Multi Level marketing companies are Making Headlines, Again
Recently, a well-signed letter requesting a formal inquiry into multi level marketing companies like Herbalife, Amway and Avon landed in the lap of the Federal Trade Commission. The signatories urged commissioners to explore the allegedly predatory nature of MLM companies and review ongoing accusations that MLM programs are elaborate pyramid schemes.
Not only did the letter outline grievances, but it also included some suggestions for increased regulation of multi level marketing companies. Specifically, the MLM detractors suggested that the FTC create rules which require MLM companies to disclose past earnings in addition to attrition rates of salespeople.
How Does Multi Level Marketing Work?
Multi level marketing is when salespeople are paid based on their own product sales, in addition to the sales of any new salesperson recruited through their “line”. While some people swear by multi level marketing, other folks feel MLM schemes are a dangerous cauldron of false hope.
MLM’s Loudest Detractor
Hedge fund manager – and Herbalife heckler – Bill Ackman has long aired his distrust of MLM companies, claiming many are simply giant pyramid schemes. In fact, he put his money where his mouth is and bet $1 billion against Herbalife. Ackman once ranted, “The MLM industry has proved incapable of regulating itself, is rife with fraudulent and deceptive earnings claims and has caused — and will continue to cause — untold financial harm and misery to the poorest and most vulnerable of the consumers whom the commission was formed to protect.” (NOTE: Ackman’s since scaled back his hedge because of strong figures posted by Herbalife in subsequent quarters.)
What Should You Do to Prepare For Possible MLM Crackdown?
OK, so what should you do if you operate a multi level marketing company – or one that has considerable similarities to an MLM setup? If you have an attorney, give them a call and ask for a review. The couple of hundred dollars it will cost to make sure you’re operating on the right side of the law is worth it. Just think: you’ll have to lay out a lot more if you get busted by the FTC.
Don’t Panic, Nothing May Come Of This
The most important thing to remember about this letter, though, is just that – it’s only a letter. That said, multi level marketing rules already exist – so make sure you’re following those. As for further crackdowns, we’ll be keeping an eye out.