Network marketing, or Multi-Level Marketing (MLM), is a popular marketing strategy to deliver goods and services through sales by independent representatives and distributors, sometimes known as Independent Business Owners (IBOs).
According to the Direct Selling Association, over 16.2 million people were involved in direct selling in 2021, with U.S. retail sales of $42.7 Billion. With the COVID-19 pandemic, that number increased as people looked for alternatives to a conventional job. Over 75% of direct sellers in the U.S. are women.
MLM Companies are under attack!
Your company could be next! Read on to find our how and why!
September 7, 2022, marks a significant date in MLM history when a jury in a U.S. Court of the Western District of Kentucky convicted three defendants on multiple counts, including conspiracy to commit securities fraud and operating an illegal pyramid scheme. The defendants were the company CEO, his business partner and an Independent Business Owner. A second IBO pled guilty to one charge of securities fraud and testified against his friends of 30 years to avoid further prosecution and inprisonment. Two additional IBOs were indicted and are to be tried separately.
What makes this precedent-setting? Chief among many reversible errors, the Government selectively and maliciously prosecuted four IBOs under the theory of "conspiracy to securities commit fraud". The IBO should never have been tried with the owners of the corporation. She was not even an IBO for the first 6 months of the company's existence, was not in the top 5 income earners, and was a strong advocate for IBOs in the field. Not being severed from the case enabled the prosecution to enter into the trial record much evidence which solely applied to the company CEO and not relevant to the IBO's actions.
This case should send a warning shot around the MLM world. Innocent IBOs could possibly be held liable for the alleged and actual acts of their host MLM company. The Prosecution called it "deliberate ignorance" — the notion that IBOs should have known the company was operating an illegal pyramid scheme. <I need to check on the jury instruction in this regard. Nonetheless the jury heard the Prosecution's challenge to the Defense's point that the IBO was not aware of the all of the actions of company owner.>