Topline: A federal judge ruled Wednesday a state-level class action accusing the president and his children Don Jr., Eric and Ivanka of fraud, false advertising and unfair competition in three multilevel marketing (MLM) companies promoted by the Trumps can move forward.
- U.S. district judge Lorna Schofield dismissed four plaintiffs’ claims of federal racketeering and conspiracy, citing a lack of evidence, but allowed claims of fraud, false advertising and unfair competition to continue.
- The plaintiffs claim they were deceived by Donald Trump into investing in the companies because of his endorsement, making them believe they had a reasonable chance of success, while alleging the Trumps accepted millions in secret payments behind the scenes.
- The three Trump-associated MLM companies named in the complaint are the Trump Network (which sold vitamins and health products), the Trump Institute (which sold seminars,) and the American Communications Network (referred to as ACN, it sold videophones and telecom services.)
- The Trumps promoted the three MLM companies at different points from 2005 to 2015.
- Plaintiffs said they were unable to recoup their investments after years of participation and recruiting. One woman, identified in court documents as Jane Doe, said she only made $38 after two years of selling products for ACN.
- A Trump lawyer told Reuters they will move to settle the lawsuit in arbitration. When the lawsuit was first filed in October 2018, the Trumps said it was politically motivated, and Donald Trump’s endorsement should not have been relied upon by investors.
As is typical with MLM companies, participants in the Trump-promoted ones paid a startup fee to join, with incidental costs down the line, such as purchasing products and event tickets, and traveling to large-scale, conference-type events. One way MLM participants can make money is by recruiting others into the business and then taking a commission from the recruits’ sales. Success at an MLM is notoriously difficult to achieve. Last Week Tonight With John Oliver produced a show on America’s MLM industry, which breaks down mathematically the difficulty in succeeding. It’s been viewed over 17 million times on YouTube:
Key background: MLMs are often referred to as “pyramid schemes,” of which the Federal Trade Commission (FTC) has no hard definition. In general, the FTC says, pyramid schemes “promise consumers or investors large profits based primarily on recruiting others to join their program, not based on profits from any real investment or real sale of goods to the public. Some schemes may purport to sell a product, but they often simply use the product to hide their pyramid structure.” The term “pyramid scheme” gets thrown around colloquially, but only the FTC can determine if an MLM company is actually a pyramid scheme.