FTC doesn’t see the difference between Crypto and LuLaRoe

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On October 26, the United States Federal Trade Commission (FTC) sent out what is known as a “Penalty Violation Notice” to over a thousand companies, including Blockchain crypto exchanges, UK-based Gemini, Bixo, and other financial technology and crypto companies. The notices, which warn companies not to overestimate the earning potential of investments or business opportunities, have also been sent to a large number of concert work platforms, multilevel marketing (MLM) companies, and corporations. franchise, all of which can sometimes look like exploitation. pyramid schemes and often leave potential entrepreneurs feeling duped.

The agency specifies that the reviews are in no way indicative of a fault on the part of companies. Instead, the regulator says companies are now “warned that if they deceive or mislead consumers about the potential gains, the FTC will not hesitate to use its authority to target them with heavy civil penalties.” At worst, it seems plausible that crypto exchanges made what the FTC considers overly optimistic statements about the growth potential or safety of speculative cryptocurrency investments, and the advice is a warning to cool their downs a bit. jets.

Unfortunately, that left the trade bundled with some companies that I think are much more exploitative. “Gig” platforms also receiving FTC warnings included Amazon and Amazon Web Services (with their Mechanical Turk and concert delivery systems), as well as Fiverr, Postmates, Upwork, and Uber. Surveys have shown that such concerts often amount to working for less than the minimum wage.

The list also includes MLMs with names like Candle Divas, Closet Candy, and Herbalife. These companies offer “business opportunities” often requiring huge start-up costs that turn them, in effect, into insider enrichment programs. The dynamic was recently covered in the documentary “LuLaRich”, on MLM clothing LuLaRoe (which also received an FTC warning yesterday). MLMs remain legal in part thanks to the political clout of people like the Trump administration’s Education Secretary, Betsy DeVos.

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Finally, the list includes many franchise operations. These are also sometimes twisted into something very closely resembling an MLM, with large upfront licensing fees that generate revenue for a parent company but leave franchisees in a deep hole. I highly recommend the in-depth review of franchising as an employment law workaround by the podcast “The Uncertain Hour”.

While we may hate to see crypto exchanges lumped into such sketchy categories, there are some important points to remember. First and foremost, inclusion should be taken seriously as a clue to how regulators still often view crypto: as a den of crooks out to defraud ordinary people. As exciting as crypto is right now, it’s worth keeping this context in mind before, for example, hitting “send” on a silly Tweet about the value of $ 1 million bitcoin by. coin by 2022. A little restraint could help the industry get better treatment from regulators.

The second point to remember is more complex and has to do with the economic backdrop for the growth of crypto. The FTC points out in its announcement that “as the pandemic has left many people in dire financial straits, lucrative arguments have proliferated and have attracted special attention …

Americans are bombarded with offers that often turn out to be lower than advertised.

It’s actually underestimated: The explosion of MLMs and gig working dates back to the aftermath of the Great Recession, when good jobs became much, much rarer. Both models often exploit either the desperation triggered by unemployment or the dream of entrepreneurial independence of many workers who see themselves as miserable slaves to wages.

While cryptocurrency is a real and substantial innovation, the truth is that a large portion of crypto investing is driven by the same economic backdrop. Over the years, I’ve seen some really disturbing behaviors (like mortgaging houses for leverage) from people hoping to get rich quick in crypto and escape their economic straitjacket.

Obviously this has worked for a lot in the short term, but a lot of crypto prices (like the prices of many stocks right now) are still way above what is justified by actual user demand. This means that they are always speculative and risky, especially for small retail investors who cannot weather downturns or bad bets. Long-term confidence in the sector will benefit from the clear communication of the exciting potential of these new technologies, but also from the clear presentation of their risks as investments.

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