Interesting info on questionable MLM payplans

Someone recently brought to my attention something that I thought was kind of fishy, but I didn't have much information on it (and I'm still looking for more info, actually) on what's known as the Aussie 2up payplan, associated with some MLM scams. Now, there's a lot of different types of payplans used in MLM--too many to sit here and try to define for everyone--but certain ones stand out, and are associated with questionable businesses (and businesses that have already gone under using this type of payplan).

Anyone here ever hear of Rod Cook? He's the guy that runs the MLM Watchdog site (a site that's very pro-MLM, but they watch closely for scams in the industry). He also recently released a book called, "MLM Laws--Federal and State Plus
the History of the Industry".

Anyhow, an Aussie 2-up payplan is where you're passing up your first two sales to your upline....and he wrote a little article about this type of payplan and he says these types of payplans are used in scam businesses:

http://www.mlmwatchdog.com/RC_Aussie2Up.html

Len Clements, owner of Marketwave.com and also an expert in the MLM industry, (they call him to testify in courts as an expert) had a post on his board regarding the 2up payplan businesses:

"This is an interesting and educational thread, but alas, I think you guys are fighting a losing battle. When you're debating with someone that they sky is blue, and they say it's green, and you take them outside and show them the sky, then they look back at you and say, "See, I told you it was green!" - it's time to move on.

But I'll take my best shot.

First, kudos to Kent and Fred. There's actually not a lot I can add, and I concur with your points (and yes, I have reviewed the MIM program).

The scheme is very similar, and in some cases virtually identical, to schemes like Investors International, Delphin, Global Prosperity, Pinnacle Quest, Le Club Priv, and many more, most of which have been shut down.

Check out what happened to Global Prosperity at http://www.quatloos.com/groups/gpg.htm and what the Canadian authorities think at http://grc.ca/scams/investint_e.htm.

So we can debate if and why schemes like this are illegal forever, but the bottom line is that state and federal regulators have already rang in on this: And they say it's illegal.

We can play semantic games with this all day, but clearly you have to recruit more people who not only buy the program, but fully intend to try to sell it to at least two, and ideally five, others. And I can clearly make money from the purchase by someone who was enrolled by someone I enrolled - that's TWO levels. By every definition (legal and dictionary) that's MULTIPLE levels. And the presence of a product, even one of arguable value, has never protected a company from being sued by regulators. Equinox and Jewelway had great products, yet were shut down as illegal pyramid schemes. What regulators look for is the *motive* for buying the product. If the majority of participants are buying the product because they have to to make money, and would otherwise have never purchased the product, it would create a huge target on the head of the company (or founder, or yes, even participants!). It seems pretty obvious to me that very few people would pay $499 for this information in a vacuum (if there was no way to make money).

And yes, the two-up comp plan (or one-up in this case) is a borderline scam all on it's own. With MIM, once you have 5 sales you get the first sale of your last 4. So that means after 30 sales (your 5 x their 5) you've gotten paid on 8 of them and earned zero on the other 22. And there's another huge, but well hidden, hole here. Is your 2nd or 3rd sale going to wait until you've made 5 sales before they make their first one? Of course not. Your 2nd person will try to make their first sale ASAP, and if you don't have 5 yet you don't qualify for the roll up of the $400. Where does that money go? I see no language anywhere that indicates there's a roll up or compression feature here. If it's breakage to the company, that's going to be HUGE breakage.

Finally, this is a one time sale. The only way to keep making money is to generate a never ending stream of sales to a never ending stream of buyers - unlike a legitimate MLM company where one customer of a consumable product can earn you residuals for life."
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Gerald Nehra, an MLM attorney, has a MLM Legality test on his site at
http://www.mlmatty.com that points out an interesting thing about legal MLMs--the bottom line, you have to have a product that can be sold WITHOUT sponsoring someone into the business--and how that makes it legal.

MLMLaw.com has a very good article about payplans and deceptive trade practices in MLM: http://www.mlmlaw.com/mlm-deceptive-trade-practices.html

And here are some internet fraud tips to help you avoid being scammed, from the National Consumers League: http://www.fraud.org/tips/internet/pyramid.htm

THIS is WHY... you MUST do your due diligence when looking at business opportunities, MLM or otherwise. Don't fall for the hype.