Anti-pyramid law

April 11th, 2007 Posted by Petteri Haipola

Table of Contents

Preface

This report is a petition to all people, countries and governments in the world in order to prevent harmful and deceptive marketing methods such as Multi-level marketing from operating in all over the world and exploiting the poorest nations and people in society. Please, read this report with full consideration of what we call is ’upright’ or ’righteous’. Everybody should be treated in a way what he or she deserves and this paper will make it clear, how we can guarantee reasonable commissions and bonuses for all those who work full-time or part-time in the field of direct marketing industry.

I would like to thank Dr. Jon Taylor from the Consumer Awareness Institute for his help in interpreting this petition into English language and for his expert analysis and advice.

April 11´th, 2007

Petteri Haipola

Consumer awareness and protection advocate in Finland

The original petition in full length and in Finnish language is posted on my web site at

http://www.kolumbus.fi/petteri.haipola/verkostomarkkinointi/lait/anti-pyramid.htm

Definitions

Pyramid Schemes

An MLM may be considered a pyramid scheme if sales persons are more concerned with recruiting a downline than direct selling. Such schemes are called ”Product-based Pyramid Schemes”, or ”Recruiting MLM’s” by Dr. Jon M. Taylor from Consumer Awareness Institute. Dr. Taylor has developed a method of ”Five Causal and Defining Characteristics for Identifying Exploitive Product-based Pyramid Schemes, or Recruiting MLM’s”. A Summary of his report is on page http://www.mlm-thetruth.com/5RedFlags-summary.htm.

This petition is my suggestion in order to put an end to deceiptive MLM marketing schemes or make it more difficult for such schemes to operate. Something ought to be done and if not this, then something else like applying the Five Red Flags by Dr. Taylor in law enforcment.

Abstract

Illegal pyramid scheme is NOT a marketing program of products and services by which distributors are rewarded in a way that at least half of their income comes from selling products and services to end users and customers. (See income representations at the end of this document) Such schemes, by which distributors are rewarded in a way, that half or more of their income comes from downline payments in the form of commissions or bonuses from sales to downline participants should be regarded as illegal pyramids.

In MLM programs the person actually selling the products should be rewarded at least as much in commissions and bonuses by the company as will be paid to the total of all upline participants for the same sales. This will also encourage distributors to sell products to customers (end users) and thereby not reward primarily the recruitment of new recruits in an endless chain, since the incomes of distributors are primarily based on their own retail activity and not on sales to large number of participants in their downline.

If regulators required that MLM companies were structured this way, selling an unrealistic dream of easy riches from MLM recruitment will be discouraged, because in order to make millions one should retail worth millions. In practice the income level of a distributor would be at maximum the earnings of a good distributor in any legitimate sales business. Becoming rich (enjoying ”financial freedom,” etc.) by deceiving and exploiting other people would be discouraged.

With the help of this definition, it will be possible to get rid of all of the illegal pyramid schemes in our country and even world-wide. Thus, we do not need to try to solve the problems of limitless recruiting, or how big a portion of purchases have been made by distributors for themselves and their household and how much do they actually sell to customers beyond the network of distributors. Furthermore, it will not be necessary to study pay plans in detail. It will be enough for law enforcement agencies and officials to check where the incomes of distributors come from: from direct selling or downline payments such as commissions and overrides and bonuses. In addition to this, the law enforcement officials need to keep watch over the marketing methods, so that there will not be anything illegal there.

For the law enforcement officials it will be the easiest way to define the distinction between illegal pyramid schemes and legitimate marketing programs as described above. By doing so, we manage to escape complex explanations and expensive investigations. The division to legal and illegal marketing program comes distinguishable. Besides this distributors will be encouraged and empowered and incentivized to sell products, rather than to recruit new recruits in an endless chain of recruiters, which otherwise would not be restricted in any way by the MLM-company.

If interpretation of the law and legislation will be done like the way described here, then it will be difficult for the MLM’s to promote products and services and above all the business opportunity in a way, which enables the ongoing and continuous wrong-doing and exploitation. Almost each and every one of the network marketing organizations would be more likely to operate as close to the model of fair direct selling and leave behind all the suggestions of ’unlimited opportunity’ of making huge income. Selling the ’dream’ or ’opportunity’ would be difficult. Recruiting real distributors in the network of real distributors would be the primary emphasis as well as selling products to end users: the dream-sellers would almost disappear. There would not be too many distributors in the market area of a company as whole or locally. Supply and demand would meet. It would be possible for each and every distributor to make a living or earn little extra by retailing products and services to customers (end users). Recruiters recruiting unlimited amount of other recruiters in an endless chain would decrease in number and the number of real distributors selling legitimate products and services to customers would increase. The primary ’product’ would not be ’the business opportunity’ and ’the dream’ any longer as it is now in most MLM’s or in almost every MLM (The ’real product’ that is being sold to victims of deceptive MLM’s is the idea of becoming rich or enjoying financial freedom by recruiting a huge number of participants in the downline of a pyramid scheme or MLM network).

By combination of reselling products and generating commissions from downline purchases, so long as direct selling to non-participants constitutes at least half of the income and commissions, no retailer in his or her right mind would expect to gain ”financial freedom” – the income of a millionaire, etc. It is more equitable to reward those people who do the actual selling and not those who do not do it, but only promote their recruiting scheme and motivate others to recruit new participants into the program, where the primary emphasis is on recruiting new distributors in an endless chain.

Problems caused by illegal pyramid schemes can be prevented as recruiting does not pay off any more and retailing products does. If laws will be applied and even regulated this way, then the distributors in a network will also cooperate and avoid illegal entrepreneurs and companies, which saturate the market and defame the whole industry of direct selling.

Key and methods for removing illegal pyramid schemes from the market has now been found. All we need is good will and cooperation of citizens, and acts by the governmental officials and legislators in order to apply the existing laws this way and make new laws in harmony with the idea presented here, first in our own country and then also in the European Union and finally in all over the world.

Yours sincerely

Petteri Haipola, Jyväskylä, Finland, European Union 11.04.2007 (April 11th, 2007)

Foreign sites

See also

and other related sites. For a list of recommended sites go to http://www.mlm-thetruth.com/links.htm or this page on my site.

Income representation

These income representations show, how the 50-% Rule would put an end to pyramid selling or make it more difficult for recruiting MLM’s to operate, because compensation plans would reward more direct selling than recruiting. It would be easy for law enforcement agencies to investigate MLM’s in order to see whether they are illegal pyramid schemes or honest retail-MLM’s.

Example 1:

  • A distributor buys or sells nothing, but has a downline of a million participants:
    • He will not be rewarded at all.

Example 2:

  • A distributor buys or sells worth 100 USD a month and has a downline of a million participants:
    • He will be rewarded e.g. 20 % commission for his sales, that makes 20 USD, and he will receive commissions and bonuses 19,99 USD from his down-line. Total pay check will be $39,99 a Month, more than 50% of which from his own direct selling.

Example 3:

  • A distributor buys or sells worth 10,000 USD a month and has a down-line of a million participants:
    • He will be rewarded e.g. 20 % commission for his sales, that makes 2,000 USD, and he will receive commissions and bonuses 1,999.99 USD from his down-line. Total pay check will be $3,999.99 a Month, more than 50% of which from his own direct selling.

One should be rewarded only for profitable distributors in one’s downline

Product-based Pyramid Schemes, or Recruiting MLM’s are inherently fraudulent and deceptive. Companies reward top distributors, in whose downline almost every one loses money. They should reward only those leaders, in whose downline most people make real money. (net profit or weight income) Now the companies reward king pin distributors by the losses of a huge dowline. This is unfair and dishonest and should be stopped.

Last modified April 29, 2007.

Sites in English about pyramid schemes and recruiting MLM’s

This document is posted on my web site at
http://www.pyramidihuijaus.fi/index.php/2021/04/17/anti-pyramid-law/

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