MLMLegal.com’s most requested FAQ this month answered in a video by MLM expert Attorney, Jeff Babener: How Many Level Deep (in the compensation plan) is it Legal to Go?

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 U.S. Postal service examined the numbers of compensation plan levels to make a determination, 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.

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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

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Have you finally decided to launch the network marketing business of your dreams? Or, have you decided that it’s time to take another look at your current MLM company to see how you can improve, grow and expand your business? Have you finally decided to launch the network marketing business of your dreams? Or, have you decided that it’s time to take another look at your current MLM company to see how you can improve, grow and expand your business?

Babener & Associates/http://www.mlmlegal.com/, with over 30 years in the legal business, offers an excellent and affordable resource for those who are starting or running a direct selling company: The Starting and Running the Successful MLM Company Conference. This seminar offers MLM startup entrepreneurs a place to meet a plethora of network marketing industry experts — all in one place — who will help educate you in the corporate areas that are important to you, such as software, legal, technology, recruiting, raising capital, or designing your compensation plan. Visit our speaker page to learn more about the speakers and the topics that they will be covering.

Attendees will also be in the same room with around 100s of other established and entrepreneurial MLM companies who help to provide encouragement, advice and support.

All attendees are educated about the network marketing industry, how to grow their companies, to are able to meet experts in the industry who will help to coach them on the MLM industry.

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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.

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Sign up for the MLM News Global newsletter for top headlines, news stories, scam alerts, videos, articles, and more information on the network marketing industry, by www.mlmattorney.com.

Sign up for the MLM News Global newsletter for top headlines, news stories, scam alerts, videos, articles, and more information on the network marketing industry.

There are a lot of outspoken bloggers and critics online, as well as negative opinions floating around the social networks, but the positives drown out the negatives. It’s not hard to find a loud voice criticizing the direct selling industry through a quick Google search. And it is true… there are many pyramid/Ponzi schemes, primarily internationally based, that parade themselves as MLM/direct delling… and they are not. They are merely pyramid headhunting recruitment schemes that often use bogus products and services as an excuse to move money. The entire emphasis of such organizations is to cause investors to pay money and cause others to do the same, with a thin veneer of an actual product or service. In fact, the revenue to pay commissions instead comes from distributor payments and not sales to the ultimate user.

Despite this, the facts remains MLM and direct selling are a major part of the fabric of commerce. Statistics on 2014 sales, compiled by the World Federation of Direct Selling Associations, indicate global sales of $183 billion and 100 million distributors. In the U.S., there are 18 million distributors posting $35 billion in sales. Numerous direct selling companies are traded on the NYSE.

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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.

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Jeffrey Babener’s – Editor of MLMLegal.com and MLMAttorney.comYoutube channel has surpassed 80,000 views! As the leading MLM industry expert, Jeff Babener has launched over 80 educational and informational videos for MLM, network marketing, direct selling, party plan executives and distributors (consultants, representatives, members, etc.). The videos cover topics from pyramid schemes to recruiting, to MLM success to finding the right product, to legal opinion to compensation plans, etc.

The various network marketing topics discussed on Mr. Babener’s Youtube channel are vast and highly educational. For years he has been compiling educational videos on the direct selling industry as a service to MLM company owners and distributors. Do you have a question about the network marketing industry? Attorney Babener answers your MLM legal questions! Click on the links below to watch his videos!

Do You Ever Wonder What a Real MLM Trial Is Like? Watch one for yourself!

http://mlmlegal.com/trialvideo.html

Executive Interview Forum Questions and Answers (Q&A) NEW!

Executive Interview by the DSWA – “Legal Hotspots for Direct Selling Companies” with Jeff Babener NEW!

Attorney Jeff Babener, Discusses Various Topics in a MLM Compliance Training Session NEW!

Earnings Claims and Consumer Protection Laws

Interviews with Expert MLM Attorney, Jeffrey Babener

Short Course on Network Marketing: Q&A with Jeffrey Babener on Pyramid Schemes NEW!
The Difference between MLM Earnings Calculators and Earnings Claims
From a Legal Perspective: The Difference between a Pyramid Scheme and Legitimate MLM
Compliance Guidelines for Direct Selling Companies and Network Marketers

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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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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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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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