In this article, we take a look at claims made by some of the MLM industry "experts" who believe that most MLM/network marketing companies operate as endless chain or pyramid schemes. What is behind their opinion? Is this really true for all companies, or just certain ones that tread close to the legal "limits?"
In one particular example, Robert Fitzpatrick, author of "False Profits" has recently accused various companies of operating based on the "endless chain" recruiting vs. product sales model, including Pre-Paid Legal, USANA, ACN and Herbalife. MlmWatchdog.com points out that Fitzpatrick works closely with Barry Minkow's Fraud Discovery Institute, which has a history of short selling companies under their "investigations." Perhaps this is just a case of stock manipulation, or is it bonafide investigative work?
MlmWatchdog.com also points out that Minkow is a convicted felon who has served jail time for former fraudulent activities.
What does the law indicate? State law seems to govern activities in this area, although the FTC and SEC have had considerable involvement. In primary decisions, there have been a range of abuses targeted as possibly illegal:
1. Products which have no "real world" marketplace
2. Products that are sold at inflated prices
3. Required purchases of company product
4. Plans which result in inventory loading distributors
5. Large cash investment requirements
6. Plans where products are totally or substantially ordered by distributors
7. Plans where bonuses are paid to distributors for headhunting
8. Plans where commissions are not based on retail product sales
9. Plans which contain elements of a lottery; rewarding based on chance
State laws differ on key points, including, primarily, the question of whether distributor personal product usage counts as "retail sales." Three states view personal distributor use as legitimate "retail sales:" Oklahoma, Texas and Louisiana.
When evaluating the bottom line whether a particular company is legitimate may be a simple question: Would you honestly buy the product if there was not an income opportunity attached? Keep in mind that your answer may be "colored" by a natural tendency to "justify" an emotional buying decision. If the answer is "yes," you've found the right company.
About this Author
Jim Green is an attraction marketing and network marketing expert with over 10 years in the industry. His attraction marketing system uses both internet and offline recruiting techniques to assist any marketer in consistently generating MLM leads.
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