According to Peter Vander Nat, a former FTC economist, it takes too long to shut down pyramid schemes due to a lack of federal rules. Hence, putting clear federal rules may help fight off pyramid schemes by swift prosecution and deterring future fraud.
I agree with Peter Vander Nat's point but it may not be a panacea for two reasons.
First, creating rules may create a bright line rule effect, where the rules are only complied in the letter only. For instance, in accounting, firms often structure the transactions so it avoids certain disclosures and accounting treatments. A good example would be leases, where firms try their best to structure the lease as an operating lease to avoid putting it on the balance sheet. Given the human ingenuity, bright line rules are limited in their effects.
Second, pyramid scheme victims share a large responsibility for the caused damage. Many knowingly engage in pyramid schemes because of the potential high payoffs. Hence, as long as human greed exists, pyramid schemes are not likely to go away. A better solution would be to educate the public more about the pyramid schemes. Specifically, focused education on the demographics that are prone the pyramid schemes would be more effective.
The billion dollar question is...is Herbal Life (HLF) a pyramid scheme?
Personally, I think Herbal Life is a pyramid scheme. Just the way it operates through distribution and how the company keeps claiming that distributors are actually the main consumers is bizarre. First, why would you consume so much Herbal Life products and also if it's for their consumption why doesn't the firm change the business model? Why does it need distributors if they are the main consumers? What is more troubling is that there are really lot of red flags going up, please read the following article.
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