Home » Law » Regulatory Compliance

Looking Past The Paper

Feb 8, 2008
In a recent article, I wrote, "I have had regulators from seven key states say to me personally or to an audience I was in, the equivalent of, "We look past the paper to what is really going on in our state."" I have also said on more than one occasion that the single most regulated act in MLM is the offer of the income opportunity to a prospect. Well, the Federal Trade Commission made both of those points for me recently in the Jewelway case. A legally designed program (the paper) only gets you half way home, if that far, as bad sponsoring conduct is not saved by the paper.

Federal investigators went to Jewelway opportunity meetings and did not like what they saw and heard. Note that I did not say that they did not like what was written in the Jewelway literature. They clearly were "looking past the paper." I will leave for another article an analysis of whether the Government response was appropriate for the circumstances. (It wasn't.) My purpose here is to make the point again that companies and distributors must PROPERLY IMPLEMENT a legally designed program.

There can be no required product purchase to become a representative of a company with an MLM compensation plan. The cost to get in must be "zero" or at most an at-cost, non-commissionable charge for a starter kit. The paper was O.K. The Jewelway representative had people believing they had to buy product to get in.

There must be retail sales to make money as a representative of a company with an MLM compensation plan. The paper was O.K. The Jewelway representative had people believing they could make money just through personal consumption.

There can be no earnings representations made to prospects by representatives of a company with an MLM compensation plan. The paper was O.K. The Jewelway representative made specific income representations.

What can companies and representatives do? The companies must monitor sponsoring conduct to ensure it is "by the book." Personal visits, required tapings, certification, refreshers and the are all possible ways to keep their finger on the pulse of what is happening in the field. Representatives must first and foremost realize the importance of studying the corporate literature and avail themselves to corporate training on how to sponsor. Entrepreneurs are by nature creative, but during an opportunity meeting is not the time. Presenting an income opportunity is high risk. The company must design the technique properly and the representative must implement the technique properly.
About the Author
Gerald P. Nehra is an MLM-specialist, private practice attorney. He is one of only a few attorneys nationwide whose practice is devoted exclusively to direct selling and multilevel marketing issues. His 33 years of legal experience includes nine years at Amway Corporation, where he was Director of the Legal Division. He can be reached at 1710 Beach Street, Muskegon, Michigan 49441-1008, 231-755-3800, 231-755-4700 fax. His e-mail address is GNehra@mlmatty.com.
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