Deceptive Income Claims – How Not to Market Your MLM, Ponzi Schemes
When promoting the business opportunity, multilevel marketing (MLM) companies and their distributors should generally avoid making any income claims. Why? Because most MLM distributors make little to no money, and touting the possibility of making bank is just plain deceptive.
 
The law on income representations is really pretty simple: one cannot make an income claim that is not representative of what a typical distributor will earn. (Note: what the typical distributor earns is not the same as average earnings.) As a general matter, the typical distributor earns nothing – especially after taking expenses and costs into consideration – so most MLM income representations will violate FTC law.
 
In 2016, former FTC Chairwoman Edith Ramirez explained that:
 
multi-level marketers should stop presenting business opportunities as a way for individuals to quit their jobs, earn thousands of dollars a month, make career-level income, or get rich because in reality, very few participants … do have success of this type, testimonials from these rare individuals are likely to be misleading because participants generally do not realize similar incomes.
 
That means that even truthful testimonials from top-earning distributors are not acceptable. About three months after Ramirez’s statement, in January 2017, the FTC cautioned that (emphasis in original):
 
it’s unwise for MLMs to make earnings claims – expressly or by implication – that don’t reflect what typical participants achieve.
 
Since then, in January 2019, the Direct Selling Association (DSA) in conjunction with the BBB National Programs launched the Direct Selling Self-Regulatory Council (DSSRC), which primarily monitors the direct selling channel for inappropriate product and income claims. In July 2020, the DSSRC issued Guidance on Earnings Claims to “ensure all representations made by direct-selling companies or members of their salesforce comply with legal and self-regulatory standards.”
 
Further, since the COVID-19 pandemic the FTC has sent more than 10 warning letters to MLM companies concerning deceptive earnings representations. In those letters the FTC has noted that “claims about the potential to achieve a wealthy lifestyle, career-level income, or significant income are false or misleading if business opportunity participants generally do not achieve such results.”
 
Below is a compilation of misleading income claims derived from FTC letters, decisions, statements and guidelines, as well as DSSRC guidance and decisions. It is an authoritative list of unlawful income representations used to promote MLM businesses. While direct selling companies and their distributors should avoid making atypical income claims altogether, the following language and visual imagery is sure to get those using them in trouble:
 
participants can be “set for life
you can “quit your job,” “fire your boss” or “retire from your job
make more money than you ever have imagined or thought possible
earn millions of dollars, “creating millionaires
become a stay-at-home parent
images of large checks (both in size and amount)
pay off debt or student loans
“Connect with me to talk about earning $500-$1500 a month from home.”
“turn a small investment into six figures
made $100 yesterday just by following the plan”
retire
have the time and money to enjoy the finer things in life
images of a lavish lifestyle including but not limited to expensive houses and opulent mansions, luxury or exotic cars, private helicopters and jets, yachts and expensive vacations
 
While some income and lifestyle claims may be permissible if they are accompanied by a clear and conspicuous disclaimer indicating what the typical distributor earns, many of the examples above highlight wealth that is so extraordinary that they cannot be effectively qualified by a disclosure of generally expected results. Which brings us back to where we started:
 
MLMs and their distributors should generally not make income representations when promoting the business opportunity.
 
For more of TINA.org’s coverage of MLMs and income claims, click here.
 
 
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    COMMENTS

    Ramesh Popat

    1 week ago

    India is in no way much behind!

    Bike Boat Ponzi Scheme: Two held for duping investors of Rs42,000 crore
    Two persons have been arrested on the charge of cheating people out of approximately Rs 42,000 crore in different states on the pretext of good returns through a ponzi scheme 'Bike Boat', Delhi Police said on Friday.
     
    The Economic Offence Wing arrested CMD Sanjay Bhati and Director Rajesh Bhardwaj of M/S Garvit Innovative Promoters Ltd, who induced their victims to invest Rs 62,000 for a two-wheeler for an assured return of Rs 9,500 per month, including the principal amount and rental income on the bike, for one year.
     
    They duped a number of people who invested their hard-earned money in this scheme. In January 2019, the company also launched the e-bike scheme, wherein an investment of Rs 1.24 lakh for a motorcycle would get a return of Rs 17,000 per month for one year.
     
    The accused initially paid the assured amount to the investors to win their trust, but later defaulted on payments and absconded.
     
    Many cases stand registered in Uttar Pradesh and other states on the basis of complaints by their victims. A number of persons had filed police complaints against Bhati, whose company had a registered office at Plot No. 1, Chiti, Dadri, Gautam Buddh Nagar district, Uttar Pradesh.
     
    "During the course of investigation, we found that approximately 8,000 complainants from Delhi were cheated out of around Rs 250 crore. The Reserve Bank of India had informed us that the said firm was not registered with the apex bank as a NBFC and thus not authorised to collect money from the public," said OP Mishra, Joint Commissioner of Police (EOW).
     
    The EOW said that the number of properties worth hundreds of crores of rupees connected to the case were identified and a verification of the same was on. It further said that the Directorate of Enforcement, Lucknow Zonal office, was investigating this case.
     
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    sureshnair.trivandrum

    2 weeks ago

    Rs 42000 crores! I think you got the figures wrong! Simply not possible!

    ED chargesheets 12 people in 12-yr-old Gold Sukh Trade Ponzi scam
    The Enforcement Directorate (ED) has filed a chargesheet against 12 persons in a multi level marketing and ponzi scheme fraud case in which 1,18,288 investors were duped of over Rs 215 crore during 2008-2011.
     
    City-based Gold Sukh Trade India Ltd, its sister concern Gold Sukh Corporation Ltd and its directors Narendra Singh, Mahendra Kumar Nirwan, Manvendra Pratap Singh Chauhan, Pramod alias Bablu Sharma and others were charged.
     
    The family members of the accused and other shareholders were also named in the chargesheet. The company and its directors, their relatives, shareholders, and team leaders had laundered money generated from the offences, and invested these amounts into various bank accounts for acquisition of immovable properties, foreign currencies, the ED said. As per the agency, the investments were made for the purpose of layering and integration so as to project the "proceeds of crime as untainted".
     
    The ED took up the investigation of the case under Prevention of Money Laundering Act (PMLA) on the basis of nine FIRs registered by the Vidhayakpuri police station against Gold Sukh Trade India Ltd its directors, shareholders and team leader for mobilising public deposits during the period from 2008-09 to 2010-11. The state police has filed chargesheets and supplementary chargesheets against the accused persons under Indian Penal Code (IPC) and Prize Chit and Money Circulation Scheme (Banning) Act, 1978.
     
    During investigation, the ED has already attached movable and immovable properties worth Rs 3.06 crore in connection with the case.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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