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Cynth'ya Lewis

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Yo Santa! What's a Pyramid?
by Cynth'ya Lewis   
Rated "G" by the Author.
Last edited: Monday, January 28, 2008
Posted: Saturday, January 26, 2008

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The following is not for people who believe everything they see on TV. If you read, and on and share it with an intelligent friend. The rest can watch Country Fried Home Videos on CMT. (Click on the picture to see the wording)



As defined by attorneys'-general of every state, there are seven criteria that are used to factually define whether a business on a multi-level platform is legal, or illegal. Understand that multi-level is not a foul word. The entire world around us is multi-level. Look at the job positions, the salary scales, the tenured versus the temporary positions not to mention perks and benefits for being connected with “the in crowd” as baby boomers used to describe those who got all the insider and advantages.


A solid, fair and honest multi-level marketing company is the same as the world we have come to know as global commerce, except for one very important detail: In the world of multi-level marketing, no one in a fair system is assigned a position. People can go to the top of the ranks at will, without permission from a boss, without being voted upon by a board, without taking any test to prove our worthiness. In fact, all things considered equal, multi-level marketing is the stuff that makes America great. And if Americans are allowed to feel they can exercise their freedom of choice to gain the kind of lifestyle they choose without persecution, then to be in a solid, fair and honest company who has the heart of its independent distributors, representatives, affiliates—call them what you may—is a company that is the epitome of the pursuit of life, liberty and the very happiness promised to us by our constitution.


As for those seven criteria, legal columnist D. Jack Smith of the Network Marketing Business Journal—the end-all of all things golden in the world of relationship/network marketing, he says the following when it comes to what the states consider what is kosher and what is a sour grape of a business. In his June 2007 NMBJ column titled “Multi-Level or Pyramid, page 15, he writes:


The legal precedents, especially on a state level, are relatively few and even these address different parts of the whole and, in any event, are inaccessible to “the layman.”

. . . It is not uncommon to find inconsistent rulings between various jurisdictions. Consent and formal approval is virtually never given by the authorities in these states.


So! What is a prospective network home business owner to do? Smith says that in 100% of the Q & A dilemma, there is one unwavering questions among all jurisdictions without fail when it comes to legal versus illegal: Is this company really in business to market bona-fide goods and/or services on a multi-level basis or is it trying to profit directly or indirectly by the mere recruitment or “head hunting” of individuals and fees from them (or fees disguised as required purchases), which are multiplied in a chain process?


Criteria 1 of 7:

A product must be inherent to the program and not a guise or a “tack on” to a chain. Actual product sales and the product sale growth curve (especially when compared to any other types of company revenue) play the largest part in making the legality decision for multi-level companies. (One company known as Equinox was an illegal pyramid. Revisit HR 1220 in November 11, 2003 letter to the Members of House Subcommittee on Commerce, Trade and Consumer Protection.)


Criteria 2 of 7:
The presence (or absence) in the plan of any type of compensation for the mere act of recruiting others to participate. Also this facet of the plan is the most obvious and easiest “red flag” to spot. No market or nation-wide company sales analyses or comparisons need be made.
(A company that is legal just stands for what it stands for, and will never need to take “pot shots” at any other company. It just is what it is, and it is proven beyond doubt by documentation to stand on its on merits.)  Because of the presence of a recruitment or “head hunting” fee, (e.g. any kind of compensation) payable to one who signs up another participant is so apparent, this is the factor most often set forth as the basis for a ruling that a plan is pyramidical in nature and therefore unlawful.

Surprisingly, several state statues seem to permit some sort of head-hunting compensation since their wording is to the effect that a distributor’s income must be primarily (not exclusively) based on product sales.  Tennessee and Mississippi are examples of this type of legislation.

Even here, however, and while there are no state precedents interpreting this language, some attorneys’ general offices choose to read (or misread) the statutes as requiring a distributor’s income to be 100% from product sales made either personally or by his “downline.”


Suffice it to say—if the plan under examination provides for some recruitment compensation --no matter how small—that plan sooner or later is going to become embroiled in controversy.


Criteria 3 of 7:

In this regard any plan that provides for payments between distributors on different levels—from one to another—is bound to be viewed as a form of prohibited chain letter.


Criteria 4 of 7:
Many states expressly prohibit the requirement that a new distributor make “an investment” in order to become a distributor.  (
This means one must be mandated to pay an investment in order to tap into some form of available income). Alabama is a good example of this type of legislation. Some states, but not all, permit a nominal (under $200) charge for what they term “sales aids or materials furnished at cost.”

This is taken to mean “non-commissionable.”


Criteria 5 of 7:
Beware of any plan that has a “front load end” requirement. “Loading” is simply requiring purchases by the sales person WITHOUT REGARD to whether or not they can be resold to the public.  

This is another form of requiring a fee or the marketing of an “investment” in order to become a distributor.

ANY MARKETING PLAN that  REQUIRES the purchase of products as a condition of being permitted to become a SALES AGENT is headed for sure and certain trouble in many places. In the most egregious cases these companies have had a “no refund” policy if the new agent proved unable or unwilling to sell his required stock of inventory. (Note again the Equinox case mentioned previously.)


Some states will permit a reasonable product purchase requirement if it is clearly accompanied by a full refund or at least a 90% refund policy. Even this, however, will be of no help in those states that flatly prohibit the requirement of making an “investment” in order to become a “distributor.”


Criteria 6 of 7:
Any expression of unrealistic earnings potential  in any of the companies’ oral programs or literature will bring swift and certain attention not only from state authorities but from the U.S. Postal Service if the mails are used in any way to distribute these claims.

No “Puffing” should take place—the facts alone should speak and they will be more than sufficient in any meritorious situation.

Any false statements pertaining to product—any testimonies that are not legitimate and any non-factual representations or implications will surely be challenged to the embarrassment or worse of those making them and to the detriment of us all.

LASTLY (& 7 is the number of “completeness) and what should be THE MOST obvious:  ALL OF A COMPANIES’ ADVERTISING SHOULD BE COMPLETELY ACCURATE AND NOT MISLEADING.


Smith, who is a graduate of Harvard Law School, Cambridge Massachusetts,  who has developed an ongoing practice in multi-level marketing law and who has also handled over 2,000 network marketing legal matters goes on to conclude:


I believe multi-level marketing is clearly now “out of the starting gate” in this new century. However it still has much to overcome in the way of educating legislators, enforcement authorities and the public in general.

We currently enjoy more than our share of government scrutiny BECAUSE OF SOME ABUSES IN THE PAST and ALL OF US have to try to LIVE DOWN THE PREJUDICE they have caused in certain quarters against our industry.


There should be CAREFUL PREPARATION of marketing plans and SUPERVISION of distributor’s practices, SCRUPULOUS honesty applied at ALL LEVELS, and finally a CONTINUOUS EDUCATION EFFORT to bridge the communication gap between companies and state officials.



D. Jack Smith, aside from all else mentioned about him, is a member of the Tennessee and Washington D.C. bars appearing in courts and negotiations on behalf of multilevel marketing companies in over 30 states and the Federal Trade Commission (FTC). He has set up new companies and handled over 2,000 legal matters. Smith is a member emeritus of the board of directors of the Multi-Level Marketing International Association (MLMIA), a recipient of the “Attorney of the Year” award; and is on the Lawyer’s Council of the Direct Selling Association (DSA) in Washington, D.C. He can be reached in Memphis TN at his office: 901-685-1586.  Fax number is: 901-763-2976 and his email address is


Post note by cynth’ya lewis reed:

What most people fail to realize is that if there is a product or a service that is made available, and a free option is offered, with a set of open financials (i.e. publicly traded company that is always pre-screened by the United States Securities and Exchange Commission which is a regulatory board of 5 individuals of impeccable character and credentials duly appointed by the President of the United States), a board of directors, and has the ability to run the business as one chooses without mandated requirements to recruit while still offering a service to make money even if nothing is purchased, then that is the best of both worlds.

YTB Travel & Cruises International is a publicly traded company (YTBL stock symbol), a member of the Direct Selling Association (DSA) and has been cleared by the Federal Trade Commission, the American Stock Exchange and the Securities and Exchange Commission.


Any questions? Or are you still trying to send those dishtowels and dollar bills in chain letters in the mail to your friends and family? . . . .


Blessin’s, and I loved you enough to tell you the truth. Jesus Christ said “The Truth SHALL set you free.”


YTB Travel & Cruises International is a publicly traded company (YTBL stock symbol), a member of the Direct Selling Association (DSA) and has been cleared by the Federal Trade Commission, The American Stock Exchange and the Securities and Exchange Commission.


Any questions? Or are you still trying to send those dishtowels and dollar bills in chain letters in the mail to your friends and family? . . . .


Blessin’s, and I loved you enough to tell you the truth. Jesus Christ said “The Truth SHALL set you free.” And even HE knew that the majority in this world will always try to circumvent the truth.

But the truth stands on it's own. So can a family if given a serious and strong chance to change if change is what they seek.

Change never comes to anyone easy. But it's worth it not?

Happy business hunting,



By the way, guess who the Network Marketing Business Journal named Company of the month? Click here and find out. Merry Christmas!


About the NMBJ

 Another good resource from one of our many team family support sites (We don't call each other "upline or downline" in our group...that might get you popped upside the head. We are a Team Family and we sponsor people "WITH" others, not "under"....that's for dead folks and basement dwellers, being "under" something or someone, ya' know?)

Web Site: Real People: The Founders of YTB International

Reader Reviews for "Yo Santa! What's a Pyramid?"

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Reviewed by John Martin 1/26/2008
Nice Article, you're right, Wall Street and the world ecomony are nothing more than a pyramid schemes, a little fancier pehaps... none the less, they too are based on the "Greater Fool Principle."
Reviewed by Karen Lynn Vidra, The Texas Tornado 1/26/2008
Interesting article, Cynth'ya; well penned! BRAVA!

(((HUGS))) and much love, your friend in Tx., Karen Lynn. :)
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