MLMAttorney’s most requested video of the month: What Is the U.S. and International Trend in Recognizing the Validity of Personal Use by Distributors in
Pyramid Cases?

In short, is it legal to motivate distributors to buy products in order for them to qualify for the compensation plan rewards as opposed to purchasing product/services for their own personal use or for resale? This question greatly impacts direct selling companies and their owners/executives. Read the recent Burnlounge decision on our website.

In the last 10 years, distributor personal use, as a legitimate end-destination for product/service has been increasingly recognized by courts, legislatures and regulators. In 2013 and 2014, two European Union tribunals; now counting more than a dozen U.S. states have amended MLM statutes. In 2004, an FTC advisory opinion applauded efficiencies of

Continue reading »

The MLM industry has, during the last 20 years, developed positive working relationships with regulatory agencies such as attorneys general and the FTC (Federal Trade Commission). There was a time, however, back in the 1970s, when the FTC challenged the legitimacy of the direct selling industry as being a pyramid scheme. They accused Amway of operating illegally and Amway prevailed in a very famous 1979 case [below] where it was held that the network marketing industry is a legitimate business model and the business opportunity is not a pyramid scheme.

No legal ruling has been more impactful on the direct sales industry than The Landmark Amway Case.

Afterwards, regulatory agencies and the industry went quiet until the 1990s when it was questioned whether or not product-using consultants were a legitimate end-destination for products or whether consultants were simply retail customers. There has been an ongoing tug of war between the MLM industry and the FTC in terms of determining whether or not personal use should have an impact on a company’s legitimate operations. The industry, with the cooperation of attorneys generals in more than a dozen states, were able to amend legislation in those states to recognize that personal use of product by distributors is a legitimate end-destination, just as if it were a retail sale.

Continue reading »

MLM Expert Attorney, Jeff Babener offers ten FTC vs. Vemma litigation bullet points.

MLM Expert Attorney, Jeff Babener offers ten FTC vs. Vemma litigation bullet points.

On August 17, 2015, the FTC filed a complaint in U.S. District Court in Arizona, seeking a permanent injunction against Tempe-based Vemma International Holdings, Inc., a long-time direct selling marketer of health-related products. The FTC was successful in obtaining a temporary restraining order, which shut the company and froze its assets. Further proceedings for a hearing on a preliminary and permanent injunction and other relief were set to the future.

Such a scenario has been a common approach for the FTC. The most recent actions resulted in permanent injunctions against BurnLounge and Fortune Hi-Tech Marketing. For a summary of the most significant federal actions during the past few decades, please see:

Herbalife: What Short Sellers Missed on the Way to the Press Conference…

Jeffrey Babener (2013)

The primary accusation against Vemma is that its program focused on recruitment rather than sale of product to the ultimate user, thus rendering the program a pyramid scheme and a deceptive practice under FTC legislation. In addition, the FTC has charged that Vemma is deceptive in its earnings representations.

FTC vs. Vemma Litigation Bullet Points:

  1. (a) This case affirms the BurnLounge standard requiring emphasis on sales to ultimate users, which includes nonparticipant retail customers and personal use in reasonable amounts. Primary motivation for distributor purchases should be destination to ultimate users and not to qualify in the plan for compensation.

Continue reading »

The term “pay to play” is actually a negative term in the direct selling and MLM field. It is used to reference a program which encourages independent distributors to make purchases to qualify for commissions and rank advancement. Obviously, personal use is not unusual in the direct selling industry. However, programs in which distributors are driven to purchase product or service, more by the desire to qualify than by a genuine desire to use the product for personal use, are sometimes referred to as dominated by “pay to play” and this may suggest that the product or service does not stand on its own in the marketplace.

Continue reading »

So far, 2015 has been a fantastic year!! For instance, three year old granddaughter of Jeff Babener, Ani, reluctantly learned how to paint. by www.mlmattorney.com.

So far, 2015 has been a fantastic year!! For instance, three year old granddaughter of Jeff Babener, Ani, reluctantly learned how to paint.

So far, 2015 has been a fantastic year!! For instance, three year old granddaughter of Jeff Babener, Ani, reluctantly learned how to paint.

And, our newest addition, Luka (son of Charity Dunning — Editor of MLMAttorney.com), has unenthusiastically learned to swim.

And, our newest addition, Luka (son of Charity Dunning -- Editor of MLMAttorney.com), has unenthusiastically learned to swim. What else is new? by www.mlmattorney.com

And, our newest addition, Luka (son of Charity Dunning — Editor of MLMAttorney.com), has unenthusiastically learned to swim.
What else is new?

What else is new? Well, hold your breath! MLMLegal.com is launching 63 new videos on MLM education to our already-expansive video library and Youtube Channel! Mr. Babener will address a wide range of commonly-asked questions as expert-host in our upcoming video additions. You can look forward to a great expansion of our video library very soon!

The following are just some of the topics that will discussed in our new videos:

Continue reading »

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.”

Continue reading »

“Legal Hotspots for Direct Selling Companies.”

“Legal Hotspots for Direct Selling Companies.”

Nikki Keohohou with the Direct Selling Women’s Alliance (DSWA) hosts the Executive Interview Forum titled “Legal Hotspots for Direct Selling Companies.” The interviewee for this hour is Network Marketing Attorney, Jeff Babener, Editor of www.mlmlegal.com.

View the video on our website: mlmattorney.com or mlmlegal.com; or view it on Youtube.

In this hour-long video, Jeff Babener addresses network marketing industry topics such as:

–          Distributor raiding

–          Pyramid scheme

Continue reading »

The Next MLM Startup Conference Takes Place May 16 and 17, 2013 in Las Vegas

How to Start a MLM Company

May 16-17, 2013 - $195 (Second Attendee just $150) - Las Vegas

PORTLAND, OR–(Marketwired – May 07, 2013) – For more than 25 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. 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 practiced experts.

Over the course of two days, attendees will hear from more than a dozen industry experts who have served as “behind the scenes” advisors to many of the direct selling industry’s leading companies. A full list of speakers and their biographies/credentials can be found at http://www.mlmlegal.com/bio.html.

In addition, the conference will discuss the recent analysis article on the role of “personal use” in pyramid and direct selling analysis: “Herbalife: What Short Sellers Missed on the Way to the Press Conference… The Personal Use Issue in Pyramid Analysis; Who is an Ultimate User?”

Continue reading »

Herbalife: What Short Sellers Missed on the Way to the Press Conference…

The Personal Use Issue in Pyramid Analysis; Who is an Ultimate User?

An excerpt from the article and link to the full article at www.mlmlegal.com

Déjà vu, all over again … Yogi Berra

History repeats itself.

The 2012 billion dollar short seller attack on Herbalife, a 32 year old NYSE listed direct seller of nutritional products in 80 plus countries with annual sales in excess of $3 billion, is akin to a replay of seminal challenge to the MLM/Direct Selling model, won by Amway in 1979. In the Matter of Amway, 93 F.T.C. 618 (1979).

In the 1970’s FTC challenge, the criticism went to whether or not the core of the MLM referral selling model was a “deceptive” way to market. In the 2012 short seller attack, along with other criticisms, a principal complaint is that evidence of “substantial personal use and consumption” of company products by distributors themselves, renders an MLM/Direct Selling model inherently deceptive and an illegal pyramid scheme.

Memo to short sellers and algorithmic financial bloggers:

It may be time to reassess.

Some very salient facts and cases may well have been missed in the rush to challenge direct sellers.

Continue reading »

With all the legal issues occurring lately, and in particular with discussion of the BurnLounge case, people are asking about the importance of personal use by MLM distributors. Although it may be true that the MLM industry and regulators have not yet settled on the role of personal use as a proper attribute in determining a pyramid vs. a legal MLM company, there is no question, from a marketing standpoint, that network marketing distributors will find it difficult to recommend products and services to friends if they don’t use the products and services themselves.

Continue reading »