MLM/DIRECT SALES consultant practice tips. MLM/DIRECT SALES distributor retention may be as important to the long term stability of the MLM/DIRECT SALES business as MLM/DIRECT SALES Recruitment.   MLM/DIRECT SALES Consultant specialists in the field of MLM/DIRECT SALES retention will assist in raising retention levels.    MLM/DIRECT SALES Legal and MLM/ and Babener and Associates provides expert MLM/DIRECT SALES Consultant and MLM/DIRECT SALES Consulting advise on MLM/DIRECT SALES corporate, MLM/DIRECT SALES software, MLM/DIRECT SALES Compensation, MLM/DIRECT SALES Taxes, etc. MLM/DIRECT SALES Consulting is an important component for MLM/DIRECT SALES startup.  Careful Choice of MLM/DIRECT SALES Software is another component of MLM/DIRECT SALES Corporate.  An MLM/DIRECT SALES Consultant and MLM/DIRECT SALES Law and MLM/DIRECT SALES Legal is part of the MLM/DIRECT SALES Startup Team.  MLM/DIRECT SALES Compensation must be reviewed by an MLM/DIRECT SALES Consulting standpoint by an MLM/DIRECT SALES Consultant and MLM/DIRECT SALES Legal and MLM/DIRECT SALES Law professional and programmed by a MLM/DIRECT SALES Software and MLM/DIRECT SALES Technology provider.

SECTION 6:   Network Marketing and the Law
By Jeffrey A. Babener
Excerpted from Network Marketing: What You Should Know, Jeffrey Babener, Legaline Publications
MLM consultant practice tips. MLM Raiding issues are a continuous challenge for MLM Companies.   Many problems may be avoided by appropriate MLM Legal language in MLM distributor agreements and MLM Policies. Guidelines for activity during the MLM distributorship and after the MLM distributorship are imperative.   MLM Legal and and Babener and Associates provides expert MLM Consultant and MLM Consulting advise on MLM corporate, MLM software, MLM Compensation, MLM Taxes, etc. MLM Consulting is an important component for MLM startup.  Careful Choice of MLM Software is another component of MLM Corporate.  An MLM Consultant and MLM Law and MLM Legal is part of the MLM Startup Team.  MLM Compensation must be reviewed by an MLM Consulting standpoint by a MLM Consultant and MLM Legal and MLM Law professional and programmed by a MLM Software and MLM Technology provider.

SEC: Pyramids Are Securities.

For the SEC (the federal Securities and Exchange Commission), as well as all courts and state regulatory agencies, a pyramid scheme is a security. Where it appears that a pyramid scheme has operated as and masqueraded as a network marketing opportunity, the SEC and other agencies have taken further action.

In 1971, the SEC announced that, in its opinion, a multilevel marketing program could be transformed into a security. The 1971 SEC notice is not an indictment of the network marketing industry. Instead, it suggested that an MLM company acted more like a pyramid scheme in which the activity of a distributor was "passive" rather than "active" could trigger accusations of a passive investment scheme, i.e. a security. In a pyramid scheme, rather than buying products to sell to consumers, distributors are instead buying into position in a scheme. This is nothing new. In fact, the SEC all state regulatory agencies have always taken the position that a pyramid scheme is by definition a security. The point is, however, that many criteria have developed over the years to differentiate a pyramid scheme from a network marketing business opportunity.

         For instance, a substantial prosecution of an MLM company by the SEC in 1992 illustrates the fact that the SEC will in fact pursue a pyramid scheme which is masquerading as a network marketing company. In that case, the SEC convinced a federal court to shut down and freeze the assets of a company call ILN (International Loan Network).

         The ILN program held itself out to the world as a consumer benefit service which also offered members and distributors opportunities for real estate investment. In reality, argued the SEC, the program was probably driven by "the deal" and was a headhunting scheme. Potential recruits were invited to emotionally charged revival type meetings where they were encouraged to invest money in memberships and real estate, and make a fortune by getting others to do the same. Large amounts of money were invested with expectation of large returns. The federal courts accepted the SEC position that the ILN marketing program constituted an illegal pyramid scheme and the sale of securities.

         Explaining securities law in layman's terms is not such an easy task. In layman's terms, a security is best thought of as a "passive investment", i.e. an investment of money with expectation of a return that is substantially caused by someone else than the investor. For instance, when you invest money in your own small business, that it not a passive investment because the profit comes solely from your own work. Similarly, purchase of a franchise is an active investment. But the purchase of a share of stock in IBM is a passive investment. And so also is an investment in a MLM program which involves inventory loading and headhunting where distributors expect to make their money by merely introducing new distributor investors who also invest heavily, and where little money is made by selling product or service to the actual retail customer. The courts have continually held that a pyramid scheme constitutes the illegal sale of securities. In a pyramid scheme, participants are in reality investing in the marketing plan and counting on the marketing plan to bring them a return on their investment if they can find other investors.

In the ILN case, the court compared the ILN program to some of the abuses in famous programs, such as Dare to be Great, Koscot and "Challenge to America," all of which were accused of being pyramid schemes and thus securities.

THE ILN program had elements of today's modern MLM program, but it had much more in common with pyramid schemes of old. It's useful to contrast the ILN program from the elements of a legitimate program. According to the SEC and the court:

1. The driving force in the ILN program was to solicit recruits to invest large sums of money, and encourage them to procure others to do the same. The driving force is not a product, but instead "the deal" or business opportunity. The driving force in a legitimate MLM   program is, in fact, its product.

The underlying philosophy of the ILN program was stated time and time again at the President's night recruitment meetings: "The movement of money creates wealth. What we believe is that if you organize people and get money moving, it can actually create wealth." No such hype or "get rich quick" philosophy is involved in a legitimate program where income is earned from retailing an established product.

2. Earlier pyramid cases were characterized by the payment of headhunting fees for recruitment of new distributors. The ILN program was found to be such a program. The court found as a factual matter that "the intent is for a person to become a member first and then recruit new members.: The court noted the oft quoted game like pitch of the ILN president, "You come in, then you bring your wife and your kids." Of what conceivable value could more than one consumer membership have to one household? Distributors in legitimate MLM programs are not paid for headhunting new recruits and are generally mandated to meet retailing requirements to qualify for bonuses.

3. The court observed that the ILN membership had no real independent meaning outside the context of its marketing program. In essence, the only likely reason individuals invested in ILN was because of the business opportunity. ILN had no previous track record of marketing its memberships or real estate investments without the pyramid opportunity. The entire thrust of meetings and literature was to encourage people to invest and "to move money" to make money.

4. Pyramid programs of the past are replete with earnings hype, check waving, and the "money humming" of the Dare to be Great type programs. The ILN program, contended the SEC, followed in that tradition. The courts characterized its meetings as "evangelistic revival" type meetings, "part motivation and part financial evangelism." This characteristic is absent in a legitimate program.

5. There was no evidence of actual retailing to the end consumer nonparticipant in the ILN program. Retailing is mandated to qualify for bonuses in legitimate MLM programs.  

6. The big money to be made in ILN was in large real estate investments. The ILN real estate investment program is an adaptation of an earlier such program, that even ILN officials admitted involved the sale of securities. The courts found the likelihood that the ILN membership marketing program and real estate investment marketing program were a "single interlocking program," and that the real estate program was "inextricably intertwined" with the membership marketing program. Inducements to participants to invest large sums of money have been a characteristic of earlier pyramid cases. Again this factor is conspicuously absent in legitimate programs. After purchase of an "at cost" sales kit, distributors are asked only to spend time, not money, to retail product or services to retail customers.

7. ILN distributors were encouraged to bring results to pep rallies where ILN officials "close the deal." This element of "common enterprise" and "efforts of others" is typical of earlier pyramid schemes. This approach is also absent in legitimate programs, again where retailing activity and supervisorial and managerial activity are prerequisites to earn income.

So, what is the answer to the many inquiries about the SEC and the MLM industry? The answer is that from a SEC standpoint, the network marketing industry has a future. Pyramids do not. MLM   companies that tolerate front-end loading, garage qualifying, buy-in qualification, or who offer programs that are driven by "the deal" rather that the product or service, are all fair game for the SEC.

DIRECT SALES consultant practice tips. DIRECT SALES Companies should join DIRECT SALES Trade organizations.   DIRECT SALES trade organizations provide educational assistance to members and assert positive DIRECT SALES Industry positions on DIRECT SALES Regulations and DIRECT SALES Laws.   DIRECT SALES Legal and and Babener and Associates provides expert DIRECT SALES Consultant and DIRECT SALES Consulting advise on DIRECT SALES corporate, DIRECT SALES software, DIRECT SALES Compensation, DIRECT SALES Taxes, etc. DIRECT SALES Consulting is an important component for DIRECT SALES startup.  Careful Choice of DIRECT SALES Software is another component of DIRECT SALES Corporate.  An DIRECT SALES Consultant and DIRECT SALES Law and DIRECT SALES Legal is part of the DIRECT SALES Startup Team.  DIRECT SALES Compensation must be reviewed by an DIRECT SALES Consulting standpoint by an DIRECT SALES Consultant and DIRECT SALES Legal and DIRECT SALES Law professional and programmed by a DIRECT SALES Software and DIRECT SALES Technology provider.