29 January 2013

Fortune Hi-Tech - FTC Calls it a Pyramid Scheme - What Does That Mean

The FTC (Federal Trade Commission) announced today that it is freezing the assets of Fortune Hi-Tech,  a Kentucky based company that allegedly has been operating as a pyramid scheme.

According to the Wall Street Journal Blog, " That’s because after paying hundreds of dollars to join — and sometimes thousands — commissions on actually selling a product were almost comically thin".

This is a sad day for many distributors of the company who have invested hundreds, if not thousands of dollars and have seen little or few commissions from their sales efforts.

Stories like this lead people to seek out an honest explanation of the difference between a legitimate direct selling company with a multi-level compensation, and one that is in fact a pyramid scheme.

According to Jeffrey Babener, well known MLM Attorney "Both MLM and pyramids have multilevel payment systems, but that is where the similarity ends. Network marketing is a legal, ethical manner of doing business. Pyramids are illegal, fraudulent con games. In MLM, you are a legitimate seller of a product or service and business opportunity. In a pyramid, you are a crook. "

In a legitimate company, the majority of people using the products are purely customers. Distributors are the minority and they get paid commissions on actual products that are sold, not on recruiting. Though there is a value to building a team or a "downline" , the value is in reaching more customers through an increased network of distributors. Just like Target or Walmart, Wendy's or Starbucks, build's another store to reach more consumers, a direct marketing professional grows his or her team of distributors to reach more customers. In a stellar company, company culture and compensation rewards supporting new people and teaching them the value of customers who use the products because they love them - not for any monetary reward.

It appears the this was not the case with Fortune Hi-Tech. According the the WSJ Blog post the Fortune Hi-Tech pay plan for set up to pay a miniscule commission of sales of it's variety of products . The blog further goes on to say that the FTC says that "90% of the people who joined the company to earn money ended up losing money instead."


New FTC Guidelines

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