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A Life Aloft
07-04-2010, 02:11 PM
MLMs love to tout that they are members of the SDA - Direct Selling Association

But what exactly is the DSA and how do they operate?

There have been numerous actions taken against companies which proudly feature the DSA logo and go through rigorous due diligence to become a member of the DSA - Direct Selling Association such as YTB, Weekenders, NHT Global, Mannatech, Herbalife .

In some cases the suits can be considered frivolous or just class action based on stock performance (lack thereof) but we also have examples like Weekenders who decided to close its doors with no warning to its distributors at all and the latest $25m lawsuit against YTB brought by the California Attorney General alleging fraud. The Attorney General won this case.

the DSA never posted a single announcement on their website about Weekenders closing nor did it provide any information online to Weekenders distributors as to what they can do or offer any assistance to them that we have seen. What was equally as puzzling was the fact that even weeks after Weekenders had closed its doors, it was still featured as a member of the organization on its website.

What is most interesting about the chain of events that has taken place recently and how it relates to the DSA is to better understand how the DSA makes its money - off of the efforts of these companies distributors hard work. Once you have been approved by the DSA - a process which takes one year in which time “the company’s business plan is reviewed to verify compliance with all provisions of DSA’s Code of Ethics” - you then have to pay “Membership Dues”. Any company accepted to the DSA must pay these membership dues according to its website. The Dues are “based on the yearly total of direct sales a company generates. This does not include any retail or catalogue sales a company may have, only the direct selling portion of the business”. This means that the distributors who represent these various member companies products are in essence subsidizing the DSA since its their sales in which the DSA gets a percentage of for the participating company to continue to preserve its membership.

So the question is, if the distributors are in essence subsidizing the participating companies dues, why doesnt the DSA support these distributors more? Yes, the DSA says on its website that member companies will “Repurchase 90% of the marketable inventory and sales aids you have purchased within the past 12 months if you decide to leave the business” but what happens when the company goes out of business? what happens when there is no “marketable” inventory such as companies like YTB and others who sell services and not products and then the big question, who determines what “marketable inventory” is? Clearly if the company went out of business there is likely to be little to no market for the inventory, yet conceivably speaking, when the company was in business and a member of the DSA, those sales representatives helped contribute hundreds if not thousands, if not tens of thousands of dollars to the DSA and are now left with nothing.

Weekenders distributors, for example who worked very hard to generate money for the company - a percentage of which went to preserve its membership with the DSA - and now have nothing at all. There is no information as to how they can recoup any of the inventory they are stuck with and no information as to how to contact that DSA member company (or former). What the DSA should do is recognize that its bread is buttered indirectly from the millions of distributors who are selling products that generate fees back to the organization and create a fund to support them in cases like Weekenders. Since they supported the organization when the company was healthy, why should they be abandoned when the company screws up and goes out of business or has shady practices? As well, there should be a policy that if an organization receives more than 20 calls to the Better Business Bureau, they are put on suspension for a year until such time that the number of complaints drops. YTB had over 120complaints in 3 years just in the eastern Missouri and southern Illinois region alone!

While the DSA says it generates its revenues from the 200+ member companies, the truth is there are MILLIONS of distributors who are actually subsidizing these membership fees and the question remains what does the DSA truly offer to those that are paying its dues?

A Life Aloft
07-04-2010, 02:26 PM
From Robert Lawrence FitzPatrick :

"The Direct Selling Association (DSA) is currently engaged in a worldwide public relations and political lobbying campaign arguing that the business model and practices of most DSA members are legal and ethical. Specifically, DSA seeks to reverse federal court ruling and decades of public policy of the United States Federal Trade Commission that treat business practices common among DSA members as “unfair and deceptive,” labeling them illegal pyramid schemes.

The DSA campaign on behalf of pyramid marketing schemes is unparalleled in America. Business lobbying may seek tax advantages, government contracts or relaxation of regulations, but no other lobbying effort seeks to legalize business practices that have been defined by federal and state regulators and federal courts as fraudulent.

DSA is chiefly doing this by claiming that MLMs can legally gain revenue primarily from the salespeople they recruit with their “opportunity” solicitation and reward each new recruit with commissions based on the opportunity-related purchases of other salespeople they in turn recruit in an endless chain.
The “business opportunity,” in this model, is primarily a right to recruit others into the same business opportunity and to gain rewards based on their associated purchases and fees. A pre-determined level of purchases and fees are required of all recruits in order to participate in the scheme. The rewards extend to multiple levels of recruits that are structured in levels of a genealogical chain. Each new salesperson gains the same right to recruit others in an unbroken and ever-expanding chain. The money for this enterprise comes primarily from those within the chain.

Most MLM companies also offer each new participant the right to retail the products but few of these independent salespeople are able to earn a profit from retail selling. Consequently, they pursue the other part of the MLM business opportunity that is based on recruiting other salespeople and receiving payments from the MLM company based on the volume of the purchases by those they recruit in the multi-level pyramid. To remain qualified to receive these commissions, each MLM participant is typically required to maintain a quota of personal purchases each month or to have volume of purchases from other recruits.

One ambiguous legal decision coupled with lax law enforcement in the USA have resulted in the spread of “non-retailing” DSA members aggressively soliciting consumers with a “business opportunity” plan based upon endless chain recruiting.

Therefore the legitimacy of the entire MLM industry, including most DSA members, hinges on this question of whether a MLM can derive most of its revenue for commissions from the payments, purchases and investments of the salespeople, not end-user consumers.

DSA’s campaign is based on the claim that retail sales from consumers outside the chain are unnecessary because the salespeople are actually making personal purchases for their own use, not business investments related to earning a profit. They have also claimed that the enormous loss rates among recruits are because few recruits seek a profit. They only wish to “buy at wholesale price.” Paradoxically, many MLMs also claim that their extraordinary “turnover” rates among MLM recruits, as high a 50-70% typically, are normal among “direct selling” companies due to the difficulties of person to person retail selling.

DSA’s own existence as a trade association depends on governments allowing the DSA members to continue operating in this manner.2 Through political lobbying, MLM companies have even influenced US Trade Representatives to pressure foreign governments to allow such business practices in their respective countries. They have argued that World Trade Organization (WTO) rules require companies to allow MLMs to operate, inferring that non-retailing MLMs qualify as legitimate “direct selling.”
Some countries have refused. The most significant opposition to this effort came in 2005 when the China, the largest new market in the world for MLM, banned the MLM “non-retailing” recruitment model.
Additionally, the question of MLM legality is still very much open in the USA. Besides prosecuting numerous MLMs for operating as “non-retailing” pyramid schemes, the FTC has recently proposed new rules that would require MLM to disclose to consumers such data as average incomes, business costs, loss rates and dropout rates among participants in their recruitment schemes. DSA is actively opposing these requirements.

In 2007, a significant class action lawsuit was filed against the largest MLM operating in the USA, Quixtar, Inc. (formerly Amway). The suit was filed by one of the most prominent and respected law firms in the country. The suit charges that Quixtar participants must recruit others in an endless chain in order to recoup their own investments, rather than retail Quixtar products. It charges that such a model must, by design, cause enormous consumer losses and that it must engage in deception in order to lure consumers into the fraudulent model. Similar class action lawsuits have been filed against other prominent DSA members such as Nuskin and Herbalife.

Evaluation of DSA Position
In my view, no legitimate business analysis could treat such non-retailing resellers as “ultimate end-users” or in any way equate them to retail consumers or as members of a discount buying club, as DSA attempts to characterize them. Nor could participation of such people be treated as central or fundamental to the MLM business model to justify opposing a proper assessment of retail sales levels for regulatory purposes, as DSA is doing.

The lack of retailing success or effort by some MLM participants is no basis for claiming they are not also participants in the “business opportunity.” This is all the more true given that feasibility of MLM retailing is severely limited and DSA and all MLMs have no data on actual retail levels
Perhaps most important, previous FTC prosecutions and evaluations of MLM companies fully allowed for the existence of many participants who, for whatever reason, did not retail the products. The existence of these people in MLM, therefore, cannot be said to preclude a formal method of evaluating MLMs or be a basis to change laws to explicitly allow pyramid recruitment schemes.

The DSA lobbying effort and this line of rationalization for opposing a method of evaluating MLMs with a retail criteria appear to be a thinly disguised effort to defend and protect recruitment scams within the membership of the DSA.
Gifting Club Revisited

The DSA claim – that the people who purchase MLM products "for personal use" are effectively the same as retail customers and that their purchases should not be viewed in any way as "business investments" necessary for gaining rewards from recruits who make similar investments – has a familiar ring.
It is reminiscent of the women who were arrested in several states during the national epidemic of "gifting club" pyramid schemes in 2002-2004.8 The schemes operated under various names but were essentially identical. They spread to more than 30 states as well as to Europe, Australia and Africa.
In those scams, the perpetrators insisted that no one was investing or paying money to join the scheme. No, they were only making "gifts" and in fact had no thought of reaping rewards from recruiting. They acknowledged that the “gifting” plan was organized in a pyramid structure, with four levels, each one twice the size of the one above. And each person did recruit others to advance to higher positions in the plan. And, when a person got to the top of a four-level structure they did receive money paid in by the last eight people to join the bottom level. But that was not a reward based on recruiting, they claimed. That money was a gift from those eight! All that the gifting club did, they said, was transfer money that was given and received as “gifts.” This, they claimed was voluntary and legal and no one was harmed from the process of “giving and receiving.” In fact, they said, government action to restrict this voluntary activity was oppressive and intrusive. In Texas, one group hired a lobbying firm to draft a bill that would legalize such clubs.

A Life Aloft
07-04-2010, 02:37 PM
From the honored, Dr. Jon Taylor:

"The Direct Selling Association (DSA), recently taken over by chain sellers, now promotes chain selling (pyramid marketing) – even more than legitimate direct selling.
First and foremost, consider the source of this voluminous series of comments (522418-12055 through 12096 – from the DSA). What is today known as the Direct Selling Association was formed in Binghamton, New York in 1910 as the Agents Credit Association, which evolved over time to become the Direct Selling Association in 1968. For several decades, the organization consisted of legitimate agents or direct sellers to bone fide markets; no chain selling or pyramid marketing schemes were included. However, in the 1960’s MLM companies (MLM’s) began to make their appearance, though still less than 5% of the membership in 1970.

In the 1990’s officers of MLM’s began to see the advantage of joining this organization. Apparently they reasoned that if an MLM is a member of the Direct Selling Association, it must be doing legitimate direct selling. This could be compared to a farmer seeking a greater price for his pigs by selling them as horses. So he places horsehairs on their rumps, herds them into the horse corral, and declares, “There, you can see that the pigs are in the horse corral and no longer in the pig pens. This proves that they are horses.”
The DSA is correct in at least part of their definition of what constitutes direct selling: “Direct Selling is the sale of a consumer product or service, person-toperson, away from a fixed retail location. These products and services are marketed to customers by independent salespeople.”

The problem with the DSA definition is that it fails noticeably to exclude what legitimate direct selling is NOT; i.e., the recruitment of an endless chain of participants as primary (or only) customers. In fact, using definitional guidelines in FTC cases (such as Omnitrition, Equinox, Skybiz, and Trek Alliance), as well as in most state statutes against pyramid schemes, the key element of a pyramid scheme is compensation obtained primarily from recruitment activities, rather than from actual sales to end users who are not in the network of participants in the sales device or scheme. This distinction can best be determined by careful examination of the compensation plan of an MLM program. If the rewards or income from building a downline is the primary motivator and if retail sales to non-participants is secondary or only nominal, it should be considered an illegal pyramid scheme.

Using the “5 Red Flags” analysis of compensation plans, the harm in chain selling, or pyramid marketing schemes, can now be identified, and such schemes (many of them DSA members) can finally be clearly differentiated from legitimate business opportunities.
Years of careful study comparing no-product pyramid schemes and MLM’s to a variety of legitimate marketing models led to a paper I wrote, which was summarized as a white paper for the 2002 White Collar Crime Conference. “The 5 Red Flags: Five Causal and Defining Characteristics of Product-based Pyramid Schemes, or Recruiting MLM's" has since been expanded and updated, including testing the “5 Red Flags” against financial reports of actual MLM companies. After debunking deceptions in reporting by the MLM’s, where the data was available, the percentage of participants in these schemes that lose money is approximately 99.9% – far worse than for clearly illegal no-product pyramid schemes. The “5 Red Flags” and related research reports is discussed in my July 17 comments (#522418-12585). Or it can be obtained from the research page of our web site at – http://www.mlm-thetruth.com/mlm_research.htm.
As a very brief summary, product-based pyramid schemes, or “recruiting MLM’s” (See definitional note below) incorporate these “Five Red Flags” in their compensation plans:

1.
Recruiting of participants is unlimited in an endless chain of empowered and motivated recruiters recruiting recruiters.
2.
Advancement in a hierarchy of multiple levels of “distributors” is achieved by recruitment, rather than by appointment.
3.
Initial and/or ongoing purchases (products, sales “tools,” etc.) by “distributors” are required or “incentivized” in order for them to be eligible for commissions and to advance in the business ("pay to play").
4.
The company pays commissions and/or bonuses to more than five levels of “distributors.”
5.
For each sale, company payout to the total upline of participants equals or exceeds that for the person actually selling the product, creating an inadequate incentive to sell products directly and an excessive incentive to recruit.

None of these red flags by itself is sufficient to lead to such high loss rates, but all of them taken together lead to the extreme loss rate of approximately 99.9%.

The DSA lumps together legitimate direct selling with chain (pyramid) selling, which meets the technical definition of an illegal pyramid scheme in most jurisdictions.

It should be noted by FTC officials considering their comments that the DSA has essentially been taken over by MLM’s over the past 15 or 20 years. From less than 5% of membership made up of MLM’s in 1970, over 28% of DSA membership today are MLM companies. Financial resources and resultant influence represent a far greater percentage – certainly the majority of revenues from DSA firms comes from MLM’s. Please also note that my analyses of their compensation plans reveals all “5 Red Flags” in nearly all of the DSA’s MLM’s.

In other words, most of the revenue from MLM members of the DSA is from highly leveraged chain selling schemes, or (to use the FTC term) “pyramid marketing schemes.” They are not legitimate direct sellers at all. So lumping chain sellers with legitimate direct sellers in the DSA’s extensive collection of statistics is highly misleading. If the standards used to identify illegal pyramid schemes in other cases (such as Equinox and Trek Alliance) were used by the FTC and the states, nearly all of these chain selling or pyramid marketing schemes would be found to be illegal pyramid schemes. This would include most MLM’s in the DSA membership roster. Indeed, some DSA members have recently been shut down by the FTC or other law enforcement agencies for conducting illegal pyramid schemes.

Using deceptive tactics, the DSA lobbies to legalize blatant chain (pyramid) selling.
As further proof of the motivation of DSA officials to protect chain selling more than legitimate direct selling, DSA lobbyists have been aggressively lobbying state legislatures to weaken their statutes against pyramid schemes. Using highly deceptive lobbying techniques, they have been successful in duping legislators (and even some in law enforcement who testify for the bills) in getting such bills passed in several states. They even attempted in 2003 to get a bill through Congress (HR1220) that would have exempted MLM companies from prosecution as pyramid schemes.

Examples of deceptive lobbying include the testimony of DSA President Neil H. Offen, who claimed in hearings before a 2005 Utah legislative committee that the DSA represents “90,000 direct sellers” in Utah who depend on direct selling for income. While it is possible that 90,000 Utahns may have joined various MLM’s, they are primarily buyers of MLM products who join in the hope of some day recruiting enough people to get enough in commissions to recoup their investments – which recent research shows rarely happens. As the aforementioned tax study demonstrated, except for TOPP’s, few participants in “recruiting MLM’s” ever report an income on their taxes, and few sell to end users in any volume.

The thing these DSA-initiated bills have in common is not the promotion of legitimate direct selling, but technically illegal chain selling or product-based pyramid schemes. For more information, go to the DSA page on our web site at - MLM and the Direct Selling Association (DSA) (http://www.mlm-thetruth.com/dsa.htm). The information on the Pyramid Scheme Alert web site, which includes information about the DSA’s efforts to influence legislation before Congress, is also helpful.
Go to –
Pyramid Scheme Alert (http://www.pyramidschemealert.org/PSAMain/news/FLSB2648.html)
The deceptive legislation that has been passed in several states underscores the urgency of a rule requiring meaningful disclosure by MLM companies, since it may be one of the only real protective measures available to protect consumers."

The complete research and Dr. Taylor's incredible findings in their total can be found here:

http://www.ftc.gov/os/comments/businessopprule/rebuttal/522418-13115.pdf

Doc Bunkum
07-04-2010, 02:41 PM
Thanks for starting this thread.

There's always been a few things about the DSA that have puzzled me.

I just looked at their website to try and find a mission statement. I didn't locate one, but I found this gem:

Direct Selling Membership

Direct selling members are network marketing companies that manufacture or deal in goods or services intended to reach the consumer through a personal sales contact.

Whoa! Hold on there, Lucy.

DSA members are network marketing companies?

When did that happen?

I see on their DSA Fun Facts link, they take you back to 1951 where we learn:

1951

What do you remember from 1951?

Check out the following fun facts from DSA and U.S. history and then browse through this site to get a glimpse of what’s in store for you when you attend DSA’s 100th Anniversary celebration.


The Supreme Court rules in Breard v. Alexandria that the ordinances previously upheld at the state level barring door-to-door salesmen from calling on residences in cities such as Green River, Wyoming, are not invalid.
The direct selling industry will spend decades fighting such ordinances city by city until district courts begin to rule that such “Green River ordinances” are in violation of the 1st amendment right of free speech, while at the same time, promulgating reasonable self-regulatory standards regarding door-to-door activities.

and...

– Tupperware removes its products
from retail store shelves and makes
them available exclusively through
home parties.

So just when did the MLM industry take over the DSA to try and legitimize their image?

I've always understood direct selling to be just that - direct selling.

Not recruiting an endless chain of distributors.

A Life Aloft
07-04-2010, 03:10 PM
It all changed many years ago when MLMs in this country really took off. It's very incestuous. The DSA is a total joke and they themselves are not only a scam but they are deeply in bed with MLMs. But worse than a joke, they are now very dangerous. They are fighting the FTC and several states to weaken consumer protection laws. The MLMs pay the DSA a fortune in fees for b.s. pr and to be members. The DSA has so much money and so many attorneys, that they have inacted and lobbied for pro MLM legislation in many states. It's a hot mess. They also make campaign contributions to politicians who are friendly towards the DSA. How much worse can it get?

In fact, the DSA is the nation's main defender of business practices that the California consumer laws defines as fraud. What does that tell you?

Dozens of "proud DSA member companies" have been sued, closed down, investigated by the FTC, found to be frauds and ripped off their members. What has the DSA done? NOTHING! It will let in any MLM that pays them the money! The DSA investigates nothing and does nothing to help members of MLMs who are left holding the bag.

The DSA is nothing but a huge scam itself, which promotes and supports scam companies.

A Life Aloft
07-04-2010, 03:47 PM
YTB International, an online multi-level marketer masquerading as a legitimate travel agency, was sued by California's Attorney General back in August 2008, accused of being nothing more than a "gigantic pyramid scheme."

YTB settled the charges last year in 2009 and agreed to pay a $1 million fine on top of huge changes in its business. In its latest SEC filings, YTB notes that there is "substantial doubt about the company's ability to continue as a going conern."

In September 2007, a year before the California Attorney General sued, YTB's application for membership into the Direct Selling Association was approved. The DSA describes its mission as "To protect, serve and promote the effectiveness of member companies and the independent business people they represent. To ensure that the marketing by member companies of products and/or the direct sales opportunity is conducted with the highest level of business ethics and service to consumers."

So the DSA would appear to have a pretty serious problem on its hands: A member that settled allegations that it was a massive pyramid scheme, surely a problem that doesn't mesh well with a commitment to "business ethics and service to consumers."

So how did DSA respond? Was YTB kicked out of the organization? Nope! Instead, the DSA issued a 497-word statement last month that says almost nothing.

"DSA prides itself in serving as a steward of consumer and distributor protection through its efforts to create and enforce acceptable business standards that often go beyond the requirements of the law," said Neil Offen, president and CEO of the Direct Selling Association, in the statement. "This situation is a clear indication that we must redouble our efforts to make sure our processes are sound and that our members not only understand the requirements of the Code of Ethics but that they are incorporating them into every aspect of their business operations."

That's it? That is all they have to say? The same old b.s., worthless mantra?

Isn't the first step to redoubling your efforts kicking out the company that the California Attorney General said is "immensely profitable to a few individuals on top and a complete rip-off for most everyone else."

The message for consumers here is clear: The Direct Selling Association is a lobbying organization that pretends to be some kind of industry watchdog, and multi-level marketing operations of questionable merit use its imputed credibility to recruit new would-be entrepreneurs.

If a company like YTB (who is also now being sued by the AG in Illinois and has another class action suit pending and other suits as well) can be a member in good standing of the DSA, consumers would do well to be highly skeptical of any sales pitch that invokes this trade group.

EagleOne
07-04-2010, 05:48 PM
Whatever happened to MLM's, or as they now want to be called "Network Markeing," 70% and 10 customer rule?

Back in the 70's, Amway avoided being labeled an illegal pyramid scheme based on this 70% rule and 10 customer rule. The 70% and 10 customer rule said this: “Amway required each distributor to sell at wholesale or retail at least 70 percent of its purchased inventory each month -- a policy known as the 70% rule. Amway required each sponsoring distributor to make at least one retail sale to each of 10 different customers each month, known as the 10 customer rule.” Finally, Amway required distributors to buy back any unused and marketable products from their recruits upon request.

What this means is that 70% of your income must come from the sales of your products to the general public. If you earn more income from recruiting/referral commissions than from actual sales, the program is an illegal pyramid scheme. In the 1990’s the courts tightened this 70% and 10 customer rule. In the Webster v. Omnitrition Int'l, Inc. case: “The court noted that the "70% rule" and "10 customer rule" are meaningless if commissions are paid based on a distributor's wholesale sales (which are only sales to new recruits), and not based on actual retail sales.” They said the sales must be provable ‘retail sales.” Thus closing a loop-hole in the 10 customer rule MLM companies were exploiting.

These two rules alone would clean out about 90% of all the MLM companies as part of DSA. Seems they are more interested in the membership fees than they are in cleaning up the industry or their organization. Heck, most of the companies applying and being approved by DSA proves this point. Cash talks with DSA.

littleroundman
09-22-2014, 07:48 PM
AVON QUITS DSA:

http://imageshack.com/a/img908/2940/OPY2Ag.jpg

Scribd - Avon Exits the DSA (http://www.scribd.com/doc/239924417/Avon-Exits-the-DSA)

kschang
09-29-2014, 11:37 PM
Kevin Thompson has an article about the reforms DSA should take in the face of Avon's accusations that DSA no longer represents the industry, just the MLMs in legal trouble. Can't find the link right now.