Is This A Pyramid Scheme?
If you are considering or ever have considered direct sales as a viable alternative to whatever you are currently doing, it would be a good idea to wrap your head around what is and is not a pyramid scheme or its cousin, a Ponzi scheme.  A few years ago, I was asked to consider a network marketing opportunity.  This was not the first time I had been asked whether I was open to such a venture and in each prior instance I said “no”-I actually said “NO!”  Come to think of it, I may have said, “HELL NO!” But that was long before I had, as part of my law practice, litigated whether or not a particular opportunity was a pyramid or Ponzi scheme.  Having acquainted myself with the law and even argued both sides of the issue on more than a couple of occasions, I was now, for the first time, open to the concept of network marketing.  Are you?  Be aware that one of the first questions you’ll get is, “Is this another one of them pyramid schemes?”

For pure levity, give a look at a great animated video by Pat Petrini:
It’s four and a half minutes of satire about the myths of network marketing. Enjoy…and when you’re finished consider some of the legal concepts that determine what is and is not a pyramid scheme and put your prospective opportunity to the same test I have put mine through.  I am a practicing attorney and a distributor and brand promoter for mynt, a new fresh direct sales company backed by a record setting billion dollar company known as Mona Vie.  Mynt had to pass the legal test in order for me to become involved, and at the end of this article, we’ll see how it fairs today.

So what exactly is a pyramid scheme and how is it distinguished from a legitimate business opportunity?  Great question, right?  Particularly when you consider some of the facts about the network marketing industry generally.  Did you know, for example, that 85% of women making over $100,000 per year do it in the network marketing industry?  And did you also know that during the most recent recession (2009-2011), the U.S. direct selling market grew faster than the overall U.S. economy; smaller direct selling companies (those with annual retail sales under $3 million) fared best with 66.7 percent showing growth, and an average retail sales increase of about 30 percent while overall nearly half of U.S. direct selling companies experienced sales growth and another 14 percent remained flat while the rest of the economy was suffering through these recessionary times.

The Direct Selling Association (DSA) released the results of its Annual Growth & Outlook Survey for the period reflecting the most difficult economic times since The Great Depression and it showed U.S. direct sales totaled $29.87 billion in 2011, a 4.6 percent year-over-year increase from $28.56 billion in 2010. The U.S. was ranked as the top direct selling market in the world with 20 percent of worldwide sales in 2011. Japan came in second with $23.9 billion (16 percent) followed by China with $16.3 billion (11 percent), South Korea at $12.8 billion (eight percent) and Brazil at $12 billion (eight percent). Global direct sales increased 10 percent from $139.7 billion in 2010 to $153.7 billion in 2011.  This is the continuation of a trend.  According a June Wall Street Journal article, between 2009 and 2011, the stock value of publicly traded network marketing companies increased a whopping 268%.  How did your 401k fare in the same time frame?

Pretty attractive industry and an industry everyone should consider, but how do you tell if the company you are considering is legitimate and not “…another one of them pyramid schemes…?”

Pyramid Scheme defined:  The US Federal Trade Commission considers a pyramid scheme to be   an illegal business structure in which recruitment of new members into the pyramid scheme is the main avenue for compensation for participants. In a pyramid scheme, people recruit others to join an organization or business opportunity for an initial fee. They are then compensated-either solely or substantially-with a portion of these recruitment fees and the future earnings of their recruits.

In re Amway Corp. is the landmark decision from the 1970’s, where the FTC distinguished an illegal pyramid from a legitimate multilevel marketing program.  From that case and its progeny we can glean the following relevant characteristics of a legitimate business.  First, the legitimate business will compensate distributors based on the flow of products, as opposed to merely marketing an opportunity. If a company is paying its distributors or consultants based on the number of recruits without regard to product flow,  that is likely a huge problem.  Secondly, if the company relies on significant up-front costs for their kits that feature little or no actual product and then compensates its distributors or consultants based on the disbursement of revenues from such recruitment fees, there is likely a problem with the company.   If you are being asked to buy large quantities of nonreturnable inventory (“front loading”) that could be a big problem.  If the products you are asked to market are sold at an exorbitant price that the market place could never bear, absent the alleged opportunity, there could be a real problem with the company you are considering.

Other factors from a survey of the cases suggest that a legitimate business will have a buy back policy that allows the unhappy distributor to sell back his/her unused marketable (unexpired) inventory for at least 90% of its cost and the compensation plan will feature a program designed to permit the distributor to be financially rewarded for retail sales.

So how does your company fair when put to the test?  I asked these questions of mynt before jumping in as a distributor/brand promoter and concluded mynt was not only legitimate but a very desirable company with which to be associated.  Let’s take a closer look and see how it fares.

First, does it rely on the recruitment of people or the sale of products?  Though a $39.95 fee is charged for a new distributor/brand promoter (and waived if a one month supply of product is purchased), that fee can reasonably be explained as the cost to the company of a new distributor getting started. More importantly, existing distributors are paid nothing for recruiting distributors, absent the flow of product.  Therefore, this fundamental characteristic of a pyramid is nowhere to be found in the mynt model.

Secondly, are products being offered that have a reasonable market value?  Mynt offers products related to stress management, energy drinks, and antioxidant beverages along with weight management products.  With the myriad of energy drinks and weight management products on the market, pricing in the marketplace is easily investigated.   Based on Fresh Direct, the Bureau of Labor Statistics and Forbes, the following price comparison on the mynt product line satisfies pricing concerns vis a vis the market place:

Mynt Weight Solution vs The Marketplace

Jenny Craig         $550

Nutrisystem          $454

Atkins Diet            $402

Weight Watchers $386

Zone Diet             $371

Amish Diet            $315

South Beach         $314

Slim Fast               $311

Mynt Core            $299

(Sources Forbes,Fresh Direct & Bureau of Labor Statistics)

Mynt’s EMV energy drinks retail for about $2.45 when purchased in small quantities.  The price when purchased in larger quantities can be reduced below $2.00 per can and when shared with others, the price can be driven as low as $1.88 per can.  A quick trip to the local Chevron revealed Red Bull at $2.67 per 8oz can-and the EMV is actually HEALTHY!  Mynt’s other products include the antioxidant juice blends and stress relieving teas.  In light of the unique ingredients and characteristics of those products, there are simply no comparables on the market with which to compare. For example, the MMun product is fueled by a product known as Wellmune, exclusively provided to mynt from a company called Biothera, thereby preventing a marketplace comparison.  And as to all the juice products in Mona Vie’s line, mynt has secured patents on its process, ensuring cell penetration and signifying a unique addition to the marketplace which no other product can achieve.  Hence, mynt offers products priced appropriately for the marketplace.

Mynt has invested and continues to invest millions of dollars in research and science to support its product line and these double blind, placebo controlled studies back up the unique claims mynt can make about its products.  Moreover, many if not most of the studies have been presented in peer reviewed scientific journals and the studies have been presented at major science conventions across the country.   Mynt also has a satisfaction guaranteed policy spelled out in its policies and procedures.

As for return policies, mynt has two such policies, one for existing distributors/brand promoters and another for distributors/brand promoters who are electing to terminate their distributorship.  Both can be found in addendum B to the Policies and Procedures and both permit the return of marketable inventory for 90% of its price within a reasonable time frame.

As for retail sales, arguably mynt’s most lucrative portion of the pay plan is reserved for retail sales.  The program is called the Preferred Customer program and offers distributors/ brand promoters an enhanced incentive to sell product to customers at retail.

Is mynt the perfect network marketing company?  It’s may not be for everyone, but it cannot be reasonably argued that mynt is “…another one of them pyramid schemes.”

Mike McCormick, Esq.