Unsubstantiated claims typically involve earnings hypotheticals, earnings potentials, earnings testimonials, outright statements of earnings, lifestyle enhancement claims, etc.

Unsubstantiated claims typically involve earnings hypotheticals, earnings potentials, earnings testimonials, outright statements of earnings, lifestyle enhancement claims, etc.

Both the federal government and states, through combinations of legislation, rules and case law prohibit unsubstantiated earnings claims in the offering of a MLM opportunity. Such claims typically involve earnings hypotheticals, earnings potentials, earnings testimonials, outright statements of earnings, lifestyle enhancement claims, etc. If a direct selling company or its distributors offer such earnings claims, they are obliged to provide an average earnings disclosure that outlines average earnings of distributors at various levels of the opportunity program. In following through on regulatory mandates, all leading companies issue guidelines on presentation on earnings claims, and typically prohibit any “unauthorized earnings claims” that go beyond stated policy guidelines.

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The issue of levels has not been the focus of the Federal Trade Commission (FTC) or state attorneys general in the enforcement of pyramid laws.

The issue of levels has not been the focus of the Federal Trade Commission (FTC) or state attorneys general in the enforcement of pyramid laws.

The issue of depth of levels seemed to be a major focus prior to the internet and other non-postal (mail) means of communication. In the late 1980’s the United States Postal Service (USPS) examined numbers of levels to make a determination of whether or not, in its opinion, the depth of levels created a “lottery” element under U.S. Postal lottery laws that forbid payment based on chance. Various cases and consents sorted out a safe harbor (at least from the U.S. Postal Office standpoint) for at least four levels (not necessarily agreed to by the direct selling industry). Separately, the Postal Service looked for evidence of “supervisory requirements.” Most companies adopted specific supervisory requirements of sponsors to demonstrate some managerial activity by distributors. For the past 25 years, little recruitment activity is conducted by U.S. mail and it has been a long time since the U.S. Postal Service has expressed a serious interest in this subject. The issue of levels has not been the focus of the Federal Trade Commission (FTC) or state attorneys general in the enforcement of pyramid laws. Instead, the focus for the last two decades has been on the whether or not product/service

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Although the terms sponsoring and recruiting are often used interchangeably, they actually have two different meanings.

Although the terms sponsoring and recruiting are often used interchangeably, they actually have two different meanings.

Although the terms sponsoring and recruiting are often used interchangeably, they actually have two different meanings. Recruiting is the act of searching and soliciting new distributors for the downline sales organization of an existing distributor. Of course, the activity carries important consultant responsibilities, such as compliance with company and statutory guidelines on earnings representations, product representations, and accurate representations of the company’s business opportunity.

Once a recruit has agreed to join the company, a recruiting distributor becomes a Sponsor. Almost all company policies set forth very specific duties and responsibilities of a Sponsor, including supervision, training and communicating with their downline sales organization. In addition, all companies have specific rules on cross-sponsoring and keeping respectful relationships with other sponsors and distributors.

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MLMLegal.com Releases Comprehensive Analysis on Landmark Case on Pyramid Guidance and the Role of “Personal Use” in Pyramid Analysis

PORTLAND, OR–(Marketwired – June 26, 2014) -

Click for the full article analysis and actual BurnLounge case at BurnLounge Appeal Decision: Guidance on Pyramid v. Legitimate MLM and the Role of Personal Use in Pyramid Analysis

Excerpt of the BurnLounge Analysis Article:

On June 2, 2014, in the case of FTC v. BurnLounge, the U.S. Court of Appeals for the Ninth Circuit issued a seminal decision, affirming a lower court finding that the BurnLounge MLM (multilevel marketing) program was an illegal pyramid scheme, in violation of section 5(a) of the Federal Trade Commission (FTC) Act, a decision that will dramatically impact the landscape of direct selling to provide guidance on two fundamental legal issues:

(1) What activity constitutes a “pyramid scheme?”

(2) What is the role of “personal use” (by distributors) in pyramid case analysis?

Stakeholders: “We Won!!” Proxy Wars…

Victory has 100 fathers and defeat is an orphan. – John Kennedy (1961)

As with any inconclusive war, the stakeholders offered immediate statements of victory or vindication.

That is, other than BurnLounge. BurnLounge lost, and a permanent injunction was affirmed.

However, BurnLounge was a proxy war on the tests for “pyramid” and the role of “personal use” in pyramid analysis, among the interested parties, short sellers of publicly traded direct selling companies, publicly traded direct selling companies, industry spokespersons such as the DSA, the FTC, MLM critics, etc.

Each, in turn, issued press releases or statements claiming victory and validation of their respective positions.

The BurnLounge decision offered guidance for all stakeholders and a clear message for “going forward.”

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MLMLegal.com Launches the Innovation Campaign for the October 23rd & 24th, 2014 MLM Startup Conference!

 

Fill out the short survey here to receive two free tickets (worth $345.00!) to the next MLM Startup Conference in Las Vegas!**

For over 27 years MLMLegal.com and Babener & Associates

Fill out our Innovation Campaign form to receive your two free tickets today!

Fill out our Innovation Campaign form to receive your two free tickets today!

has hosted the most prestigious MLM conference for executives of startup and existing direct selling companies. In celebration of our 69th conference, we are offering two complimentary tickets* – worth $345.00! – to attend the esteemed event in Las Vegas, Nevada.

In our ongoing effort to offer the absolute best network marketing conference available, we invite you to participate in our October 23 & 24, 2014 Innovation Campaign. To receive your two free tickets, fill out our Innovation Campaign form on our Innovation Campaign page.

We invite the input, ideas and innovation from the very MLM company owners who are in the startup and launch phases of their companies. We strive to offer the best conference in the United States. MLMLegal.com always covers current issues and events at all of our conferences, but this time it is different! We want your input in the Innovation Campaign!

Are you an owner or executive of a startup of existing direct selling company? Do you want to attend the 69th Starting and Running the Successful MLM Company Conference for FREE?! Fill out our short survey below! Share with us your experience as a network marketing entrepreneur!

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Incentives absolutely increase sales. However, sales incentives go by many names, shapes and sizes.

Incentives absolutely increase sales. However, sales incentives go by many names, shapes and sizes.

Incentives absolutely increase sales. However, sales incentives go by many names, shapes and sizes. Obviously, the understood and expected incentives are bonuses and commissions. Since companies are trying to incentivize different types of behavior, the compensation plans of companies are often complex and multi-task to provide incentives for retail selling, preferred recurring customers, building wide, building deep, working with immediate downline and deep into a downline, time sensitive personal and group sales production, personal and group sales, longevity, quick start, etc. Beyond cash incentives, most leading companies understand the power and inspiration behind noncash incentives that

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It depends on which hat you are wearing that day as to whether they are to be considered MLM professionals or MLM junkies.

It depends on which hat you are wearing that day as to whether they are to be considered MLM professionals or MLM junkies.

The answer here is somewhat “tongue and cheek” and should be taken with a “grain of salt.” This question is often asked of people who are starting network marketing companies. The majority, if not all of them, respond that they want to recruit MLM professionals to their companies. An industry observer once commented wryly that, too often, “junkies” and “professionals” are merely flip sides of a coin. The commentator said, “A MLM junkie is someone who will raid your distributors and take them to another company while a MLM professional is someone who leaves their company, raids the distributors and brings them to your company!” It depends on which hat you are wearing that day as to whether they are to be considered MLM professionals or MLM junkies.

In all seriousness, the above comment too often contains more than a kernel of truth.

Lastly, companies that pay people to bring recruits with them to the new company are not conducting good business strategy. They will often claim to recruit thousands of individuals and only bring a few, yet still get their money. Unfortunately, this happens time and again and it is not an ethical way to do business.

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The Next MLM Startup Conference Takes Place October 23 & 24, 2014!

The Next MLM Startup Conference Takes Place October 23 & 24, 2014!

The next Starting and Running the Successful MLM Company Conference will be held October 23rd & 24th, 2014!

For more than 27 years, leading industry experts have educated the executives of starting and existing MLM, direct selling, network marketing, and party plan companies on how to structure their compensation plans, legalize their companies, recruit key employees and top-ranking distributors, develop business models, generate leads, fund their business, establish their website and technology platforms, better understand the direct selling industry, and so much more.

The next MLM Startup Conference takes place held October 23rd & 24th, 2014 in Las Vegas. View the conference flyer page at http://www.mlmlegal.com/srs2.html to learn more.

This is the original MLM Startup Conference – responsible for launching many industry-leading companies – perfected over the course of a quarter of a century to ensure the highest quality of information, the most knowledgeable experts, and the most practical advice from qualified experts.

Over the course of two days, attendees will hear from scores of industry experts, and if they choose, can sign up to meet with the speakers for individual one-on-one time. A full list of speakers and their biographies/credentials can be found at http://www.mlmlegal.com/bio.html.

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When you see that a company has been sent inquiries or investigative demands from regulatory agencies, it’s not always a good idea to jump to conclusions about the legitimacy of its operations.

When you see that a company has been sent inquiries or investigative demands from regulatory agencies, it’s not always a good idea to jump to conclusions about the legitimacy of its operations.

Part Two

The net result gave rise to the FTC amending its proposed rule to carve out an exception for direct selling/MLM companies. Direct selling companies would not be included in the rule. This was a victory for the network marketing industry since it didn’t want onerous rules inhibiting the more than 15-16 million people in the U.S. industry from operating a legitimate MLM business.

At this time, we are in a fairly good regulatory environment. Every direct selling company at any one time, however, is being sent questions of inquiry from regulatory agencies such as the Federal Trade Commission and attorneys general. This is simply part of doing business in this industry. So, when you see that a company has been sent inquiries or investigative demands from regulatory agencies, it’s not always a good idea to jump to conclusions about the legitimacy of its operations. The regulatory agencies are just doing their job.

In the end there is always a balance of regulation that needs to be reached. Direct selling companies do it best when they take some initiative on their own to promote consumer protection by looking out for both their consumers and consultants. The reason the FTC ratcheted back on the business opportunity is because of the large influx of comments that flooded in from industry leaders, including MLMLegal.com and the DSWA. Industry-leading groups have been able to mobilize large groups of people who are passionate about the network marketing industry which helps our industry and serves a great purpose.

MLMLegal.com keeps you updated on changes being made in the direct sales regulatory environment. Visit our network marketing news pages or MLMLegal.com for the latest information on the network marketing industry.

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No one can control all of the challenges that face the direct selling industry, but education and transparency is the best approach to discuss issues.

No one can control all of the challenges that face the direct selling industry, but education and transparency is the best approach to discuss issues.

We have a long-term perspective as a law office that has had three decades of experience in the MLM industry. In the last three years or so, developing trends have posed both opportunities and challenges for network marketing companies. Mr. Babener discusses a few of these opportunities and challenges (paraphrased from the DSWA interview with Nikki Keohohou) in this post.

As far as industry-wide opportunities are concerned, there has been an explosion in party plan companies. The party plan companies that we know and represent are doing quite well. There has been growth in the public recognition of these companies. This is due to large-scale events such as the 2009 Super Bowl where Avon was a primary sponsor. At the 2009 Super Bowl, Avon advertised their opportunity, not just their products, which was really a message to the country that our industry has something special to offer to everyone.

The internet has also helped push the industry in a positive direction in recent years. Social media and growing internet technology has enabled many companies to expand internationally.

However, this also means that the industry has a new challenge: coping with internet technology. Companies have to recognize the creative power of Facebook, Twitter and all of the other social media platforms. Companies have to find a balance between enabling their consultants the ability to be creative and protecting the brand. Protecting the brand presence in search engines, protecting against inappropriate medial/earnings claims and allowing consultants to work with social media, providing basic tools for distributors, are industry-wide challenges that require delicate balance.

In addition, we’ve seen some tension between new companies and distributors in recent years. There are some consultants who are too willing to jump ship and bounce from one company to another. Distributor raiding is undermining to the company and the opportunity, as well as to all of the consultants left behind.

On the other hand, we’ve seen some overreaching companies who’ve been bullying distributors, telling them what they can and cannot do. There will have to be a dialogue to figure out the common ground for what are reasonable expectations for distributors and what control companies can have over distributor actions.

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