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:
(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:
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:
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.
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