Re. Implications of the eFusjon lawsuit

Dear Distributors,

When the only way to earn income in a MLM is through endless recruitment, various leaders will resort to hype, hyperbole and blatant misrepresentations in their efforts to sponsor the next distributor. Charles King, a long time industry advocate, once wrote, “This hard sell [recruitment focus] promised not only a decent product and a good income but also an opportunity to change lives, overcome addictions, repair failing marriages, revitalize America, and change the world! The ‘sales story’ had to be charismatic, captivating, and compelling to close the sale and keep recruits motivated. Exaggeration and hyperbole were the tone of the day.” In reality, people end up getting in the business under the influence of a compensation plan. They do this in order to chase an opportunity and to be part of something they perceive as noble. But as we all intuitively know, models dependent on constant recruitment and heavy internal consumption are unsustainable, harmful and laced with fraudulent misrepresentations. I’ve written an analogy about the practice of allowing endless recruitment without sales requirements and called it “Peter Ponzi and the Amazing Pencil.” Check it out in the ebook on pyramid schemes (Section V, page 61). If eFusjon’s model is permissible, then it would be perfectly fine to sell $1,000 pencils via network marketing channels, call the distributors “customers” and incentivize them to recruit other participants to buy the pencils without requiring retail sales. The logic is like cotton-candy: it melts on contact.

Retail Sales Rules

Most MLMs today have some form of a retail sales rule. Unfortunately, a lot of these rules are merely cosmetic with very little, if any, enforcement. When former client Orrin Woodward sued Amway, we obtained affidavits from distributors showing that Amway failed to enforce its retail sales rule. As with a lot of companies, Amway allowed its distributors to “self report” their retail sales, which led to a lot of people gaming the system. It was this lack of enforcement that largely led to most of Amway’s problems starting in late 2006. Recognizing the value of requiring some type of “activity threshold” before distributors can collect bonuses, Amway has since taken measures to get its house in order. They’ve got some adult supervision over their tool companies and they’ve created incentives for distributors to register their customers on the Amway website; thus, eliminating the need to self report. While Amway is trying to course correct and get its sales culture in proper order, there are a number of companies that still choose not to enforce their rule because doing so would essentially put themselves out of business.

Why eFusjon?

In eFusjon’s case, they’ve skipped the formality of having a cosmetic retail sales rule. You read that right. eFusjon has no retail sales rule. With eFusjon, there are absolutely zero requirements of outside sales before distributors can earn bonuses from downline volume. This leads to a sales culture that will resort to any trick to sponsor distributors en masse. This is particularly true in eFusjon’s case. The outlandish rumors from the field i.e. eFusjon is buying facebook, the facebook app will explode the matrix, etc are not the real problems behind the eFusjon business. Instead, these rumors and misrepresentations are symptoms of the problem, with the problem being a pay plan that’s fueled almost exclusively by recruitment and internal consumption.

With every respondent to our request for information form, 100% of them said they no longer purchase the products. It’s a very telling statistic. As we alleged in our lawsuit, the vast majority of eFusjon distributors purchase the products primarily to stay qualified, which is indicative of a token product designed to conceal the nature of the scheme. If distributors were purchasing out of need or want, many distributors would still be buying. The product volume is driven by the pay plan.

The lawsuit and its implications in the MLM industry

The efusjon lawsuit will not cause a wave for legitimate companies. As President Obama often says, “Let me be clear.” The crux of the lawsuit is eFusjon’s lack of retail sales and their unprecedented pay plan that basically forces people to purchase products lest they lose their spot in the business. I can think of no other network marketing company in the industry that does this. Sure, companies like MonaVie require some volume in order to remain eligible for bonuses. Still, they don’t kick people out of the business if they fail to order. Still again, MonaVie has a 5 customer requirement before distributors can collect bonuses. There’s a vast difference with eFusjon.

I want to quell some concerns that we, plaintiffs’ counsel, do not agree with the practice of paying commissions on volume from distributor consumption. The law is clear in that product consumption from distributors is commissionable. The practice is perfectly fine. However, the law also requires some modicum of selling for the several reasons stated above. eFusjon has no such requirement. Not 10 customers, not 5 customers, not 1 customer. Nothing. It’s another reason that causes problems for eFusjon, both with our lawsuit and with regulators. It’s their greatest source of growth and it’s their greatest weakness. Sure, we’ll amend the complaint at some point and put away the sledgehammer and pull out a scalpel. We’ll throw in some counts of collusion and we’ll take out some of the barbs that might apply to other network marketing companies. Personally, I feel as though the 70% rule is outdated since the advent of direct fulfillment. It’s another topic for another day. The key to viability for any company in this industry is to have some requirements for retail sales to demonstrate marketability, slow down the churn rates and avoid the easy pitch of “get in now, get your three, and repeat.” That’s the focus of the lawsuit.

Our client

I like our client here. We represent average people. We’re not representing a large leader that’s working on an exit. We’re simply representing misled distributors that purchased their cases, got their friends and family involved, bought into the hype and misrepresentations, stayed on autoship and were harmed as a result. Some lost some physical possessions while others lost a piece of their dignity. We fight for those people. I’ve seen the nasty effects a pernicious scheme can have on a family/community and I’m fully committed to keeping their interests top priority. It’s the purpose behind the www.classvefusjon.com website. We want to reach out to current and former distributors and hear their stories and compile our evidence. I want to assure people, especially the ones saying I’m doing this for money, that there will be no settlement until we receive a commitment from eFusjon to reform its business to protect future distributors.

Fortunately in our case, we’re not dealing with a cosmetic retail sales rule. In our lawsuit against Amway, we had to compile a bunch of affidavits to show a pattern of conduct inherent in the business i.e. lack of enforcement. Here, there’s no such rule to deal with, which means we can keep a lot of distributors out of the mix. If you read the complaint, you’ll see that we focused exclusively on company produced materials. We stayed away from dragging distributors into the fight by quoting them on their marketing calls. The FTC did this against Burnlounge and I was not a fan. Instead, we’re alleging that the eFusjon business is illegal on its face via its policies and pay plan. This is different than alleging them to be a pyramid in implementation. There’s a difference and I’m happy to discuss if you have questions.

Conclusion

I’ll be transparent about my greatest worry with respect to this lawsuit. eFusjon will be shut down by a state regulator before they’re given the opportunity to fix their business and make the class whole. If they dig in their heels and try to defend their current model, it’ll spell trouble for both current and future distributors. The lawsuit will not create a vortex that will consume good companies. On the contrary, it should serve as a wake-up call to pyramid schemes disguised as legitimate MLMs that the days of exploiting unsuspecting distributors are over. Products need to be marketable and sales thresholds need to be met. There’s nothing novel about this concept; however, due to a lack of enforcement and the ease at which network marketing companies can be created, there are companies out there like eFusjon that have disregarded these requirements in pursuit of fast money. And it’s been done to the detriment of the industry. The viability of the opportunity is grossly misrepresented in the field’s attempt to survive under the efusjon-like compensation plans. In these circumstances, we find fraud and hype. We find that people get used and misled. They leave the business with a bad experience and end up becoming the next generation of MLM detractors. With each of the respondents to our request for information, I’m under the impression that there’s not a single one of them that will ever re-enter the MLM marketplace. It’s not my fault. They were upset before they met me.

Always lead with courage and many blessings to you and your family this holiday season.

Sincerely,

Kevin Thompson

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