7/28/2005

 ACN Declared a Pyramid Scheme Down Under

In Australia ACN (American Communications Network) has asked new reps to pay a $499 fee when they join. ACN also paid a considerable one time "Customer Acquisition Bonus" (CAB) to the enroller but denied the bonus came directly from this fee. Nonetheless, the Federal Court in Adelaide ruled last March that ACN was operating a pyramid scheme and just recently issued a demand for ACN to repay the enrollment fee, plus interest, to every independent representatives who joined after November 23rd, 2004. ACN has appealed the ruling. In the mean time they have lowered their sign up fee to $200.

For a press report on the Aussie action against ACN go to: http://mobile.crn.com.au/Article.aspx?CIID=22197&type=News

Commentary:

The issue here, as in every case where an MLM company pays a bonus from a large enrollment fee, is whether or not this constitutes a financial reward based on recruitment of new reps rather than from the sale of a product or service -- a product or service that would have been purchased regardless of the income opportunity. Clearly, if a bonus were paid from a new rep's sign up fee there is no other way to earn such a bonus without the act of recruiting a new rep. Where the issue gets muddy is when the company claims the enrollment fee, usually $250 to $495 in most service based MLMs, is completely disconnected from the $100 to $300 "training" or "coded" or "CAB" bonus. The fact that this bonus is never paid out unless the enrollment fee is paid, and is usually paid out soon after the enrollment fee is paid, is merely coincidental. Also, based on years of legal precedent, such enrollment fees are suppose to be "at-cost" with no significant profit left over for the company. Otherwise, even of they really aren't paying a bonus to reps from this fee, the company itself would still be making money from the recruitment of new reps. Legally, no one can make money just from recruiting -- the reps or the company owners. I've seen what you get for this $495 fee in most of these opportunities and it sure doesn't look like it cost the company $495 (there's usually around $15-$35 worth of materials in the kit, and annual admin costs per rep usually run about $25-$75). There's really no way to justify the $495 fee being "at cost" -- unless, of course, you also pay out a $300 bonus from this fee.

This commentary applies to all service based MLMs, not specifically ACN. Although it is Australia's determination that ACN's enrollment fee structure is indicative of a pyramid scheme, no federal authority here in the U.S. has challenged them on this issue.

In the U.S. ACN also charges up to $499 when you join (which is allegedly "at cost") and pays a "CAB" bonus of up to $100 (which allegedly is covered by future usage of the new rep's acquired customers, not from the $499 sign up fee).


To your success,

Len Clements
MarketWave, Inc.


 

  Since 1989, Leonard Clements has concentrated his full-time efforts on researching and analyzing all aspects of Network Marketing. He is a professional speaker and trainer, and currently conducts "Inside Network Marketing" seminars throughout the world. Len is the author of the controversial book "Inside Network Marketing" (Random House) and the best selling cassette tapes "Case Closed! The Whole Truth About Network Marketing" and "The Coming Network Marketing Boom." He is a court recognized expert in the field of network marketing.

  To receive additional information about MarketWave and its products, please call 1-800-688-4766, or write to MarketWave, Inc., 1572 Rock Island Lane., Las Vegas, NV 89110, or visit www.marketwaveinc.com.