MLM – Careful Due Diligence



Okay, first of all let me put up top all the usual disclaimers.

This is my opinion(s). I’m not a lawyer. I don’t know your particular situation. All the responsibility for decisions, actions and what you do with the information on here is yours.

If you’re not happy accepting full personal responsibility then stop reading, and leave.

Still here?

Well glad you’ve accepted the above, and let’s get to it…

There is a big difference between the legal rules, and what is ethically and/or morally right.

However the law is at least a starting point in your due diligence.

The US seems to be the biggest market for MLM/Network marketing so let me first quote from a million-dollar earner in MLM, Jordan Adler, who’s level-headed voice I really respect in this industry…

IN A NUTSHELL! THESE ARE THE 4 THINGS THE GOVERNMENT CONSIDER WHEN DETERMINING IF A COMPANY HAS A LEGAL NETWORK MARKETING STRUCTURE OR A ‘PYRAMID/PONZI SCHEME’:

1. IS THERE A PRODUCT OR SERVICE THAT IS IN DEMAND? – Would someone buy your product ever if it were not sold through network marketing? If the answer is no, it’s illegal. If the product is only there to mask a money game, it won’t pass the test.

2. CAN YOU MAKE MORE MONEY THAN YOUR UPLINE? – Based on the structure of the plan, is it technical possible for you to pass the people above you in income. If the answer is ‘no’ it’s illegal. In a legitimate network marketing plan, you can pass up your sponsor/upline.

3. DO YOU GET PAID FOR THE SOLE ACT OF RECRUITING? – If the answer is ‘yes’, it’s illegal. In network marketing we get paid for creating volume based on customers that purchase a product. It’s illegal to get paid to recruit.

4. FRONT END LOADING IS ILLEGAL – If you are encouraged to purchase additional product to achieve a higher rank so you can make more money, this is illegal. Sometimes referred to as being ‘garage qualified’ (product stocked in your garage so you can get promoted or make more money.) This is frowned upon.

There are 2 other considerations that tend to get companies in trouble once they get on the radar screen of the regulatory agencies. There are thousands of companies and therefore most of the time, they are not ‘visible’ until they reach a certain size. It seems to be between $500 million and $1 billion in sales.

A. Showing checks to recruit is illegal unless a full income disclosure is provided also showing the people that are not making money. Showing checks from the stage is usually considered ‘enticement’ and is considered illegal.

B. Deception is the #1 thing the regulatory agencies frown upon. Usually it’s the distributors and not the company that causes the problems. The company is responsible for the actions of it’s distributors.

Notice that as Jordan mentions, regulatory authorities tend to come in late, so it’s not good enough to say “Well the authorities would have done something about them if they were illegal.”

Do your own research, and start with the questions above.

This is not a fool-proof checklist, but it will help you cross off lots of opportunities very quickly.

 

IN A NUTSHELL! THESE ARE THE 4 THINGS THE GOVERNMENT CONSIDER
WHEN DETERMINING IF A COMPANY HAS A LEGAL NETWORK MARKETING STRUCTURE
OR A ‘PYRAMID/PONZI SCHEME’:

1. IS THERE A PRODUCT OR SERVICE THAT IS IN DEMAND? – Would someone buy your product ever if it were not sold through network marketing? If the answer is no, it’s illegal. If the product is only there to mask a money game, it won’t pass the test.

2. CAN YOU MAKE MORE MONEY THAN YOUR UPLINE? – Based on the structure of the plan, is it technical possible for you to pass the people above you in income. If the answer is ‘no’ it’s illegal. In a legitimate network marketing plan, you can pass up your sponsor/upline.

3. DO YOU GET PAID FOR THE SOLE ACT OF RECRUITING? – If the answer is ‘yes’, it’s illegal. In network marketing we get paid for creating volume based on customers that purchase a product. It’s illegal to get paid to recruit.

4. FRONT END LOADING IS ILLEGAL – If you are encouraged to purchase additional product to achieve a higher rank so you can make more money, this is illegal. Sometimes referred to as being ‘garage qualified’ (product stocked in your garage so you can get promoted or make more money) is frowned upon.

There are 2 other considerations that tend to get companies in trouble once they get on the radar screen of the regulatory agencies. There are thousands of companies and therefore most of the time, they are not ‘visible’ until they reach a certain size. It seems to be between $500 million and $1 billion in sales.

A. Showing checks to recruit is illegal unless a full income disclosure is provided also showing the people that are not making money. Showing checks from the stage is usually considered ‘enticement’ and is considered illegal.

B. Deception is the #1 thing the regulatory agencies frown upon. Usually it’s the distributors and not the company that causes the problems. The company is responsible for the actions of it’s distributors.

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