Siskinds partner Peter Dillon featured on BNN’s Business Day PM and Advocatedaily.com.
Peter discussed the dos and don’ts of modern-day multi-level marketing with BNN’s Business Day PM, and Advocatedaily.com provided a recap of that appearance.
See the recap on Advocatedaily.com below.
Distinction clear between pyramid scheme, marketing system
A billionaire investor’s argument that a publicly-listed nutrition company is, in fact, a pyramid scheme may fall short from a purely legal point of view, franchise lawyer Peter Dillon tells BNN’s Business Day PM.
As Bloomberg reports, billionaire Bill Ackman recently held a presentation accusing Herbalife – which sells supplements and diet shakes through independent distributors – of being a pyramid scheme, following a two-year, $50 million undercover investigation by Ackman’s firm.
The article notes that Ackman “has bet $1 billion U.S. against the company, saying it misleads distributors, misrepresents sales figures and sells a commodity product at inflated prices.”
Dillon, partner with Siskinds LLP, tells BNN that the distinction between a legal multi-level marketing system and an illegal pyramid scheme is simple.
“First of all, in an MLM – a multi-level marketing system – people are moving product and they’re getting paid a percentage of the downstream distribution. So, if I recruit you as a distributor, I’m going to get a percentage of your commission and so on, down the chain. That’s legal, as long as you don’t make misrepresentations about the profitability of the scheme.”
What you can’t do, he explains, is make money from recruiting downstream distributors, and the money they pay for buying-in flowing up, because there is no value being created there, and eventually the scheme falls apart.
“Now, there’s no suggestion – and Ackman didn’t really suggest that there was any of that going on,” he says in the interview.
While Dillon says the U.S. Federal Trade Commission will be looking at the claims, he explains that there is also an emotional side to the issue.
Ackman, he tells BNN, “sees a lot of lower-income people being sold a bill of goods – namely, ‘you can join the Presidents’ Club and wear a diamond lapel pin if you only do this’ and then what he sets out is a scheme which, in fact, is going to cost you money and can be very difficult to achieve.
“So, of the 0.3 per cent that are in the Presidents’ Club, there are, I forget how many hundreds of thousands of other people who are making slim pickings. So he’s saying that that qualifies it as a pyramid scheme. I don’t think it does legally – morally, ethically and from a sustainable growth proposition, that’s a different question.”