A thin line between legal and illegal in multi-level marketing

lblackford@herald-leader.comMarch 7, 2010 

A multi-level marketing company could also be called a legal pyramid scheme.

What authorities consider illegal is a pyramid-shaped sales force that is based on recruiting new people into a company who are not selling a product. If that same sales force — as in Paul Orberson's Fortune Hi-Tech Marketing — sells products, then it's legal.

For some experts, the line between multi-level marketing and pyramid schemes is a thin one.

A multi-level marketing firm is "a money machine for the people at the top," said Robert FitzPatrick, creator of the non-profit Pyramid Scheme Alert in Charlotte, N.C. "But if you're at the bottom, such a system is a financial trap."

FitzPatrick would not discuss Fortune specifically, but his Web site, www.pyramidschemealert.org, links to a dispute that Fortune had with the North Dakota Attorney General's office.

The Attorney General banned Fortune briefly from doing business in the state because the company did not have a transient sales license and it was alleged that Fortune violated the state's pyramid scheme law; the matter has since been resolved, a spokeswoman with the office said. In the settlement, the issue of the pyramid law was not addressed.

Orberson likes to say that his company has no debt and no shareholders. FitzPatrick points out: "That also means no filings with the SEC (Securities and Exchange Commission) and no public statements about how much everyone is making."

Orberson said he makes $600,000 a year as the founder of Fortune. He used to take minimum wage, but his accountants told him it would look like a money-laundering scheme.

He contests the idea that everyone who gets into Fortune thinks he or she will get rich.

"For most people, it's about a few hundred dollars a month, which makes a difference in their lives," he said.

Fortune has a classic pyramid shape in which people at the top — those who first came to the group — make money for recruiting more people. Each person recruited into the program must have three customers who are buying products or services.

The higher up you are in the organization, the more money you get for bringing new people in. In addition, you get a commission for every person recruited and every sale made by someone in your "downline" — the people you recruited and, in turn, the people they recruited.

Fortune is already in Canada and Great Britain, and there's no reason why it won't keep crossing the globe, Orberson says.

Fortune allows the companies involved to reach different markets, says Jim Summers, national account manager for the DISH Network, a service that Fortune has sold since 2001.

"It's more friends telling friends," Summers said. He estimates that Fortune's salespeople can be grouped with DISH Network's top 20 retailers nationwide.

Dino Gugielmelli markets his Flying Basset organic dog food through Fortune. "You get customers you don't have access to normally," Gugielmelli said of network marketing.

For example, a Fortune representative might sell organic dog food to someone who wouldn't go to a specialty pet store.

FitzPatrick said most multi-level marketing firms bring a sophisticated approach to their pitches.

"It's very carefully thought out," he said. "It identifies itself with many wonderful values, hopes, aspirations and goals, but in the end it's an income opportunity for people who are so desperate for income.

"Always there is the charismatic, pious, benevolent, generous leader who will give you the financial security to deliver you from the terrible trap we're all in. A mass psychology takes hold, instead of people saying this is unbelievable.

"But it is unbelievable because it isn't real."

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