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
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