The U.S Federal Trade Commission is thinking about tightening up the guideline on pyramid schemes.
The FTC is under lot of pressure from the U.S lawmakers and consumer groups to investigate Herbalife, the $5 billion MLM company.
The FTC has actually been reluctant to pursue Herbalife, due to the cost of going up against such a big, well-financed mlm company– particularly given the vagueness of the guidelines.
The key issue here is whether sales to MLM distributors count as retail sales.
This question is crucial because earnings from retail profits have to be greater than recruiting-related sales in any mlm company to prevent a mlm company being categorized as a pyramid scheme.
Earlier as per FTC rules, internal sales do count as retail sales but now FTC is rethinking on that.
Herbalife, which denies it is a pyramid scheme, stated that “many of our suppliers are just sale customers, and we have millions of non-distributor consumers in the United States as determined by research done by Nielsen.”.
Recently FTC closed down a smaller MLM company, Fortune Hi there– Tech Marketing because a bulk of its sales were not outside its distributor network.
Lot of people and activist have asked FTC to clarify their stand on the definition of ponzi scheme.
If the above rule of FTC is applied on all MLM companies then lot of big names will get into trouble. Internet Empower Network will also face the same situation, where Empower Network blog is 67% affiliates, 33% retail.