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

An excerpt from the article and link to the full article atwww.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.

1. A survey of FTC, SEC and Justice Department leading pyramid cases during the last two decades is instructive. Interestingly, in massive releases of the Herbalife short seller and the prolific financial blogging “call to action” that Herbalife is a pyramid that should and will be prosecuted by the FTC, NO ONE has bothered to actually examine the facts of leading FTC, SEC and Justice Department pyramid prosecutions of the last two decades… if they had done so, they might observe a significant chasm that exists between inherently deceptive and egregiously abusive pyramid schemes and the practices of leading direct selling companies.
2. They also may have missed the FTC’s own statements on personal use, as well as the trending legislation in more than a dozen states, recognizing the validity of personal use as a legitimate end destination of product.

For the full and detailed article “HERBALIFE: WHAT SHORT SELLERS MISSED ON THE WAY TO THE PRESS CONFERENCE…The Personal Use Issue in Pyramid Analysis Who is an Ultimate User?”

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.

Interviewer: Talk to me about what makes a MLM company successful. I know you’ve worked with some of the biggest names in the industry. You’ve been in this business for a very long time. So you’ve got a real unique perspective on the industry because as you worked with so many successful MLM companies. I bet from your own point of view, you see some of the things that companies are doing well and some of which they can improve on. With all of that collected experience, tell us what makes a company successful?

Jeff Babener: You know, we often hear about the newest sizzling compensation plan. I’m going to say that a good compensation plan is one that pays fairly and proper remuneration is a given. Your company can’t go anywhere unless you’ve created your compensation plan correctly.

Interviewer: So, you got to have a good compensation plan…

Jeff Babener: It should be good and it should be fair. But I have to tell you, a company that touts its compensation plan is often using that as an excuse to cover up for other elements that are missing.

Interviewer:  Got it.

Jeff Babener: What drives the success of direct selling companies, that we have seen, has been high quality products and services. Products and services that stand on their own in the marketplace, something that distributors and consumers bond well with.

Representatives and consumers bond with products and services. They bond objectively. They bond emotionally. So, bonding to that quality product is really important.

Secondly, the people who run the company, for better or for worse, are extremely important. When the distributors of Mary Kay sat in the audience and listened to Mary Kay speak, each of them believed that she was speaking directly to them. There is no substitute for having a connection with the leadership and founders of the company.

Thirdly, the company’s vision is important. What are they doing? Do distributors want to do something good in the world? That is why companies that sell health products, or that sell transformational products (like financial services) resonate so deeply with people. We live in difficult time. Companies that participate in philanthropic or charitable programs connect passionately with the distributors.

When Mary Kay started her company, people may have thought that she was in the cosmetics business. But, what she was actually in the business of empowering women. That is why Avon hosts marches for cancer research.

There must be a vision, a mission or a calling. There must be something greater than a single person for everyone to rally around. People always relate to projects larger than themselves.

Prior to my coming here today, just before we were going to do the interview, I saw a picture of Babe Ruth on the wall in your office.

Interviewer:  Yep.

Jeff Babener: …Looking up the bleachers, hitting a home run… Now, there is a man who transcended all sport. Every person in America relates to Babe Ruth. There are times and there are people who transcend what they’re doing. And they give meaning. They make you feel good. They give you a purpose. They give you a goal. And they drive you to be a better person. Babe Ruth hit home runs, but he did much more than hit home runs. I’m assuming that’s one reason that you put his picture in your office.

Interviewer:  Yeah, he’s a guy that only knew how to hit home runs and grand slams.

Jeff Babener: And, these things happen only a few times in our lifetime. Along comes a John Kennedy who will inspire people. You can’t explain why, but they will do it. And then a MLM company will come around that can do the same thing, which is important, spread inspiration. And that’s the last issue I wanted to bring up.

The amount of time and expense that you spend on training your sales force and your team leaders will be well paid because distributors who join companies not only need to relate and bond with the people who run the company, they need to bond with the people who brought them to the dance, the upline distributors. And those are the leaders of the company, the sales leaders, and they basically are the glue that holds everything together. Every ounce of strength and training, every penny that you spend on really developing those people into leaders, is a good investment.

It comes down to having a good, fair compensation plan that can motivate the right kinds of behaviors. The right kind of product that distributors and customers can bond with and that is a need in their lives.

And, you have got to have the right kind of owners, the right kind of people with a vision to do something greater than themselves. And, training. You must spend the time making an investment in people. You must train them and help them understand the company and how to achieve their own success. You must create the opportunity for everyone to dance together.

Interviewer:  Thank you.

For more information on how to create a successful MLM company, visit the following links:

MLM Consulting: How to Build a Successful Direct Selling Company

MLM Consulting: Starting Your MLM Company

FREE MLM Start-up Manual: Starting and Running the Successful MLM Company

The MLM Startup Conference: Starting and Running the Successful MLM Company Conference

Factors that Make a MLM Company Successful Video

Understanding the Basics in Order to Succeed In Direct Selling – Companion Video to this Blog Post

MLM Legal on iTunes

MLM Startup – The Basics

Or, read some of our other blog posts on success in network marketing, MLM, direct selling, and party plan:

Are you Starting a MLM Company?

An Interview with Industry Expert and Advocate, Jeffrey Babener

It’s Passion that makes a MLM Company Successful

The Top Two Reasons Why MLM Companies Fail

Learn What is Needed to Recruit Top-Selling Distributors for Your MLM Company

Passion, Patience, Persistence – Attitude in Direct Selling

Four Factors that Make a MLM Company Successful

Explaining Your MLM Company to the Public: Answering the Hard Questions

MLM/Direct Selling/Network Marketing: A Validated Channel of Distribution

How Much Does it Cost to Start a MLM Company?

The Next MLM Startup Conference in Las Vegas – May 16th & 17th, 2013

Choosing the Right Product for Your Direct Selling Company

Where to Find MLM Startup Tips and Answers from an Industry Expert

The Nine Basics You Need to Understand in Order to Succeed in MLM – Interview with Jeff Babener

Gaining Experience in MLM – Possess it or Buy it?

Make sure to visit our blogs for the latest information on the direct selling industry: MLMLegal Blog Home and MLM Attorney Blog Home

Find us on our social networks:

Google Plus: http://plus.google.com/u/0/115279960045099999909#115279960045099999909/posts

LinkedIn: http://www.linkedin.com/in/mlmlegal

Twitter: http://www.twitter.com/BabenerLawFirm

Myspace: http://www.myspace.com/mlmlegal

Facebook: http://www.facebook.com/profile.php?id=696968133

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.

Hi. I’m Jeff Babener, Chair of the Law Firm of Babener & Associates. Since I lecture and publish extensively, you have likely already visited our website: www.mlmlegal.com, which is one of the most frequently-visited websites on network marketing and one which we hope you find extremely helpful in starting your MLM or direct selling company. For the past 25 years, our law office has served as a key legal and business advisor to major companies like Avon, Shaklee, New Skin, ACM, Prepaid Legal, Longaberger, and Tupperware.

In fact, we’ve been right there at the beginning and actively involved in the creation of companies like Nikken, Excel, USANA, Melaleuca, and Legacy.

In addition, we have been actively involved in providing resources and support to companies like Quixtar, Creative Memories, and Mannatech. We represent many members of the DSA, and in fact, we even incorporated the MLMIA and served as their general counsel.

Although we are a full-service firm for MLM companies, we are direct selling specialists. We limit our clients strictly to MLM, direct sales, network marketing, and party planning companies. Much of our work is referred to us by small and large corporate law firms throughout the U.S. and other countries. We are an ultra-niche law firm and we have chosen to focus like a laser strictly on advising direct selling companies.

Although we have involvement with some well-established companies, which I’ve explained, our specialty is MLM startup.

Actually, all of the companies we helped to establish started with me on one side of a conference table and one of the individual founders – with high hopes – on the other. It may have been at our office. It may have been at one of the approximately 60 national conferences we have sponsored over the last two decades, entitled The Starting and Running the Successful MLM Company Conference. Or, it might have been after hearing me lecture at the University of Texas, the University of Illinois, or the University of Houston.

In the beginning, it was me sitting across the table from Frank VanderSloot of Melaleuca, or Tom Watanabe of Nikken, or Steve Smith and Kenny Troutt of Excel.

And, we are long term players. We brought Nikken to the U.S. from Fukuoka, Japan in 1990 and we have served as general counsel and their most trusted business advisor for 20 years, growing to represent the company in more than 40 countries.

Twenty years after Excel was sold to Wall Street for $1 billion, Steve Smith came back to us and said, “Jeff, let’s do this all over again. Let’s start another.” And we did.

Entrepreneurs come to us because we are far more than a law firm to them. We know this business. In fact, we probably know the business better than most of our clients. Over time, even though we are their lawyers, we tend to become their most trusted business advisors and member of their business team (via martin). And, usually more than 50% of our discussions are about successful operations and growth of their network marketing businesses, as opposed to mere legal issues.

As a courtesy, we often serve as their Keynote Speaker in support of our clients at major conventions. And, we have done so from Los Angeles to Nashville to Honolulu, and around the world, from Russia to China to Thailand. Our clients have used our credibility and reputation as a key asset in their growth.

We play an integral role on the legal and business front. For the startup company, we create all the documentation, agreements, policies, form language, etc. More importantly, we are intimately involved in the structure of the marketing program and the development of the compensation plan.

Our services involve trademarks, vendor agreements, labeling, FDA, sales tax; key relationships with founding distributors, medical or celebrity endorsements; administration of the distributor sales force in areas such as advertising, discipline, and communication; MLM registrations, regulatory compliance with the FTC, FDA, MLM statutes, postal, attorney general, and state consumer protection legislation.

In fact, both at the startup level and on an ongoing basis, not one piece of marketing material goes out that we don’t review and offer input. That includes all web and HTML copy, scripting, audio and video scripting, PowerPoint presentations, all hard copy and printed materials, web communication, and every other type of media.

Anything that will make its way to distributors, prospects, customers, and the public we’re involved in, and when we have created a great model, we help take our clients into international markets and around the world.

Everything we do in startup and long-term representation is driven by our number one goal, helping our clients be successful and stay in business. Our clients have our office number, home numbers, cell phone numbers, and private email addresses.

Unless we’re on a raft in a river canyon, we try to make ourselves always available. Expect to talk to us whether it is nighttime, or a weekend, or whether we are in Tokyo or Moscow or Beijing. As mentioned, we are long term members of a business team. We don’t know the meaning of “short term” relationships. We are looking for companies that intend to be successful and we intend to help make them successful.

If an MLM startup company is looking for this type of support then Babener & Associates is the right team partner for them. Please visit us at www.mlmlegal.com or call us at 503-226-6600.

For more information about the Law Office of Babener & Associates, visit our websites: www.mlmlegal.com and www.mlmattorney.com.

Or, visit these links for more information:

MLMlegal Releases New Film on MLM Startup Conference – Produced by Networkingstar.com Video

The MLM Startup Conference in Las Vegas Video

The Legal Issues of Starting and Running a MLM Company Video

What is the role of an Experienced MLM Legal Counsel? Video

Is a MLM Lawyer a Typical Lawyer? Video

How Does a Business Lawyer become a MLM Lawyer? Video

Jeffrey Babener’s Youtube Channel Reaches 60,000 Views Blog Post

CNBC.com Cites Legal Expert, Jeffrey Babener on FTC Business Opportunity Rule Blog Post

NEW PRESS RELEASE – 63rd Annual MLM Startup Conference! Blog Post

The Role of MLM Legal Counsel – Why Hire a MLM Attorney Blog Post

The Nine Basics You Need to Understand in Order to Succeed in MLM – Interview with Jeff Babener Blog Post

Interview with Expert MLM Attorney – How to Handle Compliance Discussions with your Distributors Blog Post

An Interview with Industry Expert and Advocate, Jeffrey Babener Blog Post

The First Essential Hire for MLM Startup Companies Blog Post

FTC v. BurnLounge: Lessons Learned for MLM/Direct Selling Blog Post

MLMLegal on Google+ Blog Post

MLM Legal Cases Page – New Page Blog Post

Do I Need to Register my Company in all 50 States? Blog Post

Make sure to visit our blogs for the latest information on the direct selling industry: MLMLegal Blog Home and MLM Attorney Blog Home. HINT: Chose a category to narrow your search for discussion topics!

Find us on our social networks:

Google Plus: http://plus.google.com/u/0/115279960045099999909#115279960045099999909/posts

LinkedIn: http://www.linkedin.com/in/mlmlegal

Twitter: http://www.twitter.com/BabenerLawFirm

Myspace: http://www.myspace.com/mlmlegal

Facebook: http://www.facebook.com/profile.php?id=696968133

And, as always, visit MLMLegal.com, the best MLM resource on the web.The next Starting and Running the Successful MLM Company Conference is quickly approaching! On February 21^st and 22^nd, 2013 we are hosting the MLM Conference for the 25^th year! This is now our 63nd 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 May and October conferences as well.)

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

CNBC – January 9, 2013

In his article, Commentator Greenberg discussed the effect lobbying dollars spent by the Direct Selling Association (DSA) and Herbalife assisted in the exclusion of consultants from the Business Opportunity Rule, enacted by the Federal Trade Commission (FTC).

Attorney Babener’s (editor of www.mlmlegal.com and www.mlmattorney.com) widely read article titled “The New FTC Business Opportunity Rule – MLM/Direct Selling Exemption Recognized” was quoted saying:

In March 2012, the direct selling industry has occasion to celebrate what a united industry, companies and distributors, can achieve if everyone pulls oars together in the same direction. The fruits of their labor are apparent in a newly-forged, positive relationship with the primary federal agency that regulates a channel distribution…”

He added: “In its final FTC Business Opportunity Rule, the FTC stated its clear intention to relieve companies and distributors from what might have been very onerous conditions of recruitment that would have dramatically impaired the ability of distributors to build their businesses.

Jeff Babener’s positive impact on the direct selling industry is widespread. His comments on the proposed FTC Rule were cited several times in the FTC Staff Report, and his efforts, along with many others in the industry, contributed to the FTC decision to effectively exclude MLM, Direct Selling, and Network Marketing Companies, and their millions of distributors, from potentially onerous impact on the Direct Selling Industry.

See his comments to the FTC: FTC Proposed Business Opportunity Rule: MLMLegal.com Speaks Out.

To read more about the Proposed Business Opportunity Rule, visit the following links:

FTC Guidelines on Endorsements and Testimonials
FTC Guidelines Resource Center
FTC Guidelines Endorsements and Testimonials: Detailed Analysis
FTC News Release on Endorsements and Testimonials
FTC Complete Guidelines Release
FTC Short Version Guidelines Release
FTC Examples of Material Connection
FTC Regulation of Advertising

What is the Relationship between MLM and the FTC? Video

Make sure to visit our blogs for the latest information on the direct selling industry: MLMLegal Blog Home and MLM Attorney Blog Home

Find us on our social networks:

Google Plus: http://plus.google.com/u/0/115279960045099999909#115279960045099999909/posts

LinkedIn: http://www.linkedin.com/in/mlmlegal

Twitter: http://www.twitter.com/BabenerLawFirm

Myspace: http://www.myspace.com/mlmlegal

Facebook: http://www.facebook.com/profile.php?id=696968133

And, as always, visit MLMLegal.com, the best MLM resource on the web.

Next MLM Conference in Las Vegas is February 21 & 22, 2013! Call 800-231-2162 to register today!

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