A Conversation with Jeff Babener Video Series: Know of an illegal pyramid scheme operating as a legitimate/legal MLM? Where do you go to report it? Are there regulatory agencies that accept reports of pyramid schemes? Trade associations, like the DSA, can help you determine if a company is legal or not. Check the Better Business Bureau. Do MLM companies have to register their company as a legal operation? Talk to other distributors in the company and in the industry. Does the company have competent legal representation? A startup without legal representation is not looking after their legal affairs. Watch the video.

For more information, visit mlmlegal.com.

Visit us at www.mlmlegal.com to learn more.

Almost all major direct selling companies have defined “retail sales” to include sales to non-distributors, as well as sales to distributors for actual use or consumption (distributors like to use the products they sell too). Many regulatory officials, however, have maintained that the “mark of legitimacy” is found in the programs where primary sales revenue comes from sales to non-distributors, i.e. consumers.

As a theoretical goal, the regulatory position is admirable. The fact is that personal use in the direct selling business creates high sales revenue for many companies from the moment of their inception.

For many years after the 1979 Amway decision, a “live and let live attitude” prevailed between the MLM industry and regulatory community. Although periodic legal skirmishes occurred, the industry and regulators appeared to be content to “agree to disagree.” Instead, the focus on legal investigation was upon inventory loading, cash pyramids, phony products, and earnings hype.

The comments of a federal appeals court in a 1996 class action case involving a company called Omnitrition invigorated the debate on personal use. In that decision, which involved an interim ruling in the case, the federal appeals court questioned whether or not a network marketing company could be viewed as legitimate if its sales were not derived from nonparticipant customers (i.e. distributors). The language in the decision was heavily criticized by the MLM industry, and the Direct Selling Association (DSA), in fact, filed an amicus brief citing the importance of personal use in direct selling marketing programs. However, the decision stood firm. In the trial court’s ruling, the court recognized that products purchased for personal use by distributors constituted a retail sale in the same fashion that sales to nonparticipants would constitute a retail sale.

In the aftermath of the decision, both state and federal regulatory agencies were emboldened to sue or obtain consent decrees against network marketing companies which contain very restrictive requirements regarding recognition of personal use by distributors. State agencies were all over the board on their position. Some demanded 50 percent sales to non-distributors. Some demanded 70 percent sales to non-distributors. Some demanded 80 percent to non-distributors. Even the FTC awakened after 20 years of dormancy and demanded that more than 50 percent of sales be to non-distributors in various consent decrees.

The aggressiveness of government activity was alarming to the industry. The industry quickly marshaled forces, and in short order, at least four states adopted legislation specifically recognizing personal use as a legitimate end destination for products. Other states were likewise targeted for such legislation and the industry was of the belief that a trend would be started that ultimately would be recognized by all state and federal agencies. So strongly did the industry feel about it, that its leading trade association, the DSA, undertook consideration of a formal amendment to its ethics code which would recognize that, for purposes of a pyramid analysis, a retail sale would include sales to nonparticipants, as well as sales to participants for actual use or consumption.

Notwithstanding the ongoing debate on personal use, the industry seems to thrive in almost all states. These is no question; however, that the “personal use” issue is a thorny issue and one issue upon which the industry and regulators must carry on an earnest ongoing dialog to reach a consensus that protects consumers, distributors and network marketers.

Learn more about the multilevel marketing industry and personal use. Watch expert Attorney Jeff Babener’s videos:

What Is the U.S. and International Trend in Recognizing the Validity of Personal Use by Distributors in Pyramid Cases?

Is There a Message to the Direct Selling Industry on Next Steps after the Burnlounge Case on Personal Use?

Visit us at www.mlmlegal.com to learn more.

Here are some ways which you can investigate a MLM company:

1) Check to see if it is a member of any industry associations, like the DSA or DSWA.

2) Call your state’s attorney general’s office or consumer protection division. Most states regulate direct selling companies through these agencies.

3) Check with the Better Business Bureau.

4) You can check the company’s financial information (especially if they are publicly traded – corporate reports are available from online services) by accessing a credit reporting service, like Dun & Bradstreet.

5) Ask your sponsor (or potential sponsors) for the names and numbers of some other distributors. Check the company’s references just as you would check a job applicant’s references.

6) Attend one of the company’s training seminars to see how the company operates first hand.

7) Check industry trade publications for any information on the company, like Entrepreneur magazine.

8 ) Many times the company’s products will be regulated by government agencies, like the FDA. You can check the credibility of the products in some cases by contacting such government agencies.

9) Do some digging: gather as much information from the company itself, like the number of years they’ve been in business, the number of distributors they have, what countries they operate in, etc. This information will give you an idea as to the company’s credibility. A good source for this information is available here.

Checking a company’s legitimacy can be time consuming but highly beneficial in the long term.

Information about pyramid schemes is available here.

And if you are wondering how to make sure that the direct selling company that you’re starting is not an unintentional pyramid scheme, be sure to contact us for your free legal consultation: 503-226-6600 or www.mlmlegal.com.

Visit us at www.mlmlegal.com to learn more.

• 2 million people were involved in direct selling in the U.S. during 2015.
• Those people sold an estimated $36.12 billion dollars in retail sales, an increase of 4.8% from 2014.
• 2015 revenues were higher than any other year in history.

In 2014, 18.2 million people were involved in direct selling. In 2015, that number increased by 11% to 20.2 billion people. Of those people, 28.2% were between the ages of 35 and 44. 24.9% were between the ages of 44 and 54. 20.5% of those involved were between the ages of 25 and 34. Women represent 77.4% of participates, while men represent 22.6% in 2015.

The direct selling industry continues to grow. In 2014, U.S. retail sales were $34.47 billion, and in 2015, that number increased by 4.8% to $36.12 billion. The highest sales in product group belongs to wellness products, at 12 billion dollars in 2015, around 10 billion in 2014, and roughly 9 billion in 2013. Services were the second major group of products sold with roughly 8 billion in 2015.

Geographically, the South held the highest sales at 35.7%. The West held 26.2%. The Midwest held 20.3% and the Northeast 17.5%.

Read the detailed charts for yourself at the DSA’s website.

MLMLegal.com is bustling with educational content for direct sellers and startup/existing MLM companies! Be sure to visit us often!

If you are interested in attending the Starting and Running the Successful MLM Company conference visit our conference page, view our speaker list, or get more details. All executives/owners of direct selling companies are welcome to attend. Call 800-231-2162 to register.

Our next Starting and Running the Successful MLM Company Conference takes place October 27 and 28, 2016 in Las Vegas. View our conference flyer and speaker list online. Participate in our Innovation Campaign for your chance to receive TWO FREE TICKETS to attend our next conference.

If you’re reading this blog post and the conference dates above have passed, check our website for the current conference dates.

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.

Visit us at www.mlmlegal.com to learn more.

• In 2009, 16.1 million people were involved in direct selling, compared to 15.8 million in 2010, 15.6 million in 2011, 15.9 million in 2012, 16.8 million in 2013, and 18.2 million in 2014. The increase was 8.3% from 2013 to 2014.
• In 2014, 74.4% of company distributors were women, and 25.6% were men. In 2013 that number was 74.2% for women, 25.8% for men, and in 2012, 76.6% were women and 23.4% were men.
• U.S. retail sales were $34.47 billion in 2014, $32.67 in 2013, and $31.63 in 2012.
• In 2014, 71.5% of direct sales were person-to-person, 22.4% were party plan, and 6.1% were other. Compared to 2013 when 70.2% were person-to-person and 22.5% were party plan.
• 30% of sales in 2014 were in the wellness product group. Personal care was around 15%. Services were around 22%.
• The highest sales by region goes to the South, were 37.4% of goods and services were sold. The West sold 24.3%. And, the Midwest came in third at 20.5%

The MLM industry held consistent and increasing growth from 2013 to 2014. I bet you’re thinking, “Geez! Where’s my piece of that pie!”

*Information sourced from www.dsa.org.

Visit us at www.mlmlegal.com to learn more.

If you’re considering becoming a part of a startup network marketing company, learn how to recognize some red flags

There are ways to make sure that a direct selling company operates as a legal and ethical business. Firstly, contact the industry association websites, such as the Direct Selling Association (DSA), to see if the company is a member and if they abide by the DSA’s Code of Ethics.

Secondly, if you’re considering becoming a part of a startup network marketing company, learn how to recognize some red flags. Is the company offering a tangible product or service? Make sure that the company offers a product or service, and not something intangible, such as prayers or wishes. Does the company ask for an unreasonably-high investment to join? Startup kits average anywhere from $50-$150. If a company is asking for $500 for their startup kit, perhaps you should begin asking more questions. This alone is not a sign of a company operating illegally, but can be a sign to look for additional clues for questionable practices. Does the company focus its mission on primarily recruiting new members and not focus on the sale of product (or service) to the end consumer? A legally-operated MLM company will have a primary focus of selling products (or services) to the consumer, not just in recruiting new consultants.

Be sure to investigate any opportunity that you are considering joining and do your own due diligence. And, if you are starting your own network marketing company, it would be wise of you to hire a credible MLM attorney who specializes in direct selling law who can help you determine if your company is legal.

Sign up FREE for our newsletter, MLM News Global, and keep updated on industry news, scams, video highlights, and relevant articles.

Learn more about the network marketing business at www.mlmlegal.com and www.mlmattorney.com.

If you are interested in attending the Starting and Running the Successful MLM Company conference visit our conference page, view our speaker list, or get more details. All executives/owners of direct selling companies are welcome to attend. Call 800-231-2162 to register.

Our next Starting and Running the Successful MLM Company Conference takes place October 22 and 23, 2015 in Las Vegas. View our conference flyer and speaker list online. Participate in our Innovation Campaign for your chance to receive TWO FREE TICKETS to attend our next conference.

If you’re reading this blog post and the conference dates above have passed, check our website for the current conference dates.

Visit us at www.mlmlegal.com to learn more.

The MLM Startup Conference is perfect for executives who have a lot of questions that need answered by a broad range of experts. It is also perfect for those who need general knowledge about the network marketing industry.

We’ve concluded the February 2015 Conference and scheduled the dates for our next event! The February Conference had in attendance over 100 people, from 65 MLM companies, representing 20 states and five countries (U.S., Canada, South Africa, Mexico, and Brazil).

The next Conference takes place May 14 and 15, 2015 in Las Vegas! Executives/owners of MLM, network marketing, direct selling, and party plan companies are invited to attend. Learn how to structure your compensation plan, create a legal business structure, recruit top-ranking consultants, develop a business model, generate leads, find funding, build your website and back office, find the right technology provider, and so much more.

Attendees also have the opportunity to speak one-on-one with the expert speakers. Our conference is an educational event. You decide who you’d like to speak with one-on-one. Do you have questions about the legality of your business plan? Sign up to meet with Attorney Jeff Babener, who has spent over 28 years representing companies in the direct selling industry. Do you have questions about your compensation plan? Sign up to meet with compensation plan consultant Mike Sheffield, who has also spent over 25 years in the industry. A full list of speakers and their expertise can be found here.

The conference covers a broad range of topics and also answers specific questions, such as: What is the importance of DSA membership for network marketing companies?

A: In an industry with potentially thousands of direct selling companies, only a select few hundred have become members of the U.S. DSA (Direct Selling Association). The DSA is a national trade association for the direct selling Industry. It has existed for more than 100 years in various forms and it sets standards for consumer protection and ethics by its member companies. It is widely recognized by federal and state legislatures and regulators, and has played a meaningful role in shaping legislation that impacts the direct selling industry. Many countries have affiliate “DSAs” and are joined under the umbrella of the World Federation of Direct Selling Associations. (WFDSA).

Since member companies are required to commit to a significant consumer protection Code of Ethics and to go through an extensive “vetting” process, membership brings a respect that is very valuable to distributors as they promote the programs of member companies. In addition, the DSA affords significant educational conferences and ongoing updates on industry issues to both members and to the public.

Do you have a specific question? The MLM Startup Conference is perfect for executives who have a lot of questions that need answered by a broad range of experts. It is also perfect for those who need general knowledge about the network marketing industry.

Learn more about the Starting and Running the Successful MLM Company Conference by clicking here. Also, learn how you can get two free tickets to attend through our Innovation Campaign by clicking here.

For more information on the network marketing industry visit www.mlmlegal.com and www.mlmattorney.com.

Find us on our social networks:

Google+

LinkedIn

Twitter

Facebook

Visit us at www.mlmlegal.com to learn more.

By Jeffrey A. Babener
© 2016

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 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.”

To Short Sellers:

Rethink your criticism of direct selling companies. Distributors’ personal use is a legitimate end destination for product sales. Criticism of personal use is not a valid criticism. So long as distributor purchases are not merely incidental to the business opportunity, such purchases in reasonable amounts for personal use, coupled with rewards for one’s own purchases, as well as use by non-distributors and other distributors is as legitimate as a sale to a non-distributor customer, and is not a basis for a pyramid.

To the FTC:

Congratulations, you won this case on the facts presented. However, since the Omnitrition case (1996), you have been arguing the wrong legal standard on personal use for more than 15 years, albeit a slight diversion in a 2004 FTC Advisory Opinion that recognized legitimacy of personal use. The court pointed out: “The FTC counters that ‘internal sales to other Moguls cannot be sales to ultimate users consistent with Koscot.'” The court proceeded to roundly reject this contention noting that this argument is not “supported by the case law.” And so the message to the FTC is that personal use criticism will not be accepted in the future and the FTC should look back to its 2004 Advisory Opinion position.

To the Industry:

Accept your victory on recognition of personal use as a legitimate destination for product and representative of “sales to ultimate users.” However, “get your act together,” and adopt “best practices” methods and rules that promote product use over mere recruiting. The presence of personal use is not “a free ticket out of trouble.” It will be viewed as part of a legitimate MLM, but it is only one factor for the case by case fact based analysis of the “economic reality” of an entire program in which the acid test will be that the predominant and primary motivation of distributor purchases is for personal use or resale and not merely to qualify for rewards in the program by personal purchases and recruitment of others to do the same.

Major Impact of the BurnLounge Case…

To read the full article, visit MLMLegal.com.

For more information on the network marketing industry visit www.mlmlegal.com and www.mlmattorney.com.

Find us on our social networks:

Google+

LinkedIn

Twitter

Facebook

Our next Starting and Running the Successful MLM Company Conference takes place October 27 and 28, 2016 in Las Vegas. Call 503-226-6600 or 800-231-2162 to register. If you’d like to see how you can get free tickets to the next MLM Startup Conference, visit our Innovation Campaign page.

Visit us at www.mlmlegal.com to learn more.

– U.S. direct sales totaled $31.6 billion in 2012, a 5.9 percent year-over-year increase from $29.87 billion in 2011.

– In 2012, there were 15.9 million people involved in direct selling in the U.S., an increase from 15.6 million the prior year.

– The U.S. direct selling market grew faster than the overall U.S. economy, which grew 4.0 percent as measured by gross domestic product (GDP).

– The share of sales for two categories: Wellness (including weight management products, nutritional supplements, health foods and beverages, etc.) and Services (including utilities, and financial products) has steadily increased for the last several years.

– Seventy-six percent of smaller direct selling companies (those with annual retail sales under $3 million) saw growth, with an average retail sales increase of about 22 percent.

– The U.S. was ranked as the top direct selling market in the world with 19 percent of worldwide sales in 2012.

– Japan came in second with $22.7 billion (14 percent), followed by China at $20.0 billion (12 percent), Brazil at $14.6 billion (9 percent) and South Korea at $13.3 billion (8 percent).

– Global direct sales increased 5.4 percent from $158.3 billion in 2011 to $166.9 billion in 2012, according to Carlucci.

– The number of people involved in direct selling in the United States increased 1.9% to 15.9 million in 2012 from 15.6 million in 2011.

The Direct Selling Association offers some additional statistics for those paying close attention to the MLM industry (located at the DSA’s website):

2012 Estimated Direct Retail Sales

Number of People Involved in Direct Selling in the U.S.

Revenue by Product Group

2012 Estimated Direct Retail Sales by Method

These updated statistics show how resilient the MLM industry is despite economic troubles, and just how many people rely on this industry to create auxiliary income. The MLM industry is growing. More people are becoming consultants and distributors. Large and small direct selling companies are maintaining growth. The direct sales business model is on the rise globally, especially in the United States. And the pace of growth of the direct selling industry has outpaced that of the overall U.S. economy.

For more information and updates on the direct selling industry visit www.mlmlegal.com and www.mlmattorney.com.

Find us on our social networks:

Google+

LinkedIn

Twitter

Myspace

Facebook

Our next Starting and Running the Successful MLM Company Conference takes place October 24th & 25th, 2013 in Las Vegas. Call Charity before September 1st to receive a discount! 503-226-6600 or 800-231-2162.

Visit us at www.mlmlegal.com to learn more.

The March 2013 issue of Direct Selling News reported early globally figures leading up to the World Federation of Direct Selling Associations’ (WFDSA) General Annual Statistical Survey (being released in June). The WFDSA’s represents more than 60 Direct Selling Associations around the world.

The Direct Selling Association took a look at global numbers in the billions from 2011 and compiled a cover story-worthy list of detailed direct selling data. Readers should reference the Direct Selling News website for a detailed explanation of how these data were collected. Direct Selling News states that the importance of the WFDSA’s statistical information will help direct selling companies determine their plans for international expansion, help get the word out about direct selling (MLM, network marketing and party plan) companies, and will help to have an economic impact in the countries that they influence, especially in countries where they demonstrate the greatest financial impact.

Here we’ve summarized a list of eight relevant (and interesting) direct selling statics about the United States and from around the globe, paraphrased from Direct Selling News:

1)      In 2011, the direct sales industry equated to $153.7 billion dollars in worldwide sales.

2)      Direct selling is best represented by 22 major countries, which reflect 90 percent of direct selling retail sales.

3)      The top five countries benefiting the most from direct selling revenues are (in order of highest achievement) the United States, Japan, China, Korea, and Brazil. These countries alone make up over 60 percent of annual direct sales, globally.

4)      The United States is the number one market for direct selling, equating to $29.9 billion and, and has held 20 percent market share for two years running.

5)      Roughly, “15.6 million direct sellers grew U.S. market sales 4.6 percent and generated $29.9 billion.”

6)      78 percent of direct sellers are women.

7)      96 percent of all compensation plans are multilevel.

8)      Products are of great importance in direct selling. The leading product lines include, “…wellness (24 percent), household goods and durable (20 percent), cosmetics and personal care (18 percent), and clothing and accessories (12 percent).” The remaining 26 percent range anywhere from fuel additives to water filtration systems.

The Direct Selling News article titled “Direct Selling’s Billion Dollar Markets” can be found at http://directsellingnews.com/index.php/view/direct_sellings_billion_dollar_markets6#.UXnru8rLvdQ

For more information, visit our websites at www.mlmlegal.com and www.mlmattorney.com. Or, visit our blogs at http://mlmlegal.com/MLMBlog/ and http://mlmattorney.com/blog/.

Find us on our social networks:

Google+

LinkedIn

Twitter

Myspace

Facebook

And, as always, visit MLMLegal.com, the best MLM resource on the web. The next Starting and Running the Successful MLM Company Conference will be here before you know it! On May 16^th and 17^th, 2013 we are hosting the MLM Conference for the 25^th year! This is now our 64^th annual conference (held almost consistently three times per year over the last 24 years). All executives/owners of MLM, direct selling, network marking, and party plan companies are welcome to attend. This is the original MLM Startup Conference, hosted and perfected by direct selling industry expert, MLM Attorney Jeff Babener. Call 503-226-6600 or 800-231-2162 to register. (Can’t make this event? Keep an eye out for our October and February conferences as well.)

Visit us at www.mlmlegal.com to learn more.