By Len Clements © 2005
| If you’ve ever read the works of some of the most prolific Anti-MLM Zealots, such as Dean Van Druff (What’s Wrong With Multilevel Marketing), Ruth Carter (Behind the Smoke & Mirrors), Jon Taylor (Product Based Pyramid Schemes) and Robert Fitzpatrick (False Profits), you are surely and profoundly insulted. After all, if you’re failing to reach your income goal, you are a gullible victim of a scam. If you’re succeeding, you are the greedy, heartless perpetrator of a scam. And your success was not due to hard work and perseverance, you were just lucky. And if you succeeded without frontloading anyone, without obnoxiously pestering your friends and family, without making ridiculous income or product claims, and without depleting your bank account on superfluous tools and meetings, some will flat out deny you even exist! And if you succeeded in spite of starting at the bottom of an already mature MLM opportunity? Forget it. You’re just a bold faced liar.
I do exist. And I’m profoundly insulted.
That’s why I’ve decided to fight back. And thanks to publications like the Network Marketing Business Journal and the MLM Insider I have a forum much larger than theirs to make my case – our case – that they are flat out wrong.
I’ll continue to tell you why they’re wrong here in the MLM Insider over the next several issues. The subject of Part 1 was Dean Van Druff, the author of the well traveled article “What’s Wrong With Multilevel Marketing.” In Part 2 I started in on Robert FitzPatrick, author of the book “False Profits.” FitzPatrick has got it wrong on multiple levels (pun intended) so it’ll take three segments to cover even the highlights. The second segment was last issue.
Picking up where we left off, about half way through FitzPatrick’s latest work “Pyramid Nation,” he makes the outlandish claim that the “pyramid scheme industry,” (that’s us) led by the Direct Selling Association, has “turned it’s attention to ridding the country of effective state statutes against pyramid schemes.” Obviously, the DSA is not trying to get the Airplane Game legalized. What he is referring to is the lobbying effort to get states, and the FTC, to formally recognize personally consumed products by distributors as legally commissionable. The Anti-MLM Zealot’s best friend, the 9th Circuit Court of Appeals, declared that only retailed products to non-participants was legally commissionable in the 1994 Webster vs. Omnitrition case, and this is the backbone of Fitzpatrick’s case as well. Forget the fact that this was only dicta (an unsolicited opinion) offered by the most overturned appeals court in the country, that it created no law, that the case only involved dismissing a summary judgment by a lower court (in favor of Omnitrition), or that Omnitrition’s practices were never officially ruled illegal by a jury. Nonetheless, this concept of paying commissions on internal consumption is the basis for FitzPatrick’s claim that virtually all MLM companies are operating illegally in many states. Of course, he looks to other cases and statutes besides Omnitrition to make his case. For example, he also provides Wisconsin’s statute which “prohibits schemes, in which a person, upon a condition that he or she makes an investment, is granted a license to recruit, for profit, additional investors…”. But, this is why all MLMs are legal in Wisconsin! No MLM company offers the right to enroll others on the “condition” of an investment. Not one. Sure, some require an at-cost distributor kit for around 20 bucks. But a product purchase in never required as a condition to recruit others (to be a distributor). It’s never even a requirement to qualify for commission (personal sales volume is required, but there is never a requirement that you must purchase the required volume yourself). This is a subtle but critical distinction that apparently even a court certified “pyramid scheme expert” can miss.
“The Federal Trade Commission often enters into consent orders with individuals and companies that the Commission has determined have violated the FTC Act. To protect the public from those who have demonstrated an unwillingness to follow the law, these orders often contain provisions that place EXTRA constraints upon wrongdoers that DO NOT APPLY TO THE GENERAL PUBLIC. These “fencing in” provisions only apply to the defendant signing the order and anyone with whom the defendant is acting in concert. THEY DO NOT REPRESENT THE GENERAL STATE OF THE LAW… For example, when the Commission brings a pyramid scheme action, the case often concludes with a consent order. The scope and severity of the order will depend upon the facts of the case; however, most such orders contain definitions that exclude any sale to a participant in the business from the calculation of the venture’s legitimacy. These definitions draw very clear lines for those who have demonstrated a willingness to violate the law, BUT ARE NOT INTENDED TO REPRESENT THE STATE OF THE LAW FOR THE GENERAL PUBLIC.” (Emphasis is mine).
In their response letter, they also go on to explain that, indeed, they pay more attention to the motive for distributors buying the product, not the number or percentage of distributors buying the product. Case closed.
Next issue we begin a series on Ruth Carter, author of “Behind The Smoke & Mirrors” and co-founder of MLMSurvivors.com.