Are you wondering, “What network marketing legal problems”? Read on.
Q: Why do you suppose network marketing companies regularly run afoul of the FTC and/or the FDA?
A: MLM (Multi Level Marketing) is a dodgy paradigm. Network marketing companies have been in court, over and over again, for half a century.
Before I review a couple of legal settlements, intended to be illustrative, I recommend you read the FTC’s ‘Business Guidance Concerning Multi-Level Marketing’.
Now, let’s move on to the settlements.
Network Marketing Legal Problems: Settlements
I’ve chosen Herbalife™ and Vemma® because they have relatively high profiles and have recently experienced well-documented problems. Let’s take a look at the settlements they reached with the FTC:
"According to the complaint, Herbalife claimed that people could earn thousands of dollars a month or even get rich in the program. But the complaint alleged that the majority of distributors earn little or no money, with more than half the distributors known as “sales leaders” receiving less than $300 in rewards for 2014. According to a survey by Herbalife itself, Nutrition Club owners spent an average of about $8,500 to open a club, and 57 percent of club owners reported making no profit or losing money.
Those distributors who do make a lot of money, according to the complaint, are compensated for recruiting new distributors, regardless of whether those recruits can sell the products they buy from Herbalife."
It’s worth reading that last paragraph again.
MLMLAW.com, my source for the preceding quotations, is an excellent legal resource.
If you’re a network marketing distributor, or considering becoming one, it’s definitely worth reading www.mlmlaw.com/ftc-settlement-with-herbalife-omg/ Pay particular attention to the phrases: “compensation structure that causes or is likely to cause harm to participants”, “ two-thirds of product sales to be to customers (i.e., those who are NOT distributors)” and “PROHIBITED from participating in an auto-ship program”
Without ‘Big Money’ claims it’s going to be more difficult to attract new blood. Will network marketing survive the transition from recruiting business builders to selling products to non-distributors. At long last the truth about earnings is out there.
Note: To Herbalife’s credit you can view their Statement Of Average Gross Compensation on the front page of their website.
After settling with the FTC, the owner of Vemma started a new company branded Bod•ē. MLM companies he has owned are:
New Vision International ==> Vemma ==> Bod•ē
It took awhile for New Vision to fade away and it’s likely Vemma and Bod•ē will coexist for some time before some, or all of the Vemma product line becomes part of Bod•ē.
Note: I was unable to find Vemma’s or Bod•ē’s ‘Statement Of Average Gross Compensation’.
As interesting as the FDA’s and the FTC’s disputes with network marketing companies are, it’s more informative to learn about a few examples of the legal problems that might confront individual distributors.
- Don’t buy the story that by becoming a distributor you will have a business of your own. The MLM company owns the business, you do not. If they decide to go retail or shut their doors, you’re screwed.
- Only one distributor per company makes it to the top. What if, defying the odds, you become a top distributor and the FTC decides to name you as a respondent, alongside the company owners in their complaint? Lawyers will recommend you to hire independent legal counsel. Will the company cover your legal costs? Dream on. Your company might turn on you.
- Your network marketing company can and might sue you. I once received a cease and desist letter delivered by FedEx. I quoted the exact words spoken by one of that company’s medical experts. I had the expert’s permission to do so, but the company feared exposing their message to government regulators. I called their lawyer, who said, “Don’t worry the C and D was only sent so the authorities will believe we’re policing our distributors. More than a dozen other people got the same letter.” Then he surprised me by saying, “Your stuff is great, it’s truthful and legal, but we’re concerned non-medical people might exaggerate what you’ve written and that could do the company harm.” That didn’t make sense, but the lesson I learned was that network marketing companies have no hesitation about going after their distributors, your first warning could be a legal threat.
- What if you’re a top gal and you choose to leave for greener pastures? Good luck getting your checks, it often takes some time. The company might threaten a lawsuit. They might even try to stop you from working. The lesson this example teaches is that the customers, distributors and the money belong to your company, not to you; at least until you take legal action. Do you have funds available to fight the company?
- One MLM company will often sue another network marketing company for luring away top distributors.
- Top distributors sometimes sue the company’s founders.
- Occasionally distributors sue other distributors. It’s amazing what can happen when recognition and money are in dispute.
- Here’s an odd one. What if an owner hinted, strongly, a blog post would help give your product a competitive advantage? That’s straightforward, right? Backstory: Another company’s freshly cleaned bottles contained a trace carcinogen. I chose not to write that post. I later learned the other company’s owner had threatened to sue our CEO if that information became public. If I had acquiesced and blogged, do you imagine my company’s owner would have covered my legal costs? Not a chance.
Q: What’s the bottom line?
A: Network marketing is fraught with potential legal entanglements. Choose wisely.
‘Network Marketing Heads Up’ is my overview of MLM. I’m gratified people have found it helpful.