People often ask about MLM/direct selling’s history with the government. It’s a long history. At times it’s been bad, and then it has been good. Then it has been bad. Then good. It’s been somewhat reciprocal. Multilevel marketing, and the industry, basically began in the 1950s with Mary Kay, Shaklee and Amway. Imposters came along in the 1960s, operating pyramid schemes, namely the Dare To Be Great program in which people were recruited to get people to seminars where they would pay large sums of money. In turn those people would recruit others and get them to pay money. This caused the Federal Trade Commission (FTC) to take a look at our industry.

In 1975, the FTC charged Amway with being an illegal pyramid scheme. In 1979, after four years of litigation an administrative law judge from the FTC ruled that Amway was indeed a legitimate business opportunity for mainly three reasons. One, it emphasized retail sales to the public, two, it had a process for repurchase of inventory for people who wanted to leave the business, and three, it adopted what is called the “70 Percent Rule” by asking people to not buy more products unless they have either used them or sold them. That decision and those standards became known as the “Amway Safeguards” and have served the industry very well for many years. Since that time, we’ve had on and off bouts with the FTC about the personal use of product by distributors. There will always be some tension between the industry and the government. There is even tension in other areas of government. In 1982, the IRS recognized independent contractor status of distributors and the states, one after another, starting in the 1990s, specifically amended their multilevel and pyramid statutes to recognize personal use as a legitimate end-destination for product just like the sales of product to nonparticipant retail customers. In fact, in a 2004 FTC Staff Advisory Opinion, the FTC actually recognized the validity of personal use by distributors so long as the purchases of product are founded on the actual desire for the product as opposed to pyramid schemes in which distributor purchases are often primarily to merely qualify in the business opportunity.  Said the FTC, “…the purchase of goods and services is not merely incidental to the right to participate in a money-making venture, but rather the very reason participants join the program.”

Overall we have been on an upward trend in terms of our relationships with government. I frequently will lecture at either a university or at industry trade association meetings or legal conferences. On the panel with me, either at my invitation or in collaboration, will be representatives from attorney general offices, the FTC and the IRS. We see more and more cooperation occurring every day.

For more information, watch the companion video to this blog post: What is MLM History with the Government? And, for more information, visit www.mlmlegal.com.

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