“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

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Mandated kits are typically in the $50-$100 range.

Frontloading generally refers to a process in which a MLM company, or a sponsoring consultant, encourages a new consultant to purchase far more than is commercially reasonable under the circumstances. Often the “push” is explained to the recruit as necessary to qualify in the compensation plan. This is an unacceptable practice is often one indicia of a pyramid scheme.

On the other hand, virtually all regulatory agencies recognize that purchase of an “at cost” sales kit is an acceptable practice in the mainstream of leading direct selling companies. Such mandated kits are typically in the $50-$100 range. They generally entail “hard copy” or online supply of sales and marketing materials as well as ongoing, updated sales and marketing materials for one year. Typically the mandated sales kit does not include product and generally a company offers an optional deluxe kit that may include product. Such an optional kit, which is often referred to as a “fast start” kit, may contain several hundred dollars of product. This is not unusual. Although the same regulatory standards on upfront, mandated purchases are applicable to party plan companies as they are to other companies; it is not unusual to see party plan companies mandate a beginning starter kit that contains a wide array of products, with a price tag several hundred dollars. Regulatory agencies are very liberal in their view of such mandated purchases in party plan companies because party plan companies are so overwhelmingly retail-oriented and the movement of product to retail customers is the norm, and not the exception.

MLMLegal.com has launched the Innovation Campaign for its February 2014 MLM Startup Conference. Read how to get your two free tickets by clicking HERE!

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Trademark of Herbalife

A Belgian appellate court declared December 3, 2013 that Herbalife is in fact operating in compliance with Belgian law, reports Yahoo! news. This ruling is in response to previous claims by the consumer organization, Test-Aankoop, that the international nutrition company was operating as a pyramid scheme.

Herbalife was established in 1980 and operates in over 75 countries. The company is the world’s fifth top direct selling company, with 2.7 million salespeople in roughly 79 markets, reports mlmlegal.com.

For additional information, read the following articles:

Herbalife:  Belgian Appeal Court: Herbalife is No Pyramid:  Validates Legitimacy: The Next Chapter in Recognition of Personal Use

**See a translated copy of the actual Belgian Court of Appeal Herbalife ruling.

Herbalife Statement Regarding Belgian Appeal Court Ruling

Herbalife: Belgian Court Overturns Pyramid Ruling

Herbalife says Belgian appeals court reversed pyramid scheme finding

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This blog post is the companion post to the video: How to Tell if a Company is a Pyramid or a Legitimate MLM.

You may have been recruited for a network marketing opportunity or you are a recruiter. Inevitably, this question will come up, is the company a pyramid scheme or a legitimate business opportunity?

Although this is a complex legal area, let me share a simple metaphor that draws a clear line in the sand.

The metaphor is about a gentlemen, will call him Party #1, and he sells a case of canned tuna fish to Party #2 for $10. And, Party #2 sells it to Party #3 for $20, and Party #3 sells the case of canned tuna fish until it gets to Party #10, who buys the case of canned tuna for $500. And, Party #10 opens up the case of tuna fish and it’s rancid. It’s inedible.

He goes back to Party #9 and complains, “I bought this case of tuna for $500 and it’s rancid.” Party #9 tells him to take it to Party #8, and Party #8 tells him to take it to Party #7, and so on until Party #10 goes all the way back to Party #1 and says, “You’re the one who started all of this! I have a problem!”

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Interviewer: Jeff, let me ask you this question, what’s the difference between a legitimate direct sales opportunity and a pyramid scheme?

Jeff Babener: If you’re selling a product or service and it stands on its own in the marketplace and people would buy it because they want it, then you have a real, legitimate direct selling company. If on the other hand, the quality of the product is low, the price is high, then it merely becomes an excuse for people to buy the product because they want to qualify for the program in order to recruit others, make money, and earn commissions.

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Some clear criteria for legitimate direct selling/network marketing companies have long been recognized.

In determining whether a program is a legitimate direct selling/network marketing opportunity, the would-be participant should consider several important points:

  1. Goods or Service. Legitimate companies offer high-quality goods or services and guarantee consumer satisfaction. Goods and services must have a “real” demand in the marketplace, or an anticipated “real” demand if the good or service is just being introduced. Goods and services must have their own intrinsic value, such that distributors who purchase them would do so even if they were not involved in a network marketing business opportunity.

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As we talk with companies we’re often asked, “Is there a level playing field for all types of compensation plans?” The answer is always, “The same legal principles apply no matter what your compensation plan is, and no matter what your product is,” regardless of whether they are binary, matrix or the Australian 2-Up, and regardless of whether your products are financial services, educational products, health products, or vitamins. The basic legal principal question always asked is, “What is it that people are paying?” and “Why are they paying it?” If you are selling a quality product at a fair price to the consumer, and the product “gets used”,  then you are probably on the legitimate side. If it’s a program in which you are merely moving money or you are selling overpriced products to distributors who are buying only to qualify, then you probably have a pyramid scheme.

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Have you ever wondered if their is a recipe that successful MLM, direct selling, network marketing, and party plan companies have that make them a success? Expert MLM Attorney Jeff Babener knows the recipe for success for executives in network marketing. He shares a few in his new video: Factors that Make an MLM Company Successful.

More new videos are available directly on the MLMLegal.com homepage. Experienced MLM Attorney Babener offers many tips to emerging and startup companies on his website. The article “MLM Consulting: How to Build a Successful Direct Selling Company” and the FREE MLM Startup Manual offer additional information on achieving success in the competitive world of network marketing.

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The Securities and Exchange Commission (SEC) shut down ZeekRewards.com for conducting Ponzi scheme activity. News outlets are reporting that ZeekRewards raised over 600 million dollars from over one million customers. Here are some links to the news reports:

SEC Shuts Down ZeekRewards as Scam – Wall Street Journal

U.S. SEC says shuts ZeekRewards.com $600 million Ponzi scheme – Reuters

Investors in Lexington Ponzi scheme confused, upset – Fox8

Read the official SEC Complaint [PDF]. Or, read the official SEC Complaint online (i.e. text only).

Be sure to visit the blog at MLMLegal.com to read MLM Attorney Jeffrey Babener’s article, And the Leaves that are Green Turn to Brown – MLM Penny Auctions, of ZeekRewards’ recent allegations and to learn more about illegitimate direct selling companies.

You may also be interested in reading the following articles which help to identify pyramid schemes vs. legitimate MLM companies:

Is it a Pyramid or Legitimate MLM?

Identifying Illegal Pyramid Schemes

Pyramid: Yes or No?

Tired of reading? Attorney Jeff Babener will explain pyramid schemes to you on video:

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What is the difference between MLM and direct selling? There is also network marketing… The World Federation of Direct Selling Associations (WFDSA) explains how you can tell the difference between a network marketing company and an MLM company, as well as, how to tell whether or not the company is legal.

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