Fortune Hi-Tech Marketing Closure a Lesson For All Network Marketers
Ok, so Fortune Hi-Tech Marketing (FHTM) got closed down as a result of action by the FTC and various states’ attorneys generals. The claim was that FHTM was an illegal pyramid scheme.
When looking at the pyramid issue we need to get clear on one thing: what determines a pyramid?
We know that if a company that has a tiered commission system is not of itself an illegal pyramid.
A company crosses the line when a few key elements are in place:
1. No product. If a company doesn’t have a product it is just a money game or chain letter, and although money can be made in the short term, as the business grows it will be scrutinised and will fail the test every time.
2. Product But No Intrinsic Value. Companies with products that have been created simply to convey the impression of a product when in fact no real product exists, can be targetted by regulators. Online digital products can fall into this category – sometimes digital products purport to be legitimate but in reality are worthless.
3. Commissions Paid For Recruitment – Not For Product Sales to End Users. Some people misinterpret this to mean that if most of the product sales are to participants, this of itself constitutes a pyramid scheme. This is incorrect. Companies such as Amway have a high number of members who consume the product for themselves, yet Amway is not a pyramid scheme.
The real problem occurs when a company pays fees and commissions for recruitment without any product sales being necessary, to make money. This appears to be the problem for FHTM.
As a result of numerous complaints, when regulators investigated the company they found they broke the rules and shut them down. Although the company had a product line they also paid commissions to recruiters for introducing other members, which is clearly against the law.
Here is the key clause that some companies have a problem with:
“To be a legal network marketing opportunity, income must be primarily derived from the sale of products not from recruiting new members”
Many people claim that this rule means that if money is earned from the sale of products to new members, that constitutes a pyramid. Wrong. As long as money is paid for a product, then no problem.
4. False Income Claims. Some companies and marketers make ridiculous income claims, totally without foundation. This is like a red rag to a bull – the FTC looks at it as a very serious breach of the rules and will take action.
Here IS Why FHTM Got Shut Down
So the problems with Fortune Hi-Tech Marketing were 2 fold:
1. Fees Paid For Recruitment. There is no doubt that the company was paying commissions for recruitment, irrespective of whether products were being sold.
2. False Income Claims. This was a big problem. Not only were the reps making outlandish claims, but the company was doing it as well. Once the FTC found out about it, the fate of the company was sealed – they were toast.
I guess the lesson we can draw from this is that if you get involved with a network marketing business, make sure the company complies with the rules. Don’t get seduced by the sales pitch – look at the facts behind the business.