August 5, 2014

Ms. Edith Ramirez

Chair
Federal Trade Commision
600 enns!l"ania A"enue, #$
$ashington, %C 205&0
%ear Ms. Ramirez'
Re' (er)ali*e, M+M, and regulator! o,tions
This is an o,en letter, that - am simultaneousl! ,u)lishing here'
htt,'..///.s0ri)d.0om.do0.215222012.FTC3(er)ali*e3M+M3
4,en+etter
My MLM-qualifications
5! /a! o* )a06ground in*ormation, - /ould li6e to o**er that - ha"e
)een a da))ler in the M+M )usiness sin0e 12&2, /hile - /ent )a06 to
0ollege ,art3time, and mostl! struggled to *igure out /hat /as right
and /rong in the )usiness. - /as introdu0ed to the 0on0e,t in 12&2
)! m! a00ountant at the time, /ho had a 0lient /ho /as "er!
su00ess*ul in #u76in. A*ter doing m! due diligen0e, - de0lined, -
thought it /as an o)"ious s0am. -n 1221 a *riend tried to get me into
Am/a!. - did m! due diligen0e *or si8 months, *igured out the tools
s0am, and de0lined. - e"aluated man! other deals, 9oined some
0om,anies, made a little mone! here and there, )ut usuall! ,ulled
Rogier Fentener van Vlissingen
Starling Gardens #404, 2141 Starling Ave Bronx,NY 10462
P. 917!4909!9 vlis"on#$g%ail."o%
3 2 3
out /hene"er - 0on0luded that 0om,anies /ere either illegal or
unethi0al, or )oth. - got to 6no/ M+M trainers, la/!ers, and
0onsultants. -n the mid 20:s - )e0ame a user o* a health ,rodu0t /hi0h
/as mar6eted /ith M+M, and - signed u, a *e/ users, )ut did not
)other /ith the )usiness, )ut - used the ,rodu0t *or !ears. - *ound
their mar6eting ,rogram re,ulsi"e. -n 1222 - de"elo,ed an M+M
mar6eting ,rogram *or a 0om,an!, /hose ,rodu0t lent itsel* ideall!
/ell to ,erson3to3,erson mar6eting, tr!ing m! )est to 0onstru0t a
,lan that /as not going to gi"e o**ense. The 0om,an! /as not
laun0hed, )ut /or6ing /ith Rod Coo6 as a 0onsultant /as "er!
edu0ational. 7in0e then, -:"e e8,lored a *e/ more deals, and usuall!
,ulled out /hen - sa/ regulator! issues, in one 0ase /arning m!
grou, to ,ull out si8 months )e*ore a shutdo/n, onl! 1 months a*ter
getting in"ol"ed. A*ter that -:"e mostl! ad"ised *riends to sta! a/a!
*rom M+M. - /as )rie*l! in the energ! industr! in 2006.;, laun0hing
a green ,o/er mar6eting ,rogram *or one 0om,an!, and on0e - le*t -
/as ,it0hed )! energ! M+Ms then starting u,, su0h as Am)it,
<iridian, et0. - *ound their ,rograms to )e o)"ious ,!ramid s0hemes,
and sta!ed a/a!. resentl!, there is a 0lass a0tion 0um R-C4 suit
going on against -gnite.7tream, /hi0h ma! esta)lish e8a0tl! that
these =,a! to ,la!= 0om,anies are illegal ,!ramids. +ater, - *ound a
0om,an! that mar6eted green energ! as a *ree re*erral s!stem, and -
li6ed that, so - 9oined. 7in0e then it has )een the de"elo,ments
around (er)ali*e /hi0h ha"e ,rom,ted me to re"isit /hat industr!
6no/ledge - ha"e, and - ha"e )een ,u)lishing a)out it on
///.see6ingal,ha.0om.
5esides m! o/n e8,erien0e o* /riting these arti0les, /hi0h /as
triggered )! 5ill A06man:s "er! ,u)li0 short ,osition, it /as the
su)se>uent dis0o"er! o* the )oo6 Downline... intolerable potential to
deceive, )! E. Ro)ert 7mith, /hi0h made me thin6 that the time has
3 1 3
0ome to radi0all! sanitize this industr!, and to ho,e that !our agen0!
has the *ortitude to do so. - thin6 it is mu0h sim,ler than it seems at
the sur*a0e.
Outlook
- am in0lined not to thin6 o* all M+M as e"il, nor do - thin6 that
?,!ramid s0heme@ 0a,tures the nature o* the ,ro)lem, and ,erha,s
the term has 0aused more ,ro)lems than it sol"es. - am in0lined to
)elie"e that there are 0ertain ,rodu0ts and ser"i0es that lend
themsel"es to ,erson3to3,erson selling, and /ould )ene*it *rom a
/or6a)le legal *rame/or6, /hi0h /e donAt ha"e toda!. M!
suggestions are onl! suggestions, mostl! this started /ith an arti0le -
,u)lished here' htt,'..see6ingal,ha.0om.arti0le.21&14253her)ali*e3
/hat3the3*t03has3to3/or63/ith. -t /as a res,onse *rom a reader that
suggested - send the arti0le to !ou, and - de0ided it merited some
e8,ansion *or that ,ur,ose.
Suggesting Regulatory Options, and some issues
1. Ma!)e the :,!ramid: is not the ,ro)lem, )ut the *raud is. -n
short, - )elie"e that the *oundational *raud o* all M+M, as it is
,ra0ti0ed toda!, is the *alse ,romise o* an :unlimited in0ome
o,,ortunit!: to an unlimited num)er o* ,eo,le, on a non3
e80lusi"e )asis. -n other /ords, the 0om,an! retains the right it
sells to !ou, and !ou ha"e the unlimited right to sell that right
to others. -t is a *raud, sim,l! )e0ause it assumes that mar6ets
are in*inite, /hen e"identl! the! are not. - ha"e /ritten a)out
this issue here' htt,'..see6ingal,ha.0om.arti0le.22462513
her)ali*e3nailing3,!ramids3to3a3tree.
2. The *undamentall! *raudulent )usiness ,ro,osition then sets
3 4 3
u, a ,redator! *renz! /hi0h results in l!ing. -t sur*a0es as *alse
in0ome 0laims, and o*ten times also *alse ,rodu0t 0laims. 5ut
then en*or0ement a0tions *ollo/, and ,eo,le learn to ma6e onl!
a00urate in0ome 0laims or none at all, and the! still hide the
*a0t that there are also )usiness e8,enses, )oth time and mone!
Bthe! onl! tal6 a)out gross, ne"er net in0ome. 5ut the a00urate
in0ome 0laims are themsel"es the ,ro)lem )e0ause o* the
underl!ing statisti0al realities. The t!,i0al M+M ,rogram is set
u, /ith a *e/ =*ounding= distri)utors /ho re0ruit all the rest,
so it a0ts li6e a 0riminal 0ons,ira0!, no di**erent *rom a game o*
three30ard monte on the street 0orner, /ith the so30alled
:leaders,: )eing in e**e0t the shills. The lie at this le"el is' =-* - 0an
do it Cor, i* so and so 0an do itD, so 0an !ou,= /hen the o,,osite
is true. And the o,,osite is true in general )e0ause again
mar6ets are not in*inite. The e80e,tions merel! 0on*irm the
rule. Thus earnings dis0losures are a ste, in the right dire0tion,
)ut the! are not enough, )e0ause o* e**e0ts o* the ine"ita)le
saturation.
1. There ma! )e merit in the 0on0e,t o* :inde,endent
distri)utorshi,s,: as mu0h as there is merit in a ,art time
)usiness, and a :se0ond in0ome,: *or man! ,eo,le at di**erent
times in their li*e, or e"en i* it is ,urel! )e0ause the! are the *an
o* a ,rodu0t. (o/e"er, the legal lia)ilities that 0om,anies
0ontra0t out o* )! these means should )e 0onsidered, and )e
,rohi)ited in ,rin0i,le, *or the ,art3timer does not ha"e the
legal means to do a ,ro,er due diligen0e. $ithholding material
in*ormation *rom re,resentati"es should )e 0riminal. And there
should )e ,rote0tions against 0om,anies selling out
distri)utors /ho /ere ,romised a :li*etime: residual in0ome,
in0luding against )ringing in ne/ :leaders: ahead o* other re,s,
3 5 3
o*ten /ith ma9or 0on0essions or outright ,a!ment. For0ed
dis0losures should )e used in this area, gi"ing distri)utors a
0ourse o* a0tion i* 0om,anies 0heat them. This is all ,art o*
0onsumer ,rote0tion.
4. The misre,resentations tend to ,osition a ,art3time in0ome
o,,ortunit!, *or some 0o**ee mone! or /hate"er, as a *ull3time
in0ome o,,ortunit!, on the strength o* the statisti0al lie that
some ,eo,le ha"e made it a *ull3time in0ome. Com,anies
should )e limited to non3de0e,ti"e, honest ,romotion, and the
easiest /a! to ,re"ent that is to re>uire ado,tion o* the R54R,
)ut on to, o* that to re>uire some *orm o* an on3line
>uali*i0ation test *or ,arti0i,ants, :mem)ers,: or
:re,resentati"es,: /hi0h ensures that re0ruits understand the
,rodu0ts the! re,resent, and the 0laims the! 0an and 0annot
ma6e and /h!, and understand s,e*i0all! /hat )usiness
o,,ortunit! 0laims the! 0annot ma6e Cand /h!ED, and their
lia)ilit! i* the! do.
5. E0onomi0s /ill /or6. Fnder trans,aren0! 0om,anies /ill )e
*or0ed to s,read the /ealth more, as some 0om,anies are
alread! tr!ing to do, though in most 0ases the! ha"e not
eliminated the *oundational lie o* unlimited in0ome. This in
and o* itsel* /ill 0olla,se the num)er o* le"els in the ,!ramid,
and i* m! suggestion is *ollo/ed to allo/ ,re*erred 0ustomers
onl! a month Ca*ter the e8,iration o* one /ee6D, to de0ide i*
the! /ant to )e a re,, the energ! o* endless 0hain re0ruiting
/ill )e )ro6en. -* trans,aren0! and some )asi0 distri)utor
,rote0tions are made mandator! Cas suggested in m! arti0leD,
0om,anies /ill need to s,read the 0om,ensation more e"enl!,
so that it does not )e0ome a ,ure re0ruiting game.
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6. 7ome *orm o* regulating the relationsi, o* re,s to the
0om,anies is desira)le, )e0ause a)usi"e )usiness ,ra0ti0es set
o** a)usi"e )eha"ior. - 0ould )est illustrate this *rom m!
e8,erien0e in the deregulated energ! industr!, /here the
,u)li0 ser"i0e 0ommission does tr! to esta)lish an ethi0s 0ode
that 0om,anies sign on to, )ut onl! on0e did - see a 0om,an!
eliminate an in0enti"e ,rogram that 0aused ,eo,le to "iolate
those ethi0s 0odes Cand that /as an M+M 0om,an!ED. Most o*
the time in0enti"e stru0tures /ere su0h that he /ho lies the
most /ins, and 0om,anies silentl! endorsed it and re/arded it,
/hile ,u)li0l! ad"o0ating the o,,osite. Again, this results *rom
a *ree *or all en"ironment, /here 0om,anies ha"e little 0han0e
to distinguish themsel"es *rom their 0om,etitors. The FTC ma!
/ish to 0onsider some o* the suggestions - ma6e in m! arti0le
in this area.
;. The 0entral ,ro)lem remains to atta06 the ,ro)lem at its 0ore,
the *oundational lies, the 0ore )eha"iors, as suggested in m!
arti0le. Regulating ,ro8ies *or the real ,ro)lem onl! *osters
/or63arounds. Core issues are that the ,rodu0t selling the
o,,ortunit! is ,rima *a0ie *air, and the o,,ortunit! selling the
,rodu0t is ,rima *a0ie e"iden0e o* a mone! game.
&. +i6e/ise the retail >uestion is e0onomi0all! sensi)le'
unen0um)ered retail sales outside the net/or6 do ,ro"e that
the ,rodu0t ,ro"ides good "alue. (o/e"er it ma! "ar! /ith
the ,rodu0t ho/ mu0h retail is reasona)le. - am 0urrentl!
in"ol"ed in a *ree re*erral ,rogram, /here -:"e re*erred o"er 60
,eo,le in m! *irst !ear, )ut onl! one ,erson e"er re*erred more
than 10 ,eo,le. Most do nothing, and a *e/ re*er one or t/o. -n
short, - ha"e ,ra0ti0all! onl! retail 0ustomers. This e8,erien0e
3 ; 3
/ould seem to demonstrate /h! it is su0h a ri,o** *or M+M
0om,anies to sell o,,ortunities *or serious mone!.
2. There is a ,re"alent )usiness model in the industr! that
in"ol"es u,3*ront *ees o* u, to G422 Ctr!ing to sta! )elo/ the
line o* the *ran0hise la/sD, /ith monthl! :maintenan0e: 0osts,
and annual :rene/als,: /hi0h are an e"ident end3run around
the *ran0hise la/s, )e0ause the! saddle the ,ros,e0t /ith u, to
G1,000 or G1,500 in out o* ,o06et *ees in their *irst !ear alone,
/hi0h in 2 out o* 10 0ases are a loss, as o"er 20H ne"er rene/
a*ter the *irst !ear. An! )usiness e8,enses, and time and good
/ill.re,utation in"ested are an additional loss.
10.The e8isting, re0ruiting *o0used, M+M3)usiness model does not
0reate long term )usiness sta)ilit!, it reall! is a raid o* the
masses o* 0lueless ho,e*uls )! a hand *ul o* 0!ni0al
0ons,irators, and 0onstru0ti"e regulation /ill onl! im,ro"e the
0han0es o* sta)ilit!, to the )ene*it o* all. M! suggestions herein
are to *o0us on regulating the me0hanisms that dri"e the
a)usi"e ,ra0ti0es, not so mu0h the *orm o* the ,ra0ti0es ,er se,
lest /or63arounds ,re"ail on0e more, as 15 !ears o* toothless
0ase la/ has ,ro"en. +a/!ers /ill al/a!s *ind /a!s to 6ill the
s,irit o* the la/ )! honoring the letter o* the la/. -t is o* the
essen0e that an! ne/ regulations go to the heart o* the matter,
and not to merel! *ighting the s!m,toms.
-n 0on0lusion, - /ould li6e to suggest that 7ee6ing Al,ha has )e0ome
a treasure tro"e o* argumentation ,ro and 0on. lease do not ignore
it. A lot o* anal!ti0al /or6 has )een ,resented there )! ,eo,le on all
sides o* the argument. #eedless to sa! there are other "alua)le on3
line resour0es as /ell, )ut )e0ause (er)ali*e is ,u)li0 this site is
3 & 3
,la!ing an outsize role in the ,u)li0 dis0ourse.
- ho,e the a)o"e ma! )e hel,*ul in !our /or6 to de"elo, /a!s o*
dealing /ith this industr! in a 0onstru0ti"e *ashion, )earing in mind
!our ,rimar! res,onsi)ilit! in 0onsumer ,rote0tion.
7in0erel! !ours,
0.0. Ms Iessi0a Ri0h, %ire0tor, 5ureau o* Consumer rodu0tion, FTC