There’s a lot happening now in the network marketing industry.  Recent rhetoric suggests that the FTC is  re-engaging in an industry that desperately needs it.  The Burnlounge decision is expected to be published soon, which will help clarify the law in the industry.  USANA recently got hit (again) with another class action lawsuit.  And the FTC is saber rattling.

As I mentioned in my ebook, the industry is torn over the issue of recruitment versus retail sales.  Can a distributor skip selling entirely and simply “buy from themselves” and recruit other participants to do the same?  Should distributors be required to rack up outside sales to nonparticipants?  If so, what’s enough?  In my opinion, the law is moving in a direction that will require 50% of a company’s revenue to be tied to customer sales (people outside the program).

These are major questions that, if left unanswered, lead to broad misrepresentation and abuse.  Since these questions are largely unanswered in America, we’re seeing numerous class action lawsuits filed by angry distributors, all stating the same allegations (distributors are required to focus on recruiting countless participants to earn income i.e. pyramiding).  The industry needs oversight.  Instead of relying on costly lawsuits filed by disgruntled distributors, there needs to be uniform standards that empower the FTC and local state Attorney Generals to maintain order in an industry seeping with impropriety.  Where there’s smoke, there’s fire.

“New FTC Asserts Itself”

In a string of articles, it seems as though the FTC has finally woken up. With the new Obama administration, there are fewer impediments holding the FTC back from policing the consumer markets. New commissioner, Jon Leibowitz, has already expressed a desire to be more relevant for consumers. After pursuing a case against Kellogg’s, he said, “This is a signal that we’re going to be bringing cases against major corporations,” he said. “If you want to make sure advertising is truthful, you have to go after not only the bottom-feeders but America’s best-known corporations.””>, he said, “This is a signal that we’re going to be bringing cases against major corporations,” he said. “If you want to make sure advertising is truthful, you have to go after not only the bottom-feeders but America’s best-known corporations.”

The FTC has also finished up with an old case against another pyramid scheme involving internet kiosk services. The original complaint alleged that the company misrepresented / overstated the opportunity. In February of 2009, two of the defendants pled guilty to securities fraud and are serving seven years in prision.

USANA gets hit with another class action lawsuit

Last year, various distributors filed a class action lawsuit alleging, among other things, that USANA distributors could only earn income by focusing on recruiting other participants, not by selling USANA products.  Yesterday,  it appears a similar lawsuit was filed in Nevada. Angela at the Business Opportunities Blog wrote a short summary of the USANA lawsuit here. The plaintiffs allege,

Those already in the pyramid are greedily incentivized to recruit more and more distributors to grow the base for the benefit of those higher up on the pyramid,” Chirco’s suit charges. “It isn’t until one is locked into a distributorship that it becomes clear that merely selling products to consumers without a pyramid position is not a realistically sustainable option. The only way for an associate to economically stay afloat is to recruit lower ranks for the Usana pyramid.

If I’m in a business that relies on constant recruitment for sustainability, I’d be worried. But as Bernie Madoff indicated in his statement to the victims, “If I’m in a business that relies on constant recruitment for sustainability, I’d be worried. But as Bernie Madoff indicated in his statement to the victims before he went to prison,  once a ponzi is started, it’s impossible to stop without collapsing the entire structure.  And since money is addicting, it’s hard for people to walk away.

Tags: amway, ftc, Jon Leibowitz, MLM, network marketing, usana