Monday, October 29, 2007
TRUTH ABOUT THE DIRECT SELLERS ASSOCIATION
In a response back from the DSA it seems there were many many letters and e-mails sent to this organization complaining and asking to look into the Alticor/Amway/Quixstar corporation. It seems most of the letters were directing the DSA to the fact that Quixstar/Amway is an "Internal Consumption"(In the words of Doug DeVos) company and only selling 3.4% of products outside the network. In other words buying over priced products to get a bonus and recruiting others to do the same. The letters were written to the Code of Ethics committee informing them of violations by the company. However, in looking further into this organization it seems a moot point in asking for help from the DSA (an organization sworn to look out for people in the industry). It looks like they just want to protect the companies that fund the organization such as Amway. Furthermore, the immediate past chairman of the DSA and current chairman of WFDSA are none other than you probably guessed it Doug and Dick Devos. Go Figure! More to come on this.
Subscribe to:
Post Comments (Atom)
13 comments:
Why would the DSA investigate the "level of internal consumption", when the body that is responsible for policing MLMs, the FTC, has explicitly stated that "the level of internal consumption" isn't something that determines whether an MLM is operating illegally or not?
IBOFB: The FTC does look at internal consumption as a criteria. I refer you to http://www.ftc.gov/speeches/other/dvimf16.shtm:
In particular:
"A lack of retail sales is also a red flag that a pyramid exists. Many pyramid schemes will claim that their product is selling like hot cakes. However, on closer examination, the sales occur only between people inside the pyramid structure or to new recruits joining the structure, not to consumers out in the general public."
You've put the phrase "level of internal consumption" in quotes; is this a quote to an FTC document you can direct me to? Thanks.
Uh oh....looks like captain is looking for proof from IBOFB, not just some self-proclaimed wisdom-filled wit.
FTC V. Equinox (1999)
36. Equinox purports to follow policies ostensibly designed to link compensation to sales. For example, Equinox publishes internal policies that: (a) require distributors to certify with each product order after the initial order that they sold or consumed at least 70% of the product they previously purchased; AND (b) require distributors to provide six retail sales receipts per month.
37. These policies, which are ostensibly designed to link compensation to retail sales, are ROUTINELY DISREGARDED and NOT ADEQUATELY ENFORCED by Equinox. EVEN IF THE DEFENDANTS DID ENFORCE THESE POLICIES, THEY WOULD NOT RESULT IN COMPENSATION BEING TIED TO RETAIL SALES OR ELIMINATE THE FACT THAT THE ONLY PRACTICAL WAY that MOST Equinox distributors can receive the financial rewards promised in paragraph 33, above, is through CONTINUOUS RECRUITMENT AND NOT RETAIL SALES. FOR EXAMPLE, THE REQUIREMENT OF PROVIDING SIX RETAIL RECEIPTS CAN REPRESENT ONLY A NEGLIGIBLE PROPORTION OF THE "SALES" VOLUME ON WHICH COMPENSATION IS BASED.
This is FTC CASE LAW. There was more wrong with Equinox than this and I'm not no QSSR legal weasel but this sure does sound on point.
I could elaborate on the uncanny similarities but that would belabor the point.
Review AMWAY/QUIXTAR MYTH: It's a pyramid if most products are bought by IBOs
Scroll to the second half you'll see a link to an official letter by the FTCs James Kohm, who I believe was actually the one who prosecuted Equinox. In that letter Kohm states -
Much has been made of the personal, or internal, consumption issue in recent years. In fact, the amount of internal consumption in any multi-level compensation business does not determine whether or not the FTC will consider the plan a pyramid scheme. The critical question for the FTC is whether the revenues that primarily support the commissions paid to all participants are generated from purchases of goods and services that are not simply incidental to the purchase of the right to participate in a money-making venture.
In that article you'll also find why curtisgb has misinterpreted Equinoix, due to a misunderstanding about what a retail sale is. Peter Vander Nat of the FTC is quoted in the article pointing out that, for example sales to IBOs for personal consumption ARE retail sales - something I've been saying for years.
Now, as per captains quote, whether there are outside sales or not might indicate something [i]might[/i] be a pyramid, but it doesn't say whether it [i]is[/i] a pyramid. If consumption is entirely internal, then it's possible folk are only buying the products because of the business opportunity and the products are actually a sham. Having any type of significant sales volume with external customers essentially offers "proof" that the products are legitimate and there is a real market for them. Again though, even if consumption was 100% internal, that's not what determines whether it's an illegal pyramid or not.
Ibofb has a valid point. I've wondered where the FTC has been in all this. The one thing the FTC kept harping on in the Equinox case is overpromising and underdelivering. Especially making income promises from retail sales and failing to deliver. That's especially interesting in that the new Quixtar / Amway Little Red Book comments on and refers to Retail Sales related events 20 times in about 12 pages. If it replaces the 4400 then there doesn't appear to be any income representation at all.
So, if they don't promise that you'll make any money, then it may pass the FTC smell test. Then again, 20 representations that you can make some money with retail sales with no credible statistical results to back it up may not fly very far.
It appears the company is trying to improve the retail sales rate but it will be interesting to see how it plays out in today's highly competitive retail marketplace.
But I wanted to add that this only seems to indicate why the FTC has sat on their hands. But inaction doesn't necessarily imply approval.
Unfortunately, or fortunately, there are state laws that also come into play, as in the Equinox action. And some of them are fairly specific about what constitutes a legal venture and what constitutes an illegal pyramid. And retail sales are specifically referred to and sales to those inside the pyramid are explicitely excluded. The one I am pretty sure about is Missouri which has a poignant illustration at http://ago.mo.gov/Consumer-Protection.html. After this whole fiasco came to light the more reading I did the more uncomfortable I became with the state of the business I had promoted to my friends and family.
to sum it up:
retail sales (to non IBO customers)
- part of the original AMWAY/FTC agreement/settlement
- mentioned again and again in FTC case law
- mentioned again and again in policy discussions at AMWAY (re Florence affidavit)
- has various state law impacts
- may not be enough in and of itself to get action on the part of the FTC.
It's a myth that "retail sales" means to "non-ibos", it simply doesn't. Virtually all the cases, including FTC vs Amway, clearly mean sales to end-users
To the best of my knowledge there's only been once case, in an appeals court, where it specified only to non-IBOs. This case was sent back to the main court but settlement was reached so it never became precedent. (Omnitrition if I recall correctly)
Whenever reading any of this stuff you have to remember a retail sale is just a sale to an end-user. An IBO purchasing for self-consumption *IS* a retail sale.
I believe quite a few state laws are clearer on this.
The FTC staff advisory letter from 2004 IBOFB references is very interesting. It's from the FTC to the DSA but I can't get to it on the FTC's website or the DSA's.
That being said, the letter appears to say:
An internal consumption mlm is illegal if:
1. a MAJORITY of new participants who join the mlm to make money cannot (not will not but cannot)
2. find enough new participants who will join the mlm ONLY to purchase products (possibly at a discount).
This is only dealing with the product consumption issue and not any of the easier to avoid headhunter fee or product loading issues. Mr Kohm takes some roundabout ways to get to the punch line but I believe this is a fair analysis of all of the portions of the letter. I also believe this fits with the other guidance out there as well.
Whether or not AMWAY aka Quixtar fit this definition as of August 9, 2007 is a different issue.
Could you clarify what you mean by point 2?
As for point 1 - theoretically [i]everyone[/i] who joins Amway or Quixtar can make money without anyone ever joining again. One of the defining points for a legitimate MLM cf with an illegal pyramid is "can the last person to join make money?". Clearly the answer with Amway/Quixtar is yes. Unfortunately folk mistakenly assume A/Q is an illegal pyramid, then falsely attribute the failings of illegal pyramids to A/Q.
If there are no sales to persons outside the mlm then how does "the last person to join make money" "without anyone ever joining again."
I thought your whole point was you didn't need to make sales to people outside the mlm?
IBOFB - sorry I missed your question:
for 2) I used:
from Mr. Kohm's letter there is apparently an out to a pure internal consumption pyramid -- the FTC is apparently only concerned for people who want to make money and are doomed to failure (eventual saturation). On the second page under item 2. he discusses a buying club and states that if people want to join a business to obtain goods and services at a discount then that's ok in that they will not be disappointed in trying to make money but will have achieved their goal in simply obtaining the goods and services.
I think this is important because I think it says in the original AMWAY decision the administrative law judge noted that at that time 3 out of 4 Amway representatives apparently only were "in" to get the products at a discount. Thus there was a considerable market for the business for someone who wanted to make money by offering the opportunity to join to people who only wanted to join in order to obtain the products. I think this would pass the FTC smell test.
I did find that the DSA wrote up an analysis of the staff advisory opinion but that was only available to members. You may be able to obtain access to it with your connections.
You don't need to make sales to outsiders to make something not an illegal pyramid, but it does provide evidence the products are legitimate products at a legitimate price. The theoretical question of whether the "last person" can make money or not is along the same lines - evidence something is not an illegal pyramid. It doesn't mean it's a requirement to not be an illegal pyramid.
Even the person joining just to buy could sell them if they wanted.
Hmm ... not explaining that well, but hopefully you get my point, which is that it's about having legitimate products and legitimate consumers of the products.
If you setup a group of Amway IBOs and told them "buy this and sign up others and tell others to buy this (and so on) and you'll get rich" and everybody was just storing the stuff in their garage - that would likely be an illegal pyramid. So it's more than possible some folk are running Amway as an illegal pyramid, but it's not an inherent part of the business model, and indeed to do so would require breaking amway's rules.
Post a Comment