Table of Contents
Introduction
Covering multi-level marketing regulation and litigation may be unpleasant because of the widespread inclination to dismiss recent developments in favor of older legal views and rulings.
A lot of these judgments and ideas are decades old, yet many people still hold on to them.
A 2004 FTC staff recommendation is often cited as an example of a source for this topic. Yeah, the year 2004 is correct; that makes it thirteen years ago.
The FTC reiterates the legality of affiliates buying merchandise from their MLM firm for internal usage in the advice.
Somehow, this became code for “go ahead and stuff your face all you want.”
Although using a product for one’s own use is not illegal per se, the lack of retail sales is suggestive of a pyramid scheme.
The FTC may not place as much weight on personal consumption as on retail sales.
The pie chart for sales includes both external (from customers) and internal (from the company’s employees) sales. If you were to plot out the income of a multi-level marketing organization with almost little brick-and-mortar sales, you’d see that most of it come from affiliates.
Pyramid scheme defenders have said this practice is lawful since 2004.
Regulators have taken a few moves in the past thirteen years, but they haven’t provided nearly as much clarity as the FTC advisory would have hoped.
Herbalife and Vemma, two huge and well-known multi-level marketing firms, stand out as the most notable.
Even the 2004 advisory backers couldn’t turn a blind eye to these two colonies because of how noticeable they were.
What we have now is a situation of bewilderment. It’s not that nobody ever got it mixed up; it’s simply that nowadays, most sane people understand that private purchases are not equivalent to external retail sales.
The FTC has been slow to provide guidance on this issue beyond individual litigation against businesses.
A recent post on the Business Blog elucidates why retail sales are essential in multi-level marketing.
Put aside any preconceived notions you may have had regarding multi-level marketing legality. In the year 2017, we now have it from the source itself.
Of course, proponents of pyramid schemes will respond, “but the FTC isn’t a court of law,” and “President Trump is going to alter things!”
Although it’s true that the FTC isn’t a court of law, the actions taken in response to the Herbalife and Vemma complaints show that the absence of retail sales in MLM will prompt a regulatory reaction.
Herbalife has generated over $1 billion in sales. While Vemma didn’t cost nearly that much, we’re still talking about major money.
As one of the biggest multi-level marketing firms in the world, Herbalife could have easily brought the case to court. They didn’t, however.
Herbalife’s upper echelons and franchisees may come up with any number of excuses to save face.
If Herbalife had even a remote possibility of prevailing in court, given the seriousness of the FTC’s charges and the reality that a non-pyramid model would likely see Herbalife collapse in the US over the next several years, don’t you think it would have disputed the matter?
The truth is that it’s reminiscent of the criminal prosecution of Paul Burks. He might have pleaded guilty in 2012 when he knew he was going to prison.
In contrast, he dragged it out in court for four years, to no avail.
Both Herbalife and Vemma were aware that their lack of retail success was a problem. It is better to make a deal now and take a smaller penalty than to drag it out in court and risk receiving a worse sentence later.
It is the unfiltered reality, without any of the marketing fluff.
And as for that man, Donald Trump. For some reason, “pro-business” has come to become “pro-pyramid,” but don’t expect four years of pro-pyramid litigation to begin with Trump’s inauguration on January 20.
The Federal Trade Commission isn’t headed by Donald Trump, and the organization will never be headed by a supporter of fraud. We can rule it out right now.
Better for the multi-level marketing business as a whole if those still in denial about the 2004 warning accept that Trump will be president.
multi-level marketing used to be quite regional, and this persisted until at least 2004. The internet and especially social media have made the world a much smaller place.
It makes no difference who is President or who is in charge of the FTC since victims can never be forgotten.
Whatever the guise, pyramid schemes cannot last. Many join, but all end up broke.
The number of individuals who have lost money gradually increases until it tips the scales and prompts a regulatory probe.
If you’re operating an unsustainable business model, it doesn’t matter how hard you try or what your upline tells you, or what the corporation may have led you to think; you’re probably going to lose money.
The Herbalife settlement shows that both the number of victims and the amount of money lost can be calculated.
No court in the United States is going to side with the fraudsters when hundreds of thousands of victims lose hundreds of millions of dollars due to unsustainable business models intended to disguise fraud.
Really, it sums it up well.
What difference does it make if your multi-level marketing company’s business plan is very similar to that of Herbalife or Vemma, two companies that have since settled with the FTC?
The good news is that a few multi-level marketing businesses have taken an effort to do away with retail disincentives and/or forced internal consumption.
Affiliates in such businesses have been writing to me over the last several months, asking for status updates on the reviews I’ve been doing in anticipation of upcoming compensation plan modifications. In addition, it’s been wonderful to see it.
The remainder of you should examine your company’s compensation plan and, first and foremost, determine whether or not you are compelled to make monthly product purchases.
This may be the case whether or not it is formally stated, depending on the monthly PV requirement you and your coworkers meet via internal use.
Do you have monthly retail sales? Are they in your upline? Does the compensation plan really provide retail incentives?
Inquire further whether the retail sales aspect of your multi-level marketing business is just lip service. Why aren’t retail sales being prioritized, and why aren’t the rules set by the FDA being followed?
This is not a suggestion or recommendation. You, as an affiliate, ought to make some noise if the firm you’re a part of is falling asleep at the wheel.
Alternatively, your multi-level marketing firm might go the way of Vemma or Herbalife. You lose your source of revenue, and on top of that, it becomes more difficult for lawful MLM businesses to function without facing bias and retaliation.
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