THE BIZOP NEWS

Kim Klaver has an interesting post about network marketing,

New School Network Marketing by Kim Klaver: "They don't want weasel words or fine print."

Hmm. Does that mean, when selling the business opportunity, that we should stop leading with the images of the guy in the Armani suit with the fancy sports car and big house?

And at the bottom of the page, in very small print, they get the weasel language (AKA disclaimer): Results not typical. Results depend entirely on your own efforts. Results not typical. Results not typical. Results not typical. Results not typical. Results not typical.Results not typical.Results not typical...

The proposed new FTC Business Opportunity Rule would take care of this problem in the following manner.

1. The picture of the "the guy in the Armani suit with the fancy sports car and big house" would be be an "earnings claims".

2. Since the income opportunity was making an earnings claim, no matter how much it cost to purchase the opportunity, would require the seller to give the purchaser a one or two page disclosure document.

3. Few sellers will realize this, and if there are sufficient complaints, the FTC will have the ability to shut down network marketing opportunities the same way that the close down business opportunity frauds.

Win/win.

Posted by michael webster at 6:15 AM | Permalink | Comments (0) | TrackBacks (0)

Whose on First At USANA? Over at Bloggingstocks, Zac writes"

"In just the past few months, Usana Health Sciences (NASDAQ: USNA) has had more scandals surrounding biographical errors than any company or organization that I can think of. Take a look:

Denis Waitley, a director at the company, decided not to stand for re-election after investigator Barry Minkow uncovered that the PhD listed in his biography came from a long-defunct diploma mill. He also does not possess a Master's degree, although one was reported in numerous SEC filings.

Dr. Timothy Wood, Vice President of Research and Development at the company, claimed to have a PhD in biology, but it's actually in forestry, which seems less relevant at a company that makes nutritional supplements.

Myron Wentz, the company's founder and Chairman, renounced his U.S. citizenship to "move" to the tax haven of Lichtenstein.

And now, according to the Wall Street Journal, Dr. Ladd McNamara has left the company's medical advisory board after it was discovered that he no longer has a medical license. A Usana spokesman said that McNamara surrendered his license in Georgia in 2004 in response to allegations that he improperly prescribed medication to a family member. He also agreed to a lifetime ban from practicing medicine in Ohio."

After awhile this casual attitude to the truth, and statements being made to the public, must start one to wonder just what else USANA is fibbing about? You cannot simply continue to have your board members either resign, not stand for re-election, because they have materially misrepresented who and what they are without the public beginning to wonder how much truth or not there is to your other statements.

Posted by michael webster at 9:46 PM | Permalink | Comments (6) | TrackBacks (0)

New School Network Marketing by Kim Klaver: Affirmations: delusions for sale?

The short answer is: never. Misrepresenting your income level to prospectives is actionable misleading advertising. It is called being a "shill". You have no reasonable basis for your earnings representation, and so you cannot "affirm" it to the public.

Affirmations are perfectly fine, indeed the ability to contract with your future self is a well known device.

The Nobel Prize winner, Thomas Schelling, contracted with himself to give up smoking. The contract device worked and Schelling gave up smoking.

Not all public affirmations of commitment will succeed. But there is a clear legal difference between an affirmation which is forward looking - I will make $10,000 a month and an affirmation which is not - I am making $10,000 a month.

The former cannot be relied upon, legally. While the latter could well be a representation forming the basis of a lawsuit for negligent misrepresentation.

It may be acceptable to trick yourself for reasons of self-improvement, but it is actionable to trick other people.

Posted by michael webster at 7:45 PM | Permalink | Comments (0) | TrackBacks (0)

A little over two years ago, Edward Teach wrote a nice little piece summarizing some of what we know about heuristics or rules of thumbs we use to make sense out of a confusing and contradictory world. Some of the experimental results appear to be quite odd.

For example, "Dan Ariely, professor of management science at MIT Sloan School of Management, conducted a mock auction with his MBA students. He asked students to write down the last two digits of their Social Security numbers, and then submit bids on such items as bottles of wine and chocolate. The half of the group with higher two-digit numbers bid "between 60 percent and 120 percent more" on the items, says Ariely." (my emphasis) Professor Ariely's webpage is here.

Anchoring on irrelevant or inaccurate data is prevalent. According to Ariely, "People don't know how much something is worth to them," he comments. An anchor helps them decide. Once a value is set, people are good at setting relative values, Ariely explains. But "it's very hard to figure out what the fundamental value of something is," he adds, whether it's an accounting system, a company's stock, or a CEO."

What does anchoring have to do with the new FTC Biz Op Rule?

Proposed section 437.4 c of the new FTC Biz Op Rule deals with the use of industry standards, such as the number of "vends per day". Business Opportunity sellers would not be able to use these statistics, unless the seller has "written substantiation that the industry standards are representative of the typical biz op purchaser." It is interesting that the FTC is alive to the abuse of this heuristic, but does not understand how the commitment heuristic will overwhelm the seven day cooling off period. We can only hope that the FTC will take the lead from California and publish the business opportunities disclosure documents.

Posted by michael webster at 6:56 AM | Permalink | Comments (0) | TrackBacks (0)

USANA is not only being scrutinized by the FDI. "USANA looks worse now" is Kim Klaver's conclusion after reviewing FDI's interview of some USANA recruits, her blog is at New School of Network Marketing by Kim Klaver.

Many of the commentators do not share Ms. Klaver's conclusion, viz. that it is wrong to emphasize to a prospect that they need to recruit.

Here is a sample of some of the comments.

"I have to laugh when I see these types of interviews. Especially the quote "Jane lost $5,000" Pity Barry Minkow didn't think it was important to qualify that statement! I guess when one is trying to make a compelling interview, one should never let the facts interfear with a good story.

May I suggest that Jane paid $5,000 and in return received $5,000 worth of a quality nutrutional supplements."

Obviously this commentator takes a broad view of fraud. To invest in a business opportunity and then be told you must have got value because you have some supplements in your closet.

"Yes, the opportunity is misrepresented. What is Jane's responsibility in this? What about due diligence?

There are two sides to the story. People fall victim to this because they are looking for a get rich quick scheme."

Here is another odd response. The commentator appears not to understand that the modern legal view is that if an income earning opportunity is mispresented to the public and that mispresentation is the cause of the loss, then reliance is not an element that needs to be proved. This makes sense, we don't require individuals to perform due diligence on the level of detecting fraud.

I believe that Ms. Klaver agrees in part with my analysis as she says:

"How would Jane know? How does anyone who has no business experience know to even DO due diligence? And remember the neighbor is doing it, too - so there's the added peer pressure.

That's why I wrote that they look like predators. Hitting on prey that are no match. Of course people SHOULD do due diligence. But many don't even know they should, until it's too late. They have no previous business experience."

This example is why the Direct Sellers Association ought get behind the FTC's Business Opportunity Rule so that they can point out, objectively, that the purchaser had the necessary information to perform due diligence.

Posted by michael webster at 11:14 AM | Permalink | Comments (0) | TrackBacks (0)

Barry Minkow and his researchers have brought to the forefront a number of serious issues which impact public companies which have network marketing as their business model.

Avon, Herbalife, Immunotech, Nu Skin, and Tupperware are public companies which use network marketing as the primary method of distributing their products.

Minkow and his researchers are asking a very simple question. If a public MLM company reports that it has X distributors working for it, then how do we calculate the value of this work force? We need to know the turnover rate of the distributors, how many are actually selling, and the average sales for each distributor, excluding their personal use.

USANA has reported that according to their internal survey, done 2 years ago, only 25% of its "distributors" actually join to sell the product. This should be of some concern, given the that the USANA website is largely devoted to expounding on the benefits of running a USANA business.

Importantly, for public disclosure, as Minkow in his response notes that "Moreover, this 75% statistic is found nowhere in Usana’s 10‐Ks or 10‐Qs, and has only been reintroduced because it appears to serve as a mitigating factor to failure and collapse rates that the company can no longer conceal based on the findings of our report. "

The USANA report is very important, even if it only comprised 48,000 distributors. We need to know exactly what questions were asked, the purpose of the survey, and whether other surveys of this nature were undertaken.

But taken on its face, USANA's admission that only 25% of its work forces is actually selling product is stunning. Imagine having a company in which only 25% of the workforce shows up to work.

If 75% of USANA's distributors are not selling product to customers, then why report them as distributors at all? Wouldn't the accurate figure be material to investors? Do analysts care about this material fact?

Well, at the recent conference call with analysts, Zac Bissionette reports "Fast-forward to Wednesday's conference call. Every question asked seemed to have a bullish slant, and assumed that the company was innocent. Questions centered around whether the company has seen an impact on sales from Minkow's report, and whether the company saw this as an opportunity to buy back more shares. I spoke with Barry Minkow about the conference call and he said, "I don't believe one thing they say" and also pointed out that "There was not one tough question allowed to be asked during the conference call."

Tracy Coenen has taken the trouble to illuminate in great detail her concerns about the entire USANA telephone conference with analysts. But, I would remain focussed on the essential question for all these public MLM companies: how many distributors do you have that are working at a business and how long on average do they work selling?

Posted by michael webster at 6:59 PM | Permalink | Comments (0) | TrackBacks (0)

In some ways, this an easy question. If a distributor simply lies about about how much they make to sell you the opportunity that is misleading. This recently seemed to happen over at pink truth, in which a Mary Kay distributor's claim of six figure income was shown to be inaccurate.

But in other cases, it is more difficult. Consider Nu Skin, for example.

In 1994, the FTC obtained an order against Nu Skin International which

"prohibits the respondents from misrepresenting the earnings, profits or sales of anyone participating in a sales or distribution plan. It also requires them to disclose clearly and conspicuously in conjunction with any future earnings claim they make both the average earnings of all distributors and the percentage of those distributors who actually achieved the claimed earnings." (my emphasis)

What does Nu Skin disclose about its business opportunity? From their website, we have the following:

While the disclaimer is useful, consider the last line. "The company currently provides neither an estimate of average income from retail sales nor includes distributor retail income in its average commission information."

Think about this. You are selling product, but your wholesaler doesn't know or won't tell you how much money that you will even gross by selling the product retail. What is the reason for this? "Distributors are free to set their own selling price and may personally consume some of the products they purchase." That isn't a reason not disclose or estimate how much money distributors make selling the product retail. Ask the distributor - "how much money did you make selling our product?" We might want to raise or lower our prices based upon perceived demand. Can you imagine that Coke has no idea or estimation about what its bottlers gross retail sales are? Or does McDonalds have no idea or estimate about how much its franchisees gross because some operators may actually eat at McDonalds?

Isn't it important to the FTC 1994 order to know how much of the Nu Skin product is never sold on a retail basis, but is left rotting in the distributor's basement or garage?

Obviously, people are not entering into this business opportunity because of the disclosure about earnings. If you don't know even an estimate of your gross earnings from retail sales, then what are you buying?

You are buying the right to have a commission stream, by selling others the right to have a commission stream. And how lucrative is that commission stream? Consider the following chart.

(Also, in order to read the chart, we have to know what the footnotes refer to. Can you read what is below? Because I cannot.)

The FTC order covered representations about earnings, profits or sales and required that average "earnings" be disclosed.

Clearly, this is not being done. The only disclosure is on the amount of commissions paid to "Active Distributors". As the chart indicates, "these figures do not represent a distributor's profit, as they do not consider expenses incurred by a distributor in promotion of his/her business and do not included retail mark-up income."

Second, notice the use of the term "Active Distributor". Only 35% of people who sign up as distributors actually sell product to another distributor; but only 16% of them actually earn a commission for doing so.

Third, we are not told how many "Active Distributors" remain active, on average and for how long.

Fourth, the average commission is over inflated because it refers only to a commission received by an "Active Distributor", or 35% of everyone who signs up to be a distributor.

Fifth, there is no meaningful disclosure of commissions in column three. The percentages add up to something around 15%, are we to infer that 85% of the other distributors received no commissions? Why isn't that clearly disclosed?

Six, column 4 has no real purpose, except to trick you into believing that there is 64% of making at least $4332.00 in commissions - not true, only a 64% chance if you are already at the executive level - which we don't know how long it takes on average to get to.

I don't understand how you could read this chart and meaningfully understand the promise of this business opportunity.

Posted by michael webster at 5:20 AM | Permalink | Comments (0) | TrackBacks (0)

Barry Minkow , and his team at Fraud Discovery, published a devastating critique of USANA as an illegal pyramid scheme. (Candid disclosure, I wrote an flattering article about the Fraud Discovery Institutes's due diligence, and in return Barry Minkow promised to buy me a beer if I was ever in San Diego.)

The Minkow Report is making waves over at Pink Truth: Facts, and the Wall Street Journal picked up the story, Usana Sales Plan Draws FireFrom Felon Turned Gumshoe.

Here is my summary of the report, but I urge readers to read the entire report and all 20 addendums and the lab report. There are 8 red flags, and 2 background observations.

Background - Why USANA's stock price might remain high despite not having a credible business model.

1. The float of the USANA stock makes it difficult or impossible for short sellers to borrow adequate stock. Thus, an essential feature of the market may not correct the price of USANA stock.
   
2. The executives of USANA have the incentive to keep the stock price high because their compensation is tied to the stock price. This doesn't mean that the senior executives are dishonest, only that their incentive is to keep the stock price high.

The 8 Red Flags, my summary.

1. Untenable Business Model - USANA claims in it advertising to potential distributors that in the traditional retail model, with national, regional and local distributors, costs 75% more than a networking model. Minkow describes this as "fairy tale" story. He argues that if the USANA model could save 75% of distributor's costs, then why are USANA's products much more costly than comparable retail products? How has the saving been passed on to the distributor and ultimately the consumer, asks Minkow ?
   
2. Material Non-Disclosure - The report questions why USANA represented to the FTC that the new business opportunity rule would "make it difficult, if not impossible for USANA to continue growing", but then told the SEC that the FTC's business opportunity rule might only "require USANA to change some of its pre-sale disclosure practices." Well, which is it? Disaster or some change in pre-sale disclosure?
   
3. Misrepresentation about Average Income - The USANA website reports that the average income of a distributor was $802.68. Minkow argues that this is misleading in two respects. First, the average is gross sales and not net income. Second, the reported average is too high because USANA only counts the distributors active in the last 3 months to calculate the denominator. Depending on the turnover rate, the average gross could be significantly less.
   
4. Misrepresentations about Business Opportunity -After attending a presentation at the Utah company's location and taping it, Minkow's team was told that the AG of Utah had endorsed the company. The AG's office denies this.
   
5. Endless Recruiting Chain - Minkow argues that USANA does not sell 70% of its products to consumers, and therefore should not be granted the safe harbour from illegal pyramid prosecution.
   
6. Unregistered Securities - In the opinion of Doug Brooks, the distributors purchases of the USANA business opportunity are unregistered investment contracts because the bulk of the distributor's success relies upon how well his recruits do recruiting. (I believe that at English law this is what gives rise to an unregistered lottery.)
   
7. Integrity of Owner - Minkow discovered that a previous majority owner had renounced his American citizenship, but his residence was not disclosed in the SEC filings. It now appears that majority owner is a company incorporated in the Isle of Man, with the sole corporate shareholder residing in Liechenstein..
   
8. Stock Trading Patterns - The company has purchased on the open market a large number of shares, while insiders sold at the same time.

According to the Wall Street Journal, USANA disputes these findings because although

"Mr. Minkow says the company's sales model is unsustainable because it requires the constant recruitment of new associates. Eventually, he argues, the company will run out of distributors, who will face long odds selling products or recruiting new disciples. Usana's major product, a multivitamin, is far more expensive than rivals.

As of the end of 2005, only 37% of Usana's associates had ever earned a commission, according to the company's latest figures. Among those who had been paid, the figures show, 87% didn't earn enough to cover the $116 they have to purchase or refer each month to qualify for commissions.

Usana says this kind of analysis misses the point. "The inherent goal isn't about coming in to, quote, break even," says Fred Cooper, the company's executive vice president of operations. Most associates are interested in purchasing the vitamins without commissions, Mr. Cooper says, and most distributors view what they can earn as a vitamin discount, not as a path to profits."

Well, I hazard the guess that if most if not all distributors aren't earning profits, they would view what they can earn as vitamin discount. But a discount from what,certainly not ordinary retail prices for vitamins.

Posted by michael webster at 9:44 AM | Permalink | Comments (6) | TrackBacks (1)

Over at one of my favourite analytical sites about network marketing, and Mary Kay in particular, has a fascinating discussion about churning Pink Truth: Churning New Recruits.

How Many Recruits?If I told you that Mary Kay had 700,000 independent consultants in the United States in 2006, this would seem like a fairly impressive number. Surely there must be some of them who are making a decent living from selling product?

How Many Recruits Stay? Well here is where it gets very interesting. According to Pinktruth:

"In 2006, Mary Kay disclosed that the company had over 700,000 independent beauty consultants in the United States. This was similar to the 2005 reported figure of 715,000 consultants in the United States. This implies that at the current time, the number of consultants is staying relatively stable. (i.e. For every consultant recruited, one drops out.)

Mary Kay stated in its response to the FTC's proposed Business Opportunity Rule, that there are 2,400,000 "disclosure opportunities" (meaning interviews) per year. That's 200,000 women interviewed per month. Mary Kay Cosmetics further stated that there are 40,000 new recruits per month. (Thank God those other 160,000 per month said no… a total of two million women per year who turn Mary Kay down.)

At 40,000 new recruits per month…

That means that during 2006, Mary Kay Inc. recruited 480,000 women in the United States, and 480,000 women in the United States quit. Add the 480,000 quitters to the 700,000 (or so) U.S. consultants on the books at the end of the year, and we've got a total of 1,180,000 (yes that's over 1 million) women in the United States who were "in" Mary Kay at some point during 2006.

What a staggering churn rate, though, isn't it? Depending upon how you look at it… 41% of the 1,180,000 involved during the year quit. Or of those 700,000 on the books at the end of the year, 69% of them will quit in the following year. 480,000 women churned and burned in 2006." (my emphasis)

Other Interesting StatisticsThere are some other interesting statistics that will become available when the FTC amends its Business Opportunity Rule to cover Network Marketing.

Section 437.1(e) will require the Network Marketing Opportunity Seller to disclose the number of cancellation or refund request in the past two years. This disclosure would have to be updated every quarter. It is required even if the Seller has no policy covering cancellations or refunds.

In Mary Kay, individuals can return part of their inventory within a year of joining Mary Kay. Many do not or simply sell their product on e-Bay. The new disclosure document makes the refund policy clear, before signing up, before the distributor meetings, and before a commitment is made. It will be interesting to have numbers to compare across different network marketing opportunities.

Posted by michael webster at 8:17 AM | Permalink | Comments (0) | TrackBacks (0)

Everyone asks, "how much money can I make investing in this franchise, distributorship or network marketing opportunity?"

Sometimes, as in the case of the Arbonne business opportunity, the answer is in plain sight. For anyone who has mastered grade 3 math.

Arbonne has an earnings claim on its website. This chart will tell you how much money you can reasonably expect to make on your Arbonne business from the sales of your staff or consultants.

Assume that you have an $8.00 hour job and are wondering whether you should supplement your income with part time work selling Arbonne products,

1. A consultant has a 1/100 chance of earning $200.00 per quarter, or $2 per quarter. It is reasonable to spend no more than 15 minutes per quarter on your Arbonne business, assuming your opportunity cost is $8.00 per hour.
2. Our consultant, after 5 months or $2.25 in earnings, gets promoted to district manager. A district manager has about a 2/100 chance of earning $875.00 per quarter, or $17.50 per quarter. It is reasonable to spend no more than 2.25 hours per quarter on your Arbonne business as a district manager.
3. A short year later, our consultant now progresses to area manager. How do things look now? An area manager has a chance of 1 /200 in making $4,600 per quarter, or $23 per quarter. It is reasonable to spend no more than 3 hours per quarter on your Arbonne business as an area manager.
4. It gets better. After two years, the consultant could progress all the way through the ranks to regional vice president. A regional vice president has a chance of 1/1000 of making $20,000 per quarter, or $20 per quarter. Backsliding, I see.
5. Finally, at the top position listed, the national vice president has a 4/10,000 chance of making $94,000 per quarter, or about $38. It would be reasonable to spend no more than 5 hours per quarter on your Arbonne business.

Definitely a part time business, if a business at all.

What do other consumer sites say about Arbonne's earnings claim?

Arbonne scam, a blog about Arbonne talks about the low chances of becoming a national vice president, but has no analysis of the earnings claim.

In the long thread at Quatloos, there is no mention of the earnings claim.

Over at scam.com, the thread on Arbonne, again, contains no analysis of Arbonne's own numbers.

Do people not care about their opportunity costs? You tell me.

Posted by michael webster at 10:16 AM | Permalink | Comments (0) | TrackBacks (1)

I am a pathetic devotee of Donald Trump's television show "The Apprentice", despite its declining ratings. Who doesn't secretly believe that they too could outperform the any of the contestants?

However, as fascinated as I remain with this television show, I regard Mr. Trump's endorsement of ACN with considerably more skepticism. "ACN reps are allowed to use this words to describe Trump's endorsement Donald Trump has agreed to endorse and promote ACN and our vision. He will be featured in a variety of print and video media over the coming months, all designed to help you build your ACN business. In addition, Mr. Trump will be speaking at select upcoming ACN International Training Events. Representatives are not allowed to use Mr. Trump's name, image, footage, website or any other material in any form at any time. ACN says that it will not tolerate any violation of this policy. If any representative is witnessed acting in a way that might compromise ACN's relationship with Mr. Trump, ACN should be contacted immediately. Consequences will be severe and may include deactivation." (my emphasis)

As I have written before, I doubt that ACN is a pyramid scam in the criminal sense of "pyramid". But I certainly don't think that it is a good business opportunity. Consider what was written at Sub-Board I, Inc.

"It's easy to get excited when someone tells you stories of living a life of luxury. But once you start asking questions and trying out ACN's suggested sales pitches on everyone in your phone book, it quickly becomes clear that what Lullo described on stage won't work for everyone.

He says the company sells phone services--long distance, local, DSL, etc. He says that for $500 you can buy into your dream job.

But once you wade through all the jargon, it's clear that what your $500 has purchased is the incentive to badger other people into giving Lullo's company $500 too.

No matter how many times Lullo and his disciples mention that the business was praised by Donald Trump, it doesn't change the basic dynamic. What you are really selling--the real product--is your friends. Your neighbors. Anyone you can drag into the company's embrace." (my emphasis)

What is the attraction to "buying your dream job for $500"? Well, it looks deceptively simple to succeed,

"It's not the commission that makes representatives money. It's the bonuses for recruiting and advancement within the first month that allows them to make their money back. When you sell seven phone points (one awarded for each service sold) and recruit two other people to pay $500 and become TTs below you with seven phone points each, you get named "Executive Team Trainer."

That position is still one quarter of one percent, but includes an exclusive, first month only, bonus check of $700. In other words, you've made back your $500 investment plus $200 that month." (my emphasis.)

Let's imagine a story in which all ACN reps quit with a profit of $200, after recruiting their two new sales representatives. So nobody loses. Right?

After you quit, ACN has $1500 - your bonus of $700, ie., $800, and your two recruits are busy looking for four more stooges, so that they can cash out for their $200. Then ACN would have the four stooges $2000 - your two recruits' bonus of $1400, another $600. Can the four stooges find eight more "independent sales representatives"? Well, then ACN would have the eight ISR's $4000 - the four stooges' bonus of $2800, or $1200. Do you sense a pattern here? For every "clever" ACN rep who decides to "retire" with his $200 bonus, ACN makes $300 of his or cleverness. Very nice.

Posted by michael webster at 1:03 PM | Permalink | Comments (0) | TrackBacks (0)

Lose your entire investment in business opportunities scams as outlined in the FTC's Project False Hopes, Bogus Business Opportunities. You won't have any money and therefore no money problems, by definition.

This type semantic trickery along with other deceitful advertising practices is the lifeblood of these scams. In this post, I want to analyze a recent vending fraud, show the correct due diligence -which is simple, but also explain who should be doing the due diligence.

Lifestyle Vending is alleged by the FTC to be a business opportunities fraud. The FTC has a civil case, and they have recommended that the Department of Justice also look into the allegations, from a criminal aspect. Here is a list of the recent criminal convictions in business opportunity frauds cases.

The FTC's complaint against Life Style Vending can be broke up into three main elements.

First, Life Style Vending is a type of business opportunity that the FTC regulates under the regulation known as the "Franchise Rule". The Franchise Rule has specific disclosures that must be made to the potential purchasers of the opportunity. Virtually, no investor thinks that they were buying a "franchise" and so it is not surprising that they or their lay advisors would not research this opportunity correctly.

Second, Life Style Vending made representations to the public about what they could expect to earn if they bought Life Style Vending's machines. For example, in a representative classified ad, the representation was that with 30 machines, one could earn potentially $50,000, yearly. No doubt Life Style Vending thought the semantic trickery of using "potential" saved them from making an outright lie. But, the Franchise Rule, or what it should be known as, the "Biz Op Rule", prevents sellers making earning claims without having a reasonable basis, which includes giving the name and number of individuals who have attained said earnings, and the percentages of distributors meeting or bettering that level of earnings.

Third, Life Style Vending did not provide purchasers with a basic disclosure document, a document which discloses much more about the opportunity, including a list of all the distributors of the vending machines.

So how could you have avoided this business opportunity scam?

Follow the four step program.

1. Identify in which states Life Style Vending placed its classified ads by googling its 800 number, 1 (800) 704-5414.
2. Locate all the states which require either business opportunity registration or franchise registration.
3. Write and obtain the required registration from all states in 1. which appear in 2. Don't worry about where you live, just see if the required registration is there.
4. If you get nothing from these state regulators, then you know that the opportunity is a business opportunity fraud. (If you do obtain the disclosure, you will have to take it to an experienced franchise attorney to evaluate it.)

Will this due diligence work? No. Not for the person hooked on the phantom dream presented by Life Style Vending. Cognitive dissonance will prevent new information from displacing the dream.

What can be done then? The four step program is for the advisors, friends, or spouses of the potential purchaser. Sometimes, these people have sufficient control over the purse strings to prevent a fraud. At the very least, they know how to evaluate a business opportunity. They do, now.

Technorati Tags: ftc, vending, due diligence, bogus business opportunities, criminal convictions, life style, scams, business opportunity, money problems, lifeblood, false hopes, department of justice, civil case, frauds

Posted by michael webster at 10:14 AM | Permalink | Comments (0) | TrackBacks (0)

For a number of years, Tupperware distributors were explicitly regulated as franchisees. Tupperware filed for the available exemptions, so that their UFOC is not available online. But there is doubt that, until 2004, Tupperware treated its distributors as franchisees, read the 2004 franchise exemption letter here.

I had a recent post about whether Mary Kay Directors were buying a franchise, as it is defined by the Federal Trade Commission, and I posted a comment to that effect.

The responses to me question about Pink Truth: Directors as Franchises are collected below, along with my response.

Comment 1:

"Micheal Webster

Maybe that is why in all these years the one thing that stays at such a low price is the starter kit----because they are trying to stay below the radar of FTC---less than $500, so that we are not considered a 'franchise'.

Most of the women on this site are BRILLIANT and I am still reeling at the vast amount of collective brainpower here.

I am much less business savy----BUT something about the $100 changing hands at the point of 'commitment'-----like "earnest money" in a real estate transaction.has always bothered me. It is not like the Starter kit is VITAL to our success----since the contents of this kit have changed COMPLETELY through the years----to now mainly just being a few tapes, some samples and a little product.

For some reason which I cannot figure out , it seems more like they need this $100 to comply with some kind of law----.or to make our CONTRACT BINDING----since maybe without the $$$--we could not be HELD to the contract. I don't know----just a thought.

Suzy Q.awesome piece and thanks for telling the truth-----that sure covers the last of the questions I had about what i was doing to make my director mad unintentionally."

Response 1:

I think that you are right. Mary Kay, along with other DSA members, seemed to focus on the low entry costs in their response to the FTC. I was not entirely persuaded by this type of reasoning as it ignored the high cost of being distributor or director.

Comment 2:

"Michael I also read your website with interest. I also wonder why people sitting with frontloaded prodcut aren't franchises. I've read several stories on this site and others where people are sending back upwards of $5,000 worth of product. That would seem like a "significant" amount in my book. But maybe I'm just cheap.

I've been thinking about this column since I read it. I couldn't stand the daily pressure of living like this, pink fog or not. How do you keep your sanity for goodness sake? I'd be a basket case before ending DIQ I'm afraid. There's no way I could handle this constant pressure day after day after day. Ridiculous to put yourself and your family in this much turmoil. IMHO, no amount of money would be worth that."

Response 2:

I also wonder if the FTC is persuaded that since the consultant or distributor can send back the product, for up to a year, whether there is a need for the FTC to assume jurisdiction. But it would appear that the new consultant or distributor would need to know just how many people in their position get stuck with unusable inventory after the year is up.

Comment 3:

"With a genuine franchise or exclusive distributorship, there is usually a lot of pre-screening to make sure you are ready for it.

McD's for example, requires you to have $200,000 and spend time at their headquarters learning how to run the business … RUN the business, not "work" it. And they do a lot of coaching the first few years because they don't make money unkless you sell product.

MK is not a franchise … it's a 'direct sales' business with 'multi-level comission structure'. Everybody buys from MK, but there are comissions based on your recruits."

Response 3:

I think that this is just a misconception about what a franchise is. McDonalds may do intense pre-screening, but that is far from the norm. To determine whether the Mary Kay director's opportunity is a franchise, you have to analyze the definition. For example, most people would be surprised to know that many vending opportunities fit the franchise definition.

Comment 4:

"Typically, franchises are little more particular about saturation of the market. My insurance business is a franchise. They would NEVER allow as many of us to be around as MK does. They are way too protective of their name and the likelihood of failure of the franchisees"

Response 4:

Again, encroachment is a very hot topic in the franchise world. Most of quick service restaurants give their franchisee no territorial protection.

Thanks again to all those who responded to my post. If you have further questions, you can post them here as comments or back on the Pink Truth website.

Posted by michael webster at 11:26 AM | Permalink | Comments (0) | TrackBacks (0)

Pink Truth: Update Regarding FTC Proposed Rule-Making Activities

provides an interesting update on what Mary Kay has been doing with respect to the new FTC Rule.

Apparently, Mary Kay is complaining that "However, the FTC has cast its net so broadly that it could include Mary Kay and other legitimate direct selling companies. Unfortunately, the rule as it is currently proposed could impose requirements on legitimate direct selling companies that would be very burdensome. While we support the government's effort to protect consumers from business opportunity frauds such as envelope stuffing schemes, we want to ensure their efforts do not harm legitimate direct selling businesses, such as Mary Kay."

Frankly, I have never really understood why in some cases Mary Kay isn't regulated as a franchise anyways.

Let's look at the FTC definition of a franchise.

"Traditional Franchises": There are three definitional prerequisites to coverage of a business-format or product franchise (Parts 436.2(a)(1)(i) and (2)):

1. Trademark: The franchisor offers the right to distribute goods or services that bear the franchisor's trademark, service mark, trade name, advertising or other commercial symbol.

2. Significant Control or Assistance: The franchisor exercises significant control over, or offers significant assistance in, the franchisee's method of operation.

3. Required Payment: The franchisee is required to make any payment to the franchisor or an affiliate, or a commitment to make a payment, as a condition of obtaining the franchise or commencing operations. (NOTE: There is an exemption from coverage for required payments of less than $500 within six months of the commencement of the franchise (Part 436.2(a)(3)(iii)).

A Mary Kay distributor is selling trademarked products, but is Mary Kay exercising significant control or offering significant assistance to the distributor?

Well, I would argue that there is certainly the offer of significant assistance to the distributor. There are marketing plans, marketing meetings, and promotional plans put in place to assist the distributor.

The only element which might be tricky is the "required payment". For some consultants, who start up with a small inventory, they would not qualify. But what about those people who are pressured by their national sales director to load up on $2,000 or $3,000 worth of inventory to start?

Does this inventory loading qualify as a "a condition of commencing operations"? Is is a requirement? What if the Mary Kay consultant truly believes that she had no other choice but to load up and spend more than $500? Would that make it a requirement? I have never seen an answer to this question in the FTC's staff advisory opinions regarding the FTC Rule.

Posted by michael webster at 11:33 AM | Permalink | Comments (0) | TrackBacks (1)

Over at scam.com, there was an enlightening thread about Strategic Reseach Network, and its associated company Health Career Agents.

The longest thread was about Strategic Research Network.

Many of the posters recommended that individuals contact either the BBB or SEC.

What was surprising is that given reasonably in depth understanding of this business opportunity, virtually none of the posters were able to identify even one of the correct regulators, whose attention may engaged by this business opportunity.

Here are some cites from its website:

'Complete Training and Support

As an Owner/Operator we provide you with complete training and support. Sharing the secrets we've developed in using the agent approach to maximize the number of healthcare practitioner placements you can make.

Owner/Operators make an investment of $34,900 in starting their business. In exchange they receive:

Thirty days of remote training where Owners learn healthcare recruiting process, are educated on terms, specialties and procedures, and how to use our various software tools.

Two days of on-site training where we provide Owners with the training we feel needs to be delivered in person.

Detailed 90 Day Start-Up Plan that outlines what an Owner needs to do, everyday, to get their business up and running.

Four days of hands-on instruction at our training offices with the experienced recruiters on our staff.

Technology solutions (worth more than $20,000) including research software, email tracking tools, candidate management software, and healthcare news clipping software.

Website development, logo design, starter marketing material.

A PC with all software pre-loaded.

Ongoing healthcare recruiting support and assistance in making placements for the life of your business.

Ability to send ten Sales Consultants through training at no cost.

Revenue from your sales Consultant efforts as you build your organization.

Access to the Global Database to conduct shared placements with other Owners.

Ongoing supplemental training.

You are able to start out full-time or part-time, whichever you prefer, and your overhead costs -for a phone, fax, and high-speed internet connection - will be insignificant relative to your income potential.

More than anything, for their $34,900 investment Owner/Operators get a business with legitimate six-figure earning capacity and the flexibility to structure it around their life.'

This is the classic business opportunity franchise: but the website both promotes earnings claims, and the denies that you should be able to rely upon them.

I do not know whether the software and training is worth the $35k; but the seller of this business opportunity clearly does not understand that you cannot entice people into buying this type of opportunity by making representations about earnings levels, and then saying:

'IMPORTANT: There are no guarantees of income or income claims made by Health Career Agents. This or any other business endeavor involves risk. Health Career Agents does not receive financial records or reports from its Owner/Operators and does not track or make claims as to the percentage of Owners who succeed or fail. One should be thorough and patient in considering an affiliation with Health Career Agents as an OwnerOperator.'

Either do not make an earning's claim, or back it up with reasonable estimates. Health Career Agents is trying to have it both ways, which would generally offend most franchise and business opportunity seller disclosure laws.

Posted by michael webster at 4:33 PM | Permalink | Comments (0) | TrackBacks (1)

Give your prospects a free lunch, and then pitch them for 6-8 hours on your product which doesn't work.

At least that is is what Office of the Illinois Attorney General who sued two Utah Companies for Misleading Promises is alleging. According to the press release,

"StoresOnline and Galaxy Mall both promise to provide everything consumers need to get an online business started, including software to set up a web page, access to online payment mechanisms, and training courses to pull it all together. But, according to Madigan's complaint, once consumers pay thousands of dollars for these services, the two businesses fail to fulfill their promises, leaving consumers with nothing.

Madigan's complaint specifically alleges that StoresOnline and Galaxy Mall, both based in Orem, Utah, lure Illinois consumers to a free lunch, where they encourage consumers to attend a "training session" to learn how to start a successful online business. However, the "training session", for which consumers pay a nominal fee, actually is a 6 to 8-hour sales presentation for the defendants' products. During the "training session", the defendants allegedly promise consumers:

*

that the products are easy to use and consumers will not need computer experience;

*

that the contracts for the products provide for a three-day period during which consumers can cancel the contract and obtain a refund; and

*

that the defendants will provide any assistance the consumers may need to start their online businesses.

In contrast to the sales pitch, the complaint alleges that:

*

the products are not easy to use, and even consumers with computer experience were not able to set up their online stores;

*

the defendants refused to cancel contracts and provide refunds, even when consumers attempted to cancel within the first three days; and

*

the defendants failed to provide the promised technical support for the products"

Apparently, 15 Illinois residents losts a total of around $90,000.

While I applaud the AG for brining this action quickly, I don't have the same applause for her preventive warning. "Consumers need to be very skeptical of any marketing efforts that promise easy access to the world of internet business," Madigan said. "If a sales pitch sounds too good to be true, it probably is. Consumers must be wary of unscrupulous businesses that prey on the desire to attain easy wealth through the internet."

These residents didn't find the sales pitch too good to be true, and in general scams do not self-announce themselves as too good to be true. So why didn't these individuals see through the deception? We don't know. We do know a couple of things, however.

First, it is unlikely that these individuals were very conversant with the internet. Had they googled "storesonline scam" they would have found the June 2005 warning from Australia, which raised serious doubts about the concept. Concluding, "Regrettably, instant wealth without effort is outside the reach of us mortals." In other words, at the free lunch, when you are promised something for nothing, having another helping of food, but leave quickly.

Second, we know that these individuals probably didn't pay for their online store with Visa or Mastercard, since they would have been able to charge back the purchase.

(Ironically, Ed Magedson of Ripoff Report fame, wrote a long piece explaining what a wonderful company Galaxy Mall was and how they had changed their spots.)

Technorati Tags: illinois consumers, galaxy mall, free lunch, storesonline, orem utah, madigan, training session, promises, illinois attorney general, utah companies, payment mechanisms, successful online business, set up a web page, thousands of dollars, prospects

Posted by michael webster at 3:25 AM | Permalink | Comments (2) | TrackBacks (0)

Multi Level Marketers warn that "In its present form, the FTC's proposed regulation would be devastating, if not fatal, to the direct sales industry," says Keith B. Laggos, publisher of Network Marketing Business Journal, who also warns the change could drive the entire U.S. economy downward into a recession., according to David Wilkening's article Will the proposed FTC multilevel marketing rules crash Tupperware's party?

Tupperware is an odd candidate for inclusion in this article.

Why? Well, for many years Tupperware sold exclusive territories to its distributors and was regulated as a franchisor. The sale of exclusive territories, along with the right to sell a name brand, brought it within the jurisdiction of the FTC's Franchise Rule.

As a franchisor, Tupperware had a very high level of disclosure obligation - much higher and costlier than what is being proposed by the FTC for Business Opportunities. Tupperware is also a public company, with its own costly disclosure and controls. The proposed FTC rule should not cause them any serious extra expense.

As discussed at the Pink Truth, the disclosure requirements by the FTC may not do anything to alleviate some of the relationship issues sales consultants have with Mary Kay, for example. Sales consultants apparently are being urged to pay up to $5,400 to for their start up inventory. Several experienced Mary Kay sales woman believe that this is far too high an inventory level to start with.

But there is something else odd here: if a sales consultant spends more than $500 in six months for the right to sell a name brand product, and there is the offer of significant assistance to the sales consultant from Mary Kay, then prima facie Mary Kay is selling franchises and its sales directors are franchise brokers, unless the a purchase of inventory at wholesale prices.

How, for the purposes of the FTC Rule, does one determine what the wholesale price is of a product which is never sold in a retail store? Is Mary Kay giving its product at their cost to its sales consultants? Doubtful, so how much of a $5,400 “full Mary Kay” store might be considered a franchise fee, for the right to sell Mary Kay products?

What is the rationale for requiring the franchise fee to be greater than $500? The FTC described the rationale this way. 'The record supports the proposition that the rule should focus upon those franchisees who have made a personally significant monetary investment and who cannot extricate themselves from the unsatisfactory relationship without suffering a financial setback. Implicit in the concept of franchising, as viewed by the Commission, is the assumption of a financial risk by a franchisee in entering into a franchise relationship.'

Well, if you have $5,400 worth of stock that you find out that you cannot sell, and a disclosure document might have revealed that 90% of sales consultants were in the same boat, isn't this a significant monetary investment that the FTC should be protecting? Why wait for Spring, regulate now.

Posted by michael webster at 8:10 AM | Permalink | Comments (0) | TrackBacks (0)

In a very interesting story, Charles Duhigg wrote, on November 13th, 2006 in the The New York Times about Why Short Sellers Want to Crash the Tupperware Party. The story was repeated at Kim Klaver's Network Marketing Blog and also at Ty Tribble's MLM Blog.

Mr. Duhigg reports that a number of short sellers are apparently betting that the FTC Business Opportunity Rule will become law and the resulting disclosure requirements will cramp recruiting.

"Analysts say the companies' real concern is that the new rules will undermine their ability to attract new sales representatives.

"If companies have to tell recruits that the average income is only $1,400 instead of the $50,000 advertised on their Web site, or that the average salesman only lasts two months, a lot fewer people are going to sign up," said Mimi Sokolowski, an analyst with Sidoti & Company who follows Tupperware Brands, Nu Skin Enterprises and other publicly traded multilevel marketing companies. She said that if the proposed rules pass without modification, recruitment in the United States could fall by as much as 40 percent."

The full story is a bit more complicated. Take for example Tupperware. For at least seven or eight years, Tupperware was regulated as a franchise in the United States, which required considerably more disclosure than the FTC wants with the new business opportunity rule. So, you would think that Tupperware's recruiting stock would improve with the more minimal business opportunity disclosure.

But Tupperware has been losing its sales force, according to its SEC filings, for almost five years in North America. Tupperware has simply failed to convince the public that their product is worth more than the plastic from the local dollar store, in my opinion. This accounts for their failure in North America better than the possibility of a new disclosure obligation.

Technorati Tags: multilevel marketing companies, tupperware party, network marketing, kim klaver

Posted by michael webster at 9:53 PM | Permalink | Comments (0) | TrackBacks (0)

In any distributorship, franchise, or network marketing business opportunity the question of encroachment, or “stealing customers” is a hot topic.

Over at Pink Truth, How to recruit the customers of other Mary Kay consultants there is a discussion about this topic which has attracted a good deal of discussion.

The basic problem any sales force faces is how to grant sales territories. Should they be exclusive, semi-exclusive, or completely wide open.

While competition for sales from other concepts is just that, competition from your own franchisor, distributor or other sales consultants is seen as much different.

We will accept competition, but not from our family members.

The FTC Rule on Business Opportunities, section 437.5(n), is useful to read. This section would prohibit misrepresentations made directly by the seller or through a third party about the terms of the territory offered to a prospective purchaser.

As was pointed out, Mary Kay’s sales contract includes the following term: “Customer names and addresses furnished by Beauty Consultant to Company in connection with optional programs shall remain the sole property of Beauty Consultant and will not be used by Company or disclosed by Company to other parties without Beauty Consultant’s permission, except as may be required by law.”

This would appear to make it clear that a consultant need not worry about having her customers poached by another consultant, unless of course the customer name was not furnished by the consultant to Mary Kay “in connection with [an] optional program”. Is this deceptive? I don’t know.

But, in any event, it is apparent that the Mary Kay network marketers need the protection of section 437.5(n) to properly evaluate both the opportunity and ongoing compliance with their sales contract.

Posted by michael webster at 10:33 AM | Permalink | Comments (0) | TrackBacks (0)

If the FTC's new proposed Business Opportunities Rule becomes a Rule, then all you will know about such direct sellers as Mary Kay will become available in a two page disclosure document.

But as reported on Pink Truth: The blog formerly known as Mary Kay Sucks Mary Kay's General Counsel wrote an extensive letter to the FTC in opposition to the proposed Business Opportunities Rule.

The letter opposing the FTC's reform of the Franchise Rule can be read here.

The basic gist of Mary Kay's opposition to the new disclosure requirements is this: 1) we are a reputable company with our own internal consumer protection scheme, Reputation, and 2) the proposed disclosure would be costly, Cost.

Mary Kay, like many other direct sellers and franchisors, however completely fail to understand the relation between Reputation and Cost. Let us suppose, despite the withering attack by Pink Truth on Mary Kay's claim to honesty and integrity in its dealings with its sales force, that Mary Kay represents the high water of integrity.

Should Mary Kay have to disclose its high character to potential recruits, if that disclosure is costly -assuming as we have done that they are of the highest rank?

Well, the answer is yes. This surprising inference is due to what economists call the "market for lemons". As Steven Woda wrote in a different context about eBay resellers, credible signals of reputation have to have teeth and must be costly to maintain.

If Mark Kay was on the direct seller, with no new entrants on the horizon, then the case for mandatory disclosure is weaker. But Mary Kay and the other direct sellers have the reputation of the direct market selling industry to maintain, as will as their own individual reputation.

In the new world of speedy access to bad facts, in which sites like Fighting Fatigue, and Up Your Cadillac, along with other general network marketing sites such as Falseprofits are asking difficult questions, Mary Kay would be foolish not to adopt the FTC's new regulation with gusto and indeed improve upon it.

Posted by michael webster at 10:33 AM | Permalink | Comments (0) | TrackBacks (0)

Here is a very cute picture demonstrating what the new FTC Business Opportunity Rule is designed to prevent,see

MLM Today: Eight Common Phrases

Technorati Tags: common phrases, cute picture, business opportunity, ftc, mlm

Posted by michael webster at 2:29 PM | Permalink | Comments (0) | TrackBacks (0)

Net Based Business Opportunities: Are They Just Flop-Oportunities? After a diet of steady skepticism, it is easy to believe that virtually no internet based opportunity exists, unless it is a scam or a fraud. But consider carefully the warning by the FTC, in this brochure:

However, the Federal Trade Commission (FTC) says that many of these business opportunities are scams that promise more than they can possibly deliver.

The scam artists lure would-be entrepreneurs with false promises of big earnings for little effort. They pitch their fraudulent offerings on the Web; in e-mail solicitations; through infomercials, classified ads and newspaper and magazine "advertorials"; and in flyers, telemarketing pitches, seminars, and direct-mail solicitations." (my emphasis)

This is the critical element of a scam or fraud: the promise of something for nothing, or for very little effort. If there is just one due diligence method you learn, internalize this one. When you come across a business opportunity: are you being told that a) this is something anyone can do, b) the profits are locked in or guaranteed, and c) it is easy. Just something for nothing: perpetual motion machines don't exist and neither do perpetual money machines.

Technorati Tags: mail solicitations, business promoters, ftc, false promises, business opportunities, internet access, scam artists, infomercials, kiosks, skepticism, pitches, internet based, scams, telemarketing, flyers, federal trade commission

Posted by michael webster at 10:50 AM | Permalink | Comments (0) | TrackBacks (0)

The FTC has a talking frog on one of its Business Opportunities webpages. This is one of the web pages that you would go to, if the FTC's new Business Opportunity Rule is passed for advice about due diligence.

What does the talking frog do? How does this mythical beast endow ordinary humanity with powers of investigation?

The FTC's talking frog advises a princess. Various of her courtiers are bringing her business opportunities for her appraisal. The frog provides a single word of commentary: "ribbet" which sounds like "rip-off". It is unclear whether the frog is analyzing the business opportunities, or is simply being a frog coincidentally coming to a "conclusion" that is correct. The Clever Hans effect. (Clever Hans refers to a horse which could apparently add.)

So the FTC's line of defence is: the appropriate way to tell whether a work at home business opportunity, a networking opportunity, or some other business opportunity is a "rip-off" is to listenly closely to the advice of a magical frog - who also completes his transformation into prince when kissed.

The FTC site would be laughable, except for it reveals a dark truth about the regulators: they really do believe that identifying and avoiding a business opportunity fraud is easy and straightforward -which I suppose it might be in a land equipped with talking frogs. This is why the regulators treat victims of commercial fraud with barely concealed contempt: you should have just consulted the talking frog, or the parrot which chimes "too good to be true, too good to be to true", in order to have avoided being a victim. No group of victims of crimes are treated with less respect that those victimized by con criminals.

Technorati Tags: frog, work at home business opportunity, ftc, clever hans, business opportunities, mythical beast, due diligence, apparently, work at home business, new business, networking opportunity, line of defence, webpages, princess, conclusion

Posted by michael webster at 6:23 PM | Permalink | Comments (0) | TrackBacks (0)

Commission Approves Federal Register Notice Extending Proposed Business Opportunity Rebuttal Comment Period
"Commission approval Federal Register notice: In response to a request from the public, the Commission has approved the publication of a Federal Register notice extending the rebuttal comment period for the proposed Business Opportunity Rule to September 29, 2006. In a Federal Register notice published on April 12, 2006, the FTC requested comments on the proposed rulemaking. Comments had to be submitted to the Commission on or before June 16, 2006, with rebuttal comments to be submitted on or before July 7, 2006. On June 1, 2006, the FTC extended the public comment period to July 17, 2006, and the rebuttal period to August 7, 2006. The Commission has now extended the time for rebuttals further, requiring rebuttals to be submitted on or before September 29, 2006."

According to the FTC, "The Commission has received more than 15,000 comments in response to the NPR. Given this volume, posting comments will extend beyond the end of the current rebuttal comment period, which closed on August 7, 2006. Accordingly, an extension is warranted in order to ensure that comments are posted and that the public has sufficient time to prepare rebuttals.
Please note that the rebuttal period is limited to comments that specifically identify a
previously submitted comment and provide new data or arguments as to why the original comment, in whole or in part, is inaccurate. Although anyone can submit a rebuttal comment, regardless of whether the rebuttal commenter filed an original comment, original comments or comments that merely repeat what was previously submitted in an original comment will not be accepted into the record as rebuttal comments."

Technorati Tags: federal register, rebuttal, ftc, business opportunity, rebuttals, september 29, public comment

Posted by michael webster at 9:14 PM | Permalink | Comments (0) | TrackBacks (0)

Over at Truston, Identity Theft Blog, there is a discussion about the fake cheque cashing business opportunity scam, which emphasizes the role that the social networks for job seekers are not doing in preventing this scam:

"The job boards are utterly useless in stopping this fraud. They are in the business of accepting ads, not taking them down. They do very little to stop it although they may talk a good story. I was contacted by CareerBuilder a while back and they promised they were diligent in fighting fraud. I took them at their word, reported some abuse and waited. I didn't see any let up in scam job postings on their site. Their standard line is that people should report fraud and then they will shut it down. By now they should realize that job seekers don't realize it is fraud until it is too late, and by then the fraudsters have re-posted using a different name and tactic. With two interns, they could cut bogus job postings significantly. Scan all their ads for certain keywords, monitoring new job posting companies and flag accounts that use foreign addresses of any kind. And put a link on every ad that lets visitors flag a posting as suspect. That won't catch them all but it's a start". (my emphasis)

In the fraud reporting social network, there are two websites tracking some of these fake cheque cashing business opportunity frauds: www.webnetpresence.com and www.peopleschronicle.org. I had previously argued that the new Federal Trade Commission business opportunity rule would not make a difference as the commercial job social networkers would not incur any liability.

But that is probably not the correct conclusion. The FTC regulates misleading advertising pursuant to section 5 and section 12, for the purchase of food, drugs, devices or cosmetics, of the FTC Act. If the FTC has recognized that it is misleading and deceptive for the network marketing industry to advertise their business opportunities as jobs, then it should be a violation of section 5 of the FTC Act for www.careerbuilder.com, www.monster.com and the other job social networks to mislead their consumers by advertising jobs which are clearly frauds. Yet another reason why there should be a private cause of action for section 5 violations of the FTC Act, because I don't see the FTC having the resources to go after the job boards.

Technorati Tags: job postings, job seekers, job boards, report fraud, careerbuilder, business opportunity scam, cheque cashing, ads, identity theft, social networks, diligent, interns, tactic, bogus

Posted by michael webster at 8:12 AM | Permalink | Comments (0) | TrackBacks (0)

Section 437.5 of the FTC's proposed business opportunity rule lists 18 prohibited practices, a) to r). Since four of these practices contain conjunctions, I believe that there are actually 22 deceptive practices, and since Simon and Garfunkel didn't pen a song about 22 ways to leave your lover, I call this thread 26 Ways to Leave Your Money.

Kim Klaver asked me to post the entire list of 22 deceptive practices, which are from the Federal Registrar Vol. 71, No. 70/Wednesday, April 12, 2006.

Here is the list, which I have taken the liberty of writing in plain English, or a plain as I can be.

1. Tell a prospective distributor that they have contracted out of the protection offered by the FTC Biz Op Rule.
2. Provide, orally, visually, or in writing information inconsistent with the disclosure document.
3. Provide, orally, visually, or in writing information with inconsistent with the earnings claim document.
4. Include in the disclosure document more information than is required by the FTC Biz Op Rule.
5. Provide misleading information about the gross, net income or profits, that other prior purchasers have earned.
6. Tell a prospect that the FTC or some other government prevents the seller from making an earnings claim.
7. Fail to make available to prospects written substantiation of the seller's earnings claims.
8. Fail to make available to the FTC written substantiation of the seller's earnings claims.
9. Provide misleading information about how commissions, bonuses, incentives and other rewards are paid.
10. Misrepresent the essential nature of goods being sold by the prospect.
11. Provide misleading information about the nature of support that the prospect will receive.
12. Tell the prospect that the seller, lead generator, or locator will likely find customers, accounts or locations.
13. Misrepresent the seller's refund or cancellation policy to the prospect.
14. Fail to provide the refund or cancellation, when the terms in 13 are meet.
15. Advertise the distributorship as an employment opportunity.
16. Offer the prospect an "exclusive" territory, when the terms of the territorial protection are not exclusive.
17. Offer the prospect an "exclusive" territory that intersects another territory assigned to another purchaser.
18. Tell the prospect that some trademark holder, or government agency directly or indirectly endorses the opportunity.
19. Misrepresent to the prospect that some reference, ie shill, has is a purchaser of the opportunity.
20. Misrepresent to the prospect that some reference, ie shill, can provide an independent reliable report about the company.
21. Fail to disclose that you have paid your references.
22. Fail to disclose that you have personal relationships with your references.

This is my rendering of the proposed practices into plain English, but please consult the FTC Business Opportunities Rule.

Technorati Tags: deceptive practices, disclosure document, simon and garfunkel, prospective distributor, ftc, inconsistent, conjunctions, kim klaver, biz op, business opportunity, earnings, liberty

Posted by michael webster at 3:10 PM | Permalink | Comments (0) | TrackBacks (2)

Over the last 30 years, the FTC has been trying to protect consumers from buying, investing, or purchasing business opportunities scams or fraud. Their main regulatory tool has been the Franchise Rule, which ironically works because the business opportunities scammers don't prepare a disclosure document as they and the public don't believe that their distributorship is a franchises. Even if they did register, they would find that the Franchise Rule makes demands of them in terms of disclosure that are very hard to satisfy. A satisfying catch 22.

The FTC has also tried to educate the public about buying business opportunities. But as the various FTC Business Opportunities Sweeps show consumers continue to lose hundreds of millions of dollars in these scams.

Has the rise of the internet made any difference to or increased the conumer's due diligence?

Well, consider these two pages from overture:

1. The number of times in June, 2006 the keyword "business opportunities" was searched on - 180,247.
2. The number of times in June, 2006, the keyword "business opportunities due diligence" was searched on - 0. Hmm, I detect a pattern here.

Technorati Tags: business opportunities, franchise rule, ftc, disclosure document, due diligence, scams, consumers, catch 22, ironically, regulatory tool, distributorship, scammers, sweeps, overture, franchises, satisfying, educate, fraud, investing

Posted by michael webster at 9:24 AM | Permalink | Comments (0) | TrackBacks (0)

This is part 2 in a 22 part series about the deceptive practices identified by the FTC, a summary of their 30 year history with business opportunity frauds; these practices are explictly identified in the FTC's new business opportunity rule. The first post was about why an individual cannot contract out or waive the statutory protection given by the FTC Rule. Freedom of contract was trumped by the regulator's concerns about fraud.

The second deceptive practice, covered by 437.5(b), involves what is known in law as the "four corners clause" or the "integration clause". Generally, after negotiations conclude -which are usually oral in nature- lawyers will memorialize the contract by reducing it to writing. To ensure that every party is literally on the same page, an integration clause is part of the agreement. "The existence of such a term is conclusive proof that no varied or additional conditions exist with respect to the performance of the contract beyond those that are in the writing". This makes sense for two bargainers with relatively equal bargaining power.

But business opportunities contracts are generally not negotiated. Section 437.5(b) recognizes that frauds or scams work by the seller telling, showing, or demonstrating to the purchaser a set of facts, which the fine print then takes away.

Here is an example: The seller made oral representations about a guarantee of profits, but in the written document you "agree" that there have been no representations about a guarantee of profits. The integration clause or the fine print then takes away the benefit of the bargain that you thought you got.

This inconsistency between the oral representations and what was in the written contract is what section 437.5(b) deems as a violation of the new business opportunity rule.

Technorati Tags: ftc rule, integration clause, deceptive practices, deceptive practice, business opportunity, new business, statutory protection, frauds, year history, negotiations, fraud, lawyers

Posted by michael webster at 10:06 PM | Permalink | Comments (0) | TrackBacks (0)

The FTC has been prosecuting business opportunities frauds and scams for over 30 thirty years. The proposed new biz op rule lists some 22 ways to lose your money, 22 distinct fraudulent practices in section 437.5 of the new rule. I thought it would be useful to review these practices to see what compliance techniques were implicated in these prohibited practices.

The first prohibited practice, 437.5(a), would invalidate any term in a business opportunity contract, or distributorship contract, that would require the purchaser to waive any reliance on the disclosures required by the FTC's business opportunity rule. That is, a purchaser could not contract to say that it didn't need to review or have the FTC disclosure document.

Why is this needed, and will it work?

Technorati Tags: ftc, stupid dumb, business opportunity, purchaser, disclosure document, business opportunities, new biz, biz op, distributorship, frauds, scams, fraudulent, fairness, reliance, distinct

Continue reading "26 Ways to Leave Your Lover - Well almost 26" »

Posted by michael webster at 10:11 PM | Permalink | Comments (0) | TrackBacks (0)

I have had a chance to review some of the 1500 comments made to the the FTC about the new business opportunity rule. The vast majority of them are simply templates from MLM companies expounding on (3) themes. First, they are concerned with the 7 day waiting period, believing that this will cut into their ability to recruit. Second, there is a concern about having to disclose the 10 nearest distributors in the system. And finally, there is a concern about having to disclose litigation details. I want to focus on the first concern.

MLM recruitment is a lot like fishing, but without the catch and release component. As detailed with Bioperformance, the recruitment meetings are very powerful social proof mechanisms - look at all these people yelling, screaming and being excited about this product. Might there be something to it? I should look further into the abyss, leave my brain on the train.

If the MLM recruiter had to wait seven days after the big pep talk before anyone could sign on the dotted line, they would be unable to sign up anyone.

Is this a bad thing? Shouldn't you be committed enough to wait the seven days? Isn't this good consumer protection?

Technorati Tags: mlm companies, pep talk, disclose, recruitment, ftc, social proof, waiting period, recruiter, business opportunity

Continue reading "Direct Sellers Objections to FTC Business Opportunity Rule - Real or Contrived?" »

Posted by michael webster at 10:40 PM | Permalink | Comments (4) | TrackBacks (0)

The FTC's proposed Business Opportunity Rule has, in section 437.5, a list of some 15 or 16 specifically prohibited practices that would apply to Business Opportunity Sellers. The list is very worthwhile to read by itself, a checklist of dubious behaviors.

Section 437.5(m) would prohibit a Business Opportunity Seller from advertising in the "help wanted" classifieds. Just recently, I received this solicitation from an outfit called online business, the solicitation was from monster.com.

Have IT Skills? Basic Computer Skills? Make up to 24k+ a MONTH!

Company: Online IT Business Location: CA-ON-Ottawa

Salary/Wage: May qualify for Paid Vacations, Bonuses, Incentives - Earn up to $18,000+ PT to $240,000+ FT Status: Full Time, Part Time, Temporary/Contract/Project, Employee, Intern, Seasonal

Job Category: Business Opportunity/Investment Required Career Level: Entry Level

Upon clicking the ad, I was taken to a website with the following privacy statement:

We use the information you have voluntarily provided to cause information, offers, products, and/or services that appear to us to be consistent with your expressed interests to be directed to you. This is typically accomplished by sharing your information with the Advertising Businesses with which we work. We may, however, also use your information to direct to you information, offers, products, and/or services from us and/or one of our affiliated companies. Furthermore, we or our affiliated companies may resell your electronic mail address to carefully selected third party businesses that have information, offers, products, and/or services that appear to be consistent with the interests you have expressed. Your information may therefore ultimately be used for marketing purposes by us, our affiliated companies, one or more of the Advertising Businesses, and/or third parties with whom we deal.

At first, I believed that this was just a generic lead generation company, but further investigation showed that they were a reseller of the Herbalife MLM opportunity. As such, the classified ad would likely be deemed a prohibitive practice by the new FTC Business Opportunity Rule. (In 2004, Another group of Herbalife resellers fell afoul of misleading advertising laws.)

Technorati Tags: business opportunity seller, solicitation, ftc, monster, online business, category business, business location, opportunity sellers, computer skills, wanted classifieds

Continue reading "An Application of the FTC's Proposed Business Opportunity Rule - Fake Classified Ads" »

Posted by michael webster at 9:28 AM | Permalink | Comments (0) | TrackBacks (0)

The FTC's proposed new business opportunity rule has drawn fire from some direct selling advocates, but other multi-marketing particpants have urged mlm'ers to respond with favour to the new FTC Rule. There was a very thoughtful post on scam.com about why network marketing has such a poor reputation.

The author's basic point was that network makes economic sense if the distributor's advertising budget is zero because each marketing agent a) sells the product by word of mouth, and b) the agent's personal reputation or credibility is sufficient to overcome the purchaser's stigma against direct sales.

I thought the post was thoughtful because it pointed out that in an internet world, the idea that real personal relationships don't count anymore is an easy sell. But it is false - the economic archimedean point for network marketing is the personal reputation and credibility of the marketer.

Does the FTC Biz Op Rule put the relationship back in network marketing?

Technorati Tags: personal reputation, network marketing, ftc rule, personal relationships, thoughtful post, credibility, ers, biz op, drawn fire, markes, internet world, stigma, marketer, word of mouth, purchaser, scams

Continue reading "FTC Business Opportunity Rule and Direct Sellers" »

Posted by michael webster at 10:56 PM | Permalink | Comments (0) | TrackBacks (0)

Almost 25 years ago, J. Edward Russo and Paul J.H. Schoemaker wrote "Decision Traps: The Ten Barriers to Brilliant Decision-Making and How to Overcome Them". I believe that the book is out of print, but there are plenty of used book sellers who have it. Two of their decision traps are particularly prevalent amongst business opportunities or distributorship purchasers: a) overconfidence,"failing to collect key factual information because you are too confident in your assumptions and opinions., b) shortsighted shortcuts, relying inappropriately on "rules of thumb" such as implicitly trysting the most readily available information or anchoring too much on convenient facts."

Here is how these two decision traps end up cost purchaser a great deal of money. A person will attend a trade show and see an admittedly neat idea: it may be a new internet kiosk or atms located in casinos. The individual will self generate a great deal of excitement about the opportunity, forgetting that over optimism is only required for implementing a well researched out decision,and is no substitute for careful, skeptical and through examination. Being over confident can be a good thing, but only after you have been more than skeptical, asked all the right disconfirming questions, and identified and removed the anchors in your assumptions.

Given this, does the the new FTC rule help, hinder, or is neutral with respect to purchasers of business opportunities?

Technorati Tags: traps, used book sellers, internet kiosk, admittedly, rules of thumb, neat idea, distributorship, anchoring, atms, purchaser, prevalent, russo, shortcuts, assumptions, business opportunities, casinos, excitement, confident, brilliant

Continue reading "Decision Traps and Due Diligence" »

Posted by michael webster at 4:02 PM | Permalink | Comments (0) | TrackBacks (0)

We have all experienced the giddy rush of adrenaline when buying that must have item, only to have our expectations cruelly dashed several days later when using the damn thing. To forestall overall loss of confidence in the marketplace, consumer laws generally provide a 2 or 3 day cooling off period, a time to reflect away from the marketplace pressures. We need to be protected from our base urges.

In Ontario, there is even a 10 day cooling off period for purchasers of new condominiums, no doubt a testimony to the persuasiveness of real estate sales agents.

The FTC has proposed a cooling off period for the purchase of a business opportunity; seven days before any money is sent to the operator, or operator's affiliates, the purchaser must receive the operator's business opportunity disclosure document. After the seven days are up, the transaction can proceed.

Is seven days enough time for the purchaser to conduct due diligence? What we know is that the purchaser will not review the disclosure document except to find evidence that confirms his or her belief in the efficacy of the system and will downgrade any evidence to the contrary as not being "reliable". Once a person has committed to the purchase, objective information will be systemically treated as confirming the "wisdom" of the purchase. This phenomena is well studied in business takeovers: the winner generally pays too high a price. All that lovely confirming evidence for "synergy" was too attractive to ignore.

What would be a better solution for the FTC to adopt? We have to make a distinction between what is needed for due diligence and the need for a cooling off period. What is needed for the marketplace to perform its magic is public information, at a minimum. The new business opportunity disclosure documents have to be public, much in the same way that the franchise disclosure documents are public at the California Corporations Site. Second, the cooling off period should not prevent a person from engaging in the opportunity, or preventing the transaction from occurring. Rather, the cooling off period should a period in which the purchaser can evaluate if the opportunity is worthwhile on a risk free basis - 90 days with a guaranteed return of 75% of the purchase price and inventory if it is not working out. Finally, require the business opportunity seller to deposit 75% of the distributor fee in a trust account for 90 days, only to be put in the business opportunity seller's general account after the 90 trial period. In consumer world, it is called a charge back.

Technorati Tags: cooling off period, purchaser, business opportunity, real estate sales, due diligence, disclosure document, marketplace, ftc

Posted by michael webster at 8:03 AM | Permalink | Comments (0) | TrackBacks (0)

Some network marketers are having difficulty with the proposed FTC business opportunity rule, For example, consider this call to arms by the DRA. Multi level marketing is already regulated by the FTC, but there is no requirement for some mlm's to disclose any information material to their potential distributors. On the other hand, a number of distributores who use the party system to distribute their goods may already be caught by the more onerous franchise rule. Both types of mlms should welcome the use of a one page disclosure document and the introduction or categorization of certain activities deceptive. Foremost, in this regard in the advertising of a sales position, when in reality the individual will have to recruit other sales persons to be effective.

Technorati Tags: franchise rule, multi level marketing, ftc, disclosure document, network marketers, mlms, onerous, information material, deceptive, business opportunity, recruit, disclose, mlm, distribute, dra, sales position

Posted by michael webster at 6:04 AM | Permalink | Comments (0) | TrackBacks (0)

John Tifford, a partner with the firm Piper Rudnick, has a focussed overview of the FTC's new proposed business opportunity rule. It is worthwhile to review it in full. Mr. Tifford demonstrates keen dry wit when he notes that 'the FTC has significantly reduced the amount of required disclosure that sellers must provide to prospective purchasers. This new trade-off between expanded coverage and reduced compliance burdens is likely to set the stage for a spirited rulemaking proceeding." (my emphasis) Since the Direct Sellers Association has, in the past, vowed not to be regulated by the FTC, I imagine that the rulemaking will be spirited indeed.

(For a sample of the DSA's concerns see this site by another laywer, Jeffrey A. Babener.)

Mr. Tifford does not offer an opinion as to whether the new rule will reduce fraud or not.

Since the rule making process is over 10 years old, perhaps the spirits we are talking about are 20 year old bourbon and the like.

Technorati Tags: ftc, piper rudnick, dry wit, dsa, jeffrey a babener, compliance burdens, laywer, bourbon, business opportunity, worthwhile, spirits, disclosure, prospective, fraud

Posted by michael webster at 12:11 AM | Permalink | Comments (0) | TrackBacks (0)

The FTC's new business opportunity rule is intended to deal with illegal pyramid schemes, such as the late, and possibly lamented, Bioperformance, recently shut down by the Texas AG. (For some excellent court video, see the following stories and accompanying video.)

According to the FTC, one of the problems with an illegal pyramid scheme is that the scheme does not clearly disclose to the individual at the beginning how many people have dropped out and therefore earned no money. While this seems laudable, will it work in practice? The MLM has to update its disclosure document every 4 months, but surely there will be reporting lags. In the case of Bioperformance, we learned that the company's owners made $5 million in approximately 5 months, leaving only 10% in earnings to be shared with the rest of the other "lucky" distributors. Thus, the proposed disclosure might not protect anyone until it is too late.

What might be a better requirement, or use of the disclosure document?

Technorati Tags: illegal pyramid scheme, illegal pyramid schemes, disclosure document, ftc, texas ag, lags, business opportunity, new business, disclose, mlm, earnings, lucky

Continue reading "FTC Business Opportunity Rule" »

Posted by michael webster at 3:21 PM | Permalink | Comments (0) | TrackBacks (0)

As the result of a letter from the Direct Sellers Association, dated May 5th, 2006 the FTC has decided to extend the comment period on its new Business Opportunity Rule to July 17th, 2006. The DSA had asked for a 90 day extension because of the purported serious and negative impact that the new rule would have on the direst selling community. The FTC declined to extend the comment period for a full 90 days apparently since the DSA did not point to any particular change which it was concerned with.

At the hearings in 1997, it is my recollection that the DSA was adamantly opposed to having any public disclosure of its customer or client's list. The feeling among the DSA was that these was confidential information and these sellerss could easily be approached by a rival direct selling group and induced to change sides, even if the "rivals" were not in the same field. The oppositon by the DSA to being regulated was fairly blunt at the time.

Technorati Tags: dsa, ftc, public disclosure, confidential information, business opportunity rule

Posted by michael webster at 11:05 AM | Permalink | Comments (0) | TrackBacks (0)

Recently, the AG for Illinois announced a consumer alert about a cheque cashing scam. I had posted some further information about this consumer alert, but I want to analyze how if at all the new FTC Business Opportunity Rule would have dealt with this case. Let's look at some of the players, innocent players who are necessary to enable this scheme. First, there has to be an ISP or two involved to host the website for the bogus charity. Second, there has to be a bank which will accept the cashier's cheques and clear them before they detect that they are forged. Third, there has to be a second bank which accepts the individual's personal cheque, clears it and sends the funds overseas. Finally, there has to be a respected source of job postings in order for the "donations handler" position to gain credibility. Each one of these institutions plays a role as a gatekeeper, preventing fraud or scams is part of their public and regulatory duty; in some cases, these public duties actually give rise to a duty of care to a particular individual with whom they are transacting.

How does the new FTC Business Opportunity Rule assign public duties to these institutions, which are necessary elements of the fraud? (The institutions are necessary and likely innocent players.)

Technorati Tags: cheque cashing, personal cheque, consumer alert, job postings, gatekeeper, cashier, ftc, clears, bogus, scams, business opportunity, cheques, credibility, analyze, fraud, innocent, charity

Continue reading "Anatomy of a Cashier's Cheque Scam and the New FTC Business Opportunity Rule" »

Posted by michael webster at 7:21 AM | Permalink | Comments (0) | TrackBacks (0)

Approximately 10 years ago, Chuck Whitlock wrote up his experiences exposing scams, frauds and cons. There are two important stories that Whitlock wrote about which are pertinent to due diligence for business opportunities. First, he describes giving a lecture at a business opportunity trade show explaining how individuals could get material information from the local state authorities which regulate business opportunities. He states "some opportunities are only opportunities for con artists to rip you off." One audience member was very attentive and asked Whitlock a number of questions. After his talk, Whitlock donned a disguises and started hawking a franchise for Platinum 1000 - a light bulb that never burns out. Whitlock collected $14,000 in a few hours and that attentive member for the audience? Buyer..

The second story may surprise readers. Whitlock attended a seminar which was promoting an illegal pyramid scheme promoted by a company called "Gold Corp". A Linda Chapman was presenting this wonderful opportunity and Whitlock was appalled by how many people were falling for the pitch, since it was an obvious pyramid. (Whitlock had done some previous research on the company prior to attending the seminar.) Whitlock jumped to his feet and exposed the scam. The crowd went wild - but, they were angry with Whitlock! He had stolen the fig leaf off this fraud, but everyone desperaedly needed to believe that this was "the one for them". As Cialdini eloquently explained in his book, for these individuals the disclosure of true and material facts just made them act irrationally quicker!

What do these two examples show about the FTC's proposed Business Opportunities Rule?

Technorati Tags: illegal pyramid scheme, whitlock, audience member, business opportunities, due diligence, pertinent, business opportunity, light bulb, con artists, surprise readers, gold corp, opportunity trade, state authorities, disguises, frauds, hawking, scams, regulate, rip

Continue reading "The FTC's Proposed Business Opportunities Rule Part II" »

Posted by michael webster at 6:53 PM | Permalink | Comments (0) | TrackBacks (0)

The FTC's proposed Business Opportunities Rule will expand the reach of the FTC to explicitly cover fraudulant multi-level marketing scams such as Bioperformance. By eliminating the condition in the Franchise Rule that the investor had to purchase $500 in order to be covered by the Rule, receive the appropriate disclosure document, the new Business Opportunities Rule will cover those cases in which the initial purchase was less than $500. But would the new rule have stopped the Bioperformance scam, faster than the AG of Texas?

One of the main hooks in the Bioperformance was not the use of the internet, but rather the travelling show or what I called pep rallies. How many of these shouting, happy people, were actually shills? The proposed Business Opportunities Rules, 437.5(q) addresses the problems of shill, paid testimonials. The seller would not be allowed to represent that someone, a locator, employee, or some other third party, owned one of the bizops. Second, the seller would not be allowed to represent that some independent third party, such as a broker, could provide them with a list of "satisfied customers."

Although this is a good start, it would have been better to attach the liability to both the seller and the shill - the shills as a group enable the fraud and should be also be liable for their misrepresentations.

Technorati Tags: pep rallies, business opportunities, franchise rule, multi level marketing, ftc, disclosure document, new business, initial purchase, happy people, shill, scams, hooks, travelling

Technorati Tags: pep rallies, business opportunities, franchise rule, multi level marketing, ftc, disclosure document, new business, initial purchase, happy people, shill, scams, hooks, travelling

Posted by michael webster at 8:23 AM | Permalink | Comments (0) | TrackBacks (0)

"The proposed rule would eliminate the $500 minimum investment requirement from the Franchise Rule, meaning it would apply to all business opportunities, even if they have a smaller start-up cost. The proposed rule also would eliminate many of the 20 disclosures that are required for franchises (trademarks, for example), but do not apply to business opportunities. Instead, the proposed rule would require a one-page disclosure addressing five items: whether or not sellers make earnings claims; a list of any criminal or civil legal actions against the seller or its representatives that involve fraud, misrepresentations, securities, or deceptive or unfair trade practices; whether the seller has cancellation or refund policies and such policies’ terms; the total number of purchasers in the past two years and the number of those purchasers seeking a refund or to cancel in that time period; and a list of references." (my emphasis)

The text of the proposal can be found here.

Will this new 1 page disclosure document reduce business opportunities fraud?

Technorati Tags: business opportunities, franchise rule, ftc, trademarks, new business, unfair trade, legal actions, minimum investment, deceptive, franchises, cancellation, disclosure, fraud, earnings

Continue reading "New FTC Business Opportunity Rule" »

Posted by michael webster at 6:02 PM | Permalink | Comments (0) | TrackBacks (1)