ACN MLM Shut Down In Montana Called A Pyramid Scheme

I received an email alert from Len Clements tonight regarding the shut down of A.C.N. in the State of Montana.

Here is the full MarketWave alert from Len (posted with permission):

Earlier today the Montana Commissioner of Securities and Insurance Monica Lindeen (D) announced the issuance of a Cease and Desist Order and Notice of Proposed Agency Action against ACN, Inc. and several of its founders for allegedly operating a “pyramid scheme.”

One of the primary concerns cited in the announcement was the allegation that Montana participants “must personally buy” and sell a phone service that is “largely not available for use in Montana”.

The Commissioner also cited the low average earnings of ACN reps based in Montana. Allegedly, in 2008 ACN recruited 91 Montana participants who “paid approximately $61,741.69 to be a part of the program”, averaging $678 each. All but two lost money, with one making $696 and the other making $700. In 2009 “over 300″ Montana participants joined ACN and paid about $234,800, averaging about $775 each. According to the Commissioner’s Office ACN’s records show $896.86 was paid out to these participants, in total.

The Commissioner’s announcement can be viewed here:

http://www.sao.mt.gov/news/20100803ACN.html

Commentary:

(click the dots to read more)

Montana’s Commissioner of Securities and Insurance (note, not Montana’s Attorney General) has filed somewhat similar charges against two M.L.M. companies this year, the other being Fortune High-Tech Marketing last April. You can view the Cease & Desist Order against FHTM here:

http://www.csi.mt.gov/legal/securities/S10_HITECH%20Cease%20and%20Desist.pdf

I’ve always been leery of service based M.L.M. programs, especially travel and telecom companies. Most tangible product based programs have payouts of between 45-50%, and per active rep monthly volumes of around $100. Most telecom companies (in general, this is not about ACN specifically, yet) have payouts of between 8% and 35% depending on the service (due to the much lower margins), and the average active rep generates anywhere from $75 to less than $20, again depending on the service they’ve signed up for. To compensate for the relatively weak income potential of such a plan, where reps are getting paid a smaller percentage of smaller monthly sales volume, a Customer Acquisition Bonus is paid when a certain number of “customers” are enrolled on one or more services. Companies can pay out anywhere from $45 to as much as $200 on these “CAB” bonuses, which often times have exceeded the total initial income to the company from those customers acquired. Where do they get the money to afford such a bonus? It’s not, they’ll always claim, from the several hundred dollar “Training/Trainer” fee a new rep pays when they join, and which is almost always required to achieve higher ranks in the plan. They’ll usually try to cover for the CAB bonus by claiming it’s an “advance commission” on the telecom service purchased, or that it’s no different than, say, AT&T or MCI paying a customer to switch their service (they lose up front, but eventually make it up later). Perhaps. But I don’t believe it’s simply a aberrational coincidence that tangible, consumable product companies – those with payouts that have numbers like 50% and $100 on each side of the multiplication sign – rarely have enrollment fees higher than $50, and virtually all telecom based programs have enrollment packages of $250 to $499.

So, if ACN were to discontinue their $499 “Team Trainer” package, would they still be able to afford their $45 to $70 CAB bonus payouts? We may soon find out, at least in Montana. If we use the FHTM settlement as a guide, here’s what ACN might be in for.

FHTM was required to:
· Refund up to $840,000 to more than 3,400 Montana participants.
· Pay fines and contributions totaling $150,000 (and a Montana distributor was ordered pay a $5,000 fine).
· Change its business plan in Montana, including requiring new distributors to only pay $75 to become a rep (it was previously $299, and yes, FHTM offered mostly low margin services).
· Conduct mandatory live and online training monitored by the Commissioner’s Office.
· Provide a disclosure form to every current distributor and prospect describing FHTM’s program, including average incomes and the average amount of time it takes to reach each rank.
· Emphasize product sales to non-participants and require its distributors to provide a monthly accounting of all non-participant customers.

Here’s the actual Consent Agreement and Final Order:

http://www.csi.mt.gov/legal/securities/S10_HiTechConsent.pdf

This isn’t the first time ACN has come under legal fire. In 2002 the Competition Bureau of Canada charged ACN with operating an illegal pyramid scheme (see HERE). In November 2003, the court dismissed all charges against ACN. Not because it found ACN was not a pyramid scheme, but because it found “insufficient evidence” that they were a multilevel marketing company, thus did not fall within the applicable “Competition Act”.

On November 15, 2004 the Australian branch of ACN was investigated by the Australian Competition and Consumer Commission (ACCC) for allegedly operating a pyramid scheme. On March 23, 2005, an Australian judge ruled that ACN was promoting an illegal pyramid scheme based primarily on the “CAB” bonuses being paid. ACN appealed the ruling which was eventually reversed and the ACCC was ordered to pay ACN’s court costs (see HERE).

My biggest concern here isn’t so much how the ACN pay plan is structured, but rather Montana’s focus on average incomes and the large number of ACN reps who earned little or no income at all. It’s always disturbing when high ranking regulatory officials apply this illogical, irrational standard to only the network marketing industry. Only in our profession is the fact that the large majority of participants fail somehow indicative of an illegal business model. Of the 195,000 books published last year, more than 95% sold fewer than 5,000 copies. The vast majority of those who set out to become successful musicians, actors, or pro athletes fail. Easily 99% of those who sign up for a gym membership do not reach their conditioning goals. But when more than 95% of network marketers don’t do what they’re suppose to do, well enough, long enough, it somehow makes the company they chose to not do it in an illegal pyramid scheme.

For the record, I don’t believe for a second that ACN is going anywhere. They’ve got a lot more money to spend on lawyers than FHTM does, and are, relatively speaking, a much more legitimate company and income opportunity. ACN will, I predict, soon be back in business in Montana, but with a modified program. To what extend, we’ll have to wait and see.

ACN is 2-0 against Canada and Australia. Montana is 1-0 against M.L.M. companies. Vegas odds are 2-to-1 that ACN wins by decision and remains undefeated. But they may not look as pretty when the bout’s over – at least in Montana.

Len Clements
Founder & CEO
MarketWave, Inc.
 

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9 Responses to “ACN MLM Shut Down In Montana Called A Pyramid Scheme”

  1. Ken says:

    What makes ACN a more legitimate company than Fortune? And, ACN might have been around a few years longer and currently be generating more revenue, but I wouldn’t underestimate the legal muscle of Fortune. The founder has a net worth of $400 million plus. Sometimes writing a check to a state government is an unfortunate part of doing business.

    I agree with the above that the real worry here is the government deciding what is legitimate based on percentage of people succeeding. Maybe in the future we will all just have government jobs. They can tell us what we’re worth. I’m sure it will be fair and reasonable.

  2. larry says:

    ACN 3-0 no question, like it said in the article, there are a lot of parents spend HUGE money getting thier kids towards a “pro” career only to realize they were fueling the organizations agenda,it takes a lot of money and years to go through university and today there is no guarantee that there willl even be a job at the end of it , so to spend a few dollars on yourself and to have a chance at getting out of the “normal” job structure why not, after all why is it people spend so much money on lottery tickets? and the governments feel thats okay??

  3. If I had a dollar for every person who tried to pitch me on ACN I would have enough to buy a team trainer package.

    The low margins on commodity products make it a very tough to run a profitable business. In the travel business the average commissions is about 5%. To generate $10k in commission there needs to be $200k of commissionable travel booked.

    I have little doubt that after some hefty legal fees ACN will walk away the winner.

  4. Ken says:

    At the end of the day, it has much less to do with “consumer protection” than it does with the government extracting their pound of flesh. State run lotteries are wonderful, private lotteries land you in prison. It’s not even hypocrisy really, it is just blatantly how it things work.

  5. Aki Wood says:

    Wow, it sounds like Montana doesn’t really like MLM Companies. People should stop whining and realize that Network Marketing is a pyramid structure.

    So are jobs; I like being at the top of my own pyramid a lot better that I did being at the bottom of someone else’s.

    Montana authorities need to quit being such babies.

    Nice Post Ty

  6. Bill says:

    If ACN were anywhere close to these unfound allegations then why would major corporations like: Verizon, AT@T, T-Mobile, Direct TV, ADT Security, Nextel, Sprint, Dish Network, WiMax and others partner with them? Fortune Mag., Success Mag., USA Today to mention a few have all praised ACN’s business model. ACN is also regulated by the FCC and FTC. The state of Montana needs to get a life. Australia and Canada embaressed themselves by taking the same shot at ACN. I’m forever amused by government agencies going after MLM companies and people who don’t follow a company’s business plan. Try and Google: Avon, Mary Kay, Tupperware, Amway and other top MLM organizations. You will find hundreds of sour grape stories reported by reps who failed.

  7. JR says:

    I am an Indepedent Rep for ACN, and just received this letter from the company. I have been involved in ACN 6 years. Its ok that some people don’t like MLM, or network marketing. That is their choice. But to suggest what ACN does it illegal is silly. ACN has a 17 year track record in the United States and does business in 21 countries. Montana was mistaken with their original assessment of ACN. And ACN, unlike some other MLMs in Montana, did not have to pay any fines whatsoever. They didn’t do anything against the law! What’s sad is the media and others on websites like this jump to conclusions without giving ACN any right to defend themselves first. Again, you may or may not like our business model, but that does not make it against the law or unethical just because you don’t like it!!!

    Dear Montana ACN Representative,

    Thank you for your continued support and patience as ACN worked tirelessly to resolve the issue with the Montana Securities and Insurance Commissioner’s Office. We had full confidence that these misunderstandings would reach a favorable resolution, and we are happy to report that on Monday, September 13, 2010, the cease and desist order against ACN was lifted. As a result, you may now resume business as usual.

    At ACN, our integrity is at the forefront of every decision we make, and our reputation of being a premier direct seller is based on that company-wide commitment to integrity. It’s a reputation we don’t take lightly, and one we will always fight vigilantly to protect. We certainly appreciate your patience during this time and wish you all the best as you continue building your ACN business.

    Sincerely,

    Greg Provenzano

    ACN President and Co-Founder

  8. Josh Drewien says:

    I have seen both successful and failed situations. it all depends on how you work the business.

  9. That's bullshit. I agree that some people make money but on average its 1% of people in an MLM, and how do they do it? By having 300 underneath them all losing money. Don't you dare put lipstick on this pig.

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