And the Leaves that are Green Turn to Brown - MLM Penny Auctions

By Jeffrey Babener, © 2012 / 2013
Although Zeek Rewards was closed precipitously by SEC enforcement action and consent settlement, legal history
will only be written and adjudicated by the courts as to whether the program should take its place in the pantheon
of other notorious programs. That analysis is not the function or purpose of this article.

Apart from some potential lottery issues, can a MLM penny auction service be properly marketed through
MLM/network marketing? Yes.

However, the revenue stream for payment of commissions should derive from bid sales to real retail customers,
who in turn use the bids. On the other hand, a program fueled by reps, who pay $10,000 for so called sample or
giveaway bids, and recruit other reps to do the same, from which the commission pool is paid, is really not the
marketing of a service. Rather, it is payment into a pyramid scheme. Ponzi and Pyramid schemes are, by case law
recognition, viewed as unregistered passive investment securities offerings that carry deserved civil and criminal
penalties for active promoters, whether they are company organizers or merely conflicted cheerleader media
publishers with financial interests.

Such schemes really have nothing to do with network marketing, MLM or direct selling. Hiding behind terms of
legitimacy is a great disservice to a global direct selling industry that markets in excess of $150 billion in real
products and services through 90 million plus direct sellers. Such programs taint the recruiting environment and
siphon finance and talent from “real” direct selling companies. In an era when NY Stock Exchange companies, such
as Herbalife and NuSkin, face short seller challenges in explaining the legitimate network marketing model, scams
and schemes that parade as network marketing merely confuse global markets as to the legality of legitimate
network marketing companies. Hiding such schemes behind terms like “freedom,” “entrepreneurial spirit,” “the
American dream,” or “free market capitalism” is an unfortunate high jacking of a truly major indigenous American
business marketing model.

Unfortunately, too many MLM penny auction models may fit the illegitimacy tests:

1.        Pyramid: Large upfront cash investments by distributors, who realistically pay for the right to recruit others to
do the same with a hope and prayer to make money off the subsequent recruits.

2.        Ponzi: Payment of promised investment rewards to old investors with money from new investors.

3.        Securities: Inducing passive investments with the expectation of return arising from the managerial efforts of
the promoter or third parties. In addition, pyramids and Ponzi schemes, by definition, are also securities.

In the end, prospects should understand that true network marketing opportunities involve real products and
services, real customers, and hard work. Scams and schemes and promises of something for nothing fit the
scenario of if it’s
too good to be true…

1, 2

Back to the MLM Articles Navigation Page.
Brought to you by MLMLegal is a valuable resource to the MLM and Direct Sales industry. Use
thissite to explore the different compensation plans, browse articles written by Jeffrey
Babener, view the latest posts from attorney Babener's blog, and more. To find more
information about the direct selling industry, visit the best MLM resource on the web:
© Jeffrey Babener, 2013
The Sister Website to