The U.S. FTC has been moving steadily toward measuring the amount of Sales to Distributors compared to the dollar amount generated by sales to end consumers (Customers that do not belong to the pay plan). If there aren’t enough Customers, the MLM Company is considered a Pyramid Scheme. Regulators have found that pure pyramid schemes don’t have any end consumer customers.
The definition of a Customer is a person that only buys product or services and doesn’t belong to the compensation plan and has no expectation of making money. The FTC Consumer Affairs people said in public speeches (not written rules) that MLM – Network Marketing Companies need to have a minimum of 50% Customers (that do not belong to the pay plan) to prove they are not a pyramid scheme. ....
"CUSTOMERS" CASE #1
FTC BURNS BURN LOUNGE!
The money in Burn Lounge was coming from recruiting.... Not the 50% of income from Customers/Product Sales the FTC wants.....
CASE #2. In this case with Mall Ventures in 2004 the FTC took court action but did not shut the company down.
CASE #2 PARAGRAPH 9. “Retail Sales” means sales of products, services, or business ventures by defendants, their successors, assigns, agents, servants, employees, and those persons in active concert or participation with them to third-party end users.
Retail Sales does not include sales made by a participant in a multi-level marketing program to other participants, recruits, or the participant’s own account....
"CUSTOMERS" CASE #3
The FTC and Federal Marshals walked into SkyBiz offices on 31 August 2001 and shut the company down. This is normal for the FTC since they don’t want to fight the legal power MLM and other types of companies have. They get a preliminary injunction in secret, walk in, and shut the company down.
This is from 2 Jan 2002 FINDINGS OF FACT AND CONCLUSIONS OF LAW AND ORDER FOR PRELIMINARY INJUNCTION REGARDING SKYBIZ INTERNATIONAL LTD. .For complete case see CD-ROM #1 FTC that comes with the law book. Please note the critical elements (causes for action) presented on pages 14 and 15 of the lawsuit in this case. The third paragraph is the newest refined and the biggest change in the Customer direction for the FTC in determining MLM vs. Pyramid Scheme. The height of humor (or despair) was when SkyBiz sent out this email looking for Customers a couple of days before the trial started. Have a laugh, or frown, Skybiz did not even know if they had customers that were end users! Read This:
aaa@attglobal.net;
Leslie Tumlin (Jack *********'s buddy in Local Ad Link) ; Sent: Tuesday, September 18, 2001 12:04 PM
Subject: Trial Preparation Friends of SkyBiz:
Urgent To All SkyBiz Members
We need the names and addresses of EVERY SATISFIED consumer that bought the SkyBiz products and have never sold the business opportunity. We also need the names and addresses of five VERY ZEALOUS Associates who are in the program, but haven't made a whole lot of money. Please keep in mind, we need consumers and associates who would not be reluctant about testifying in court and who presumably are in the United States (for travel purposes). If any of the potential witnesses you suggest are outside the U.S., please identify what country they're in. I need this information at your earliest convenience. Thank you.
Martin Allen Brown, General Counsel
SkyBiz
World Service Corporation
(Author Note) In this following paragraph, the FTC shows it’s push for “retail sales to customers who don’t belong to the pay plan.”
CASE #3 PARAGRAPH 15.
A lawful multi-level marketing program is distinguishable from an illegal pyramid scheme in the sense that the "primary purpose" of the enterprise and its associated individuals is to sell or market an end-product with end-consumers and not to reward associated individuals for the recruitment of more marketers or “associates” See Gold Unlimited, 171 F.3d at 483-84 (suggesting that based on a statutory survey of state criminal laws against pyramid schemes, this is a difference). See also Ger-Ro-Mar, Inc. v. FTC, 518 F.2d 33. 36 (2d Cir. 1975) (explaining that the distributors profited by earning commissions from their own sales and those of their recruits); In re Amway Corp., 93 F.T.C. 618, 716 (1979) (sponsors do not make money from their recruits' efforts until a newly recruited distributor begins to make wholesale purchases from his sponsor and sales to consumers) ....
"CUSTOMERS" CASE #4
FTC Press Release: Consumers paid a registration fee to join the NexGen program, and most also purchased a “WebSuite” including the Internet Mall and related goods and services. A “Basic WebSuite”cost $185, including the registration fee, and a “Power Pack WebSuite” cost $555. NexGen allegedly claimed that “each activated business center has the potential to earn up to $60,000 per week.”
CASE #4 PARAGRAPH 24. NexGen also paid commissions to affiliates on purchases from Internet merchants that resulted from visits to the affiliates' malls. Similarly, affiliates earned commissions from purchases directed to third-party Internet merchants as a result of visits through the malls of their downline. The commissions NexGen paid on these purchases were relatively small compared to the commissions it paid on sales of websuites to new recruits....
"CUSTOMERS" CASE #5
CASE #5. In the “BigSmart” case, you can see that the FTC is refining its wording of end user and customer. This was a walk in and shut down operation by the FTC and Federal Marshals. You can see some outline of changing requirements:
CASE #5 Subparagraph C. “Prohibited marketing scheme,” means a pyramid sales scheme, Ponzi scheme, chain marketing scheme or other marketing plan or program characterized by the payment participants of money to the program in return for which they receive (1) the right to sell a product or service and (2) the right to receive in return for recruiting other participants into the program rewards which are unrelated to the sale of products or services to ultimate users. Rewards are “unrelated” to the sale of products or services to ultimate users if rewards are not based primarily on revenue from retail sales.
CASE #5 Subparagraph D. “Retail Sales” means sales of products, services, or business ventures by Defendant, his successors, assigns, agents, servants, employees, and those persons in active concert or participation with them to third-party end users. “Retail Sales” does not include sales made by participants in a multi-level marketing program to other participants, recruits, or to such a participant’s own account.
CASE #5 Subparagraph E.
“Ultimate users” are purchasers of retail sales.......
"CUSTOMERS" CASE #6
On December 9, 1999, the FTC filed suit in U. S. District Court for the District of Maryland seeking a preliminary and permanent injunction and a legal asset freeze against Dallas-based 2Xtreme Performance International that was a Pyramid Scheme (bad one) disguised as an MLM – Network Marketing Company. The FTC legal complaint alleged that the defendants used Web sites, direct mail, infomercials, telemarketing and seminars to convince consumers they could make substantial income by investing in their multi-level marketing scheme, which marketed nutritional supplements, beauty, weight-loss and other products. Marketing materials represented that consumers could expect to earn enough MLM – Network Marketing income to retire in two years, while the pseudo MLM Company ripped them off for $10,000 - $30,000. We can see the shaping of precedent law in the following paragraph. The Final Settlement said:
CASE #6 Subparagraph F. “Prohibited marketing program” means any marketing program, Ponzi scheme, chain marketing scheme, or other marketing plan or program in which a person who participates makes a payment and receives the right, license or opportunity to derive income as a participant primarily from: (i) the recruitment of additional recruits by the participant, program promoter or others; (ii) non-retail sales made to or by such recruits or their recruits; or (iii) any other payments made by recruits. For purposes of this Final Order, a "prohibited marketing program" does not include a marketing plan or program in which the program promoter demonstrates to the defendant that it has instituted and enforced rules that have the actual effect of ensuring that
the participants in the program derive income from the retail sale of goods or services to persons who are end-users of the goods or services and who are not participants in the program....
"CUSTOMERS" CASE #7
The FTC charged that income from the FutureNet multilevel marketing plan did not depend on sales of the Internet devices they were purportedly selling, but rather on the recruitment of new distributors -- the typical profile of an illegal pyramid....
FEDERAL MLM - TO PYRAMID CASE HISTORY JEWELWAY INTERNATIONAL
"CUSTOMERS" CASE #8
In a pyramid scheme there is almost no emphasis on making retail sales of products to persons who are not participants in the program. According to an FTC expert, earnings claims made in conjunction with promoting a pyramid scheme are false because pyramids inevitably collapse when no new participants can be recruited and approximately 90% (or possibly more) of the participants consequently lose their money..... CASE #8 PARAGRAPH 15.
A lawful multi-level marketing program is distinguishable from an illegal pyramid scheme in the sense that the "primary purpose" of the enterprise and its associated individuals is to sell or market an end-product with end-consumers and not to reward associated individuals for the recruitment of more marketers or “associates”
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