years. The FTC declined to prosecute Google for favoring its own affiliated businesses in search results, even though staffers from its Bureau of Competition recommended they make the case. The head of that Bureau of Competition, Deborah Feinstein, represented corporate clients before the FTC before joining it and has reportedly overruled her staff on several occasions, seeking lesser penalties against corporations.
Even when the FTC decides to enforce, the results can be disappointing. At a recent Congressional hearing, officials touted their crackdown of a “pay-for-delay” deal, where Teva Pharmaceuticals paid off a generic competitor to not release a competing product to their sleep-disorder drug Provigil. But Sen. Amy Klobuchar (D-MN) pointed out that Teva only paid $1.2 billion, when consumer harm had been estimated as high as $5.6 billion. “The defendant got to keep 70 to 80 percent of the profits,” Klobuchar said.
More worryingly, this week a federal judge slammed the FTC for trying to persuade a witness to give false information in their challenge of a merger between Office Depot and Staples.
“Despite broad legislative mandates and powers, the FTC has not been a ‘high energy’ protector of consumers,” said Jeff Hauser, director of the Revolving Door Project at the Center for Effective Government.
Fortunately, that could change quickly with the next administration. Julie Brill, one of five FTC commissioners, announced her resignation this week; she’ll be going to corporate law firm Hogan Lovells. Only three commissioners remain (Republican Joshua Wright left last year), and of those, the remaining two Democrats’ terms will expire in 2017.
The next president, if they so choose, can remake this agency almost entirely, instilling a new posture of aggressive enforcement. “Those appointments will either reinvigorate federal protection of consumers against deceptive marketers like Donald Trump, or they will pick and choose a few commendable actions while letting the broader economy continue to reward deceit,” Hauser said.
It’s bad that Trump can license his brand to illegal businesses with impunity. It’s worse that those businesses can flourish by preying on innocent victims without the government agency charged with stopping them batting an eyelash. You can write all the laws you want presuming to prevent corrupt charlatans from taking advantage of people; but somebody has to do the work. Right now, the FTC is not that agency. But things can change.
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https://www.yahoo.com/finance/news/trump-network-scandalous-government-response-101500206.html
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