Via Email - : Re: Imarkets Live Compensation Plan
Via Email - : Re: Imarkets Live Compensation Plan
Via Email - : Re: Imarkets Live Compensation Plan
Richards
Cell: (208) 757-0971
[email protected]
Christopher Terry
CEO
International Markets Live Inc.
45 Rockefeller Plaza
Suite 2000
New York, NY 10111
Dear Chris,
This is in follow-up to your request for an opinion regarding the iMarkets Live
compensation plan under the anti-pyramid laws in the United States. In the preparation of this
letter, I have reviewed a 17 page document entitled, “iMarkets Live Compensation Plan Platinum
Package” that I received from the company by email on June 6, 2016 (hereinafter the
“Compensation Plan”). My comments are based exclusively on the written Compensation Plan
set forth above and not on any other documents or information including, for example, sales
figures or data.
Before getting to my comments regarding the Compensation Plan, let me first walk you
through the legal and regulatory backdrop for multilevel marketing companies in the United
States.
The Koscot case was decided in 1975 and it remains good law for the pyramid scheme
analysis under federal law. The pyramid test under Koscot has three components:
Reese Poyfair Richards, PLLC
1275 E. Fort Union Blvd., Suite 115, Cottonwood Heights, UT 84047
(801) 981-8281 www.mlmlaw.com
Christopher Terry
June 10, 2016
Page 2
Ever since the Koscot decision was rendered, there has been debate between the
regulatory community and the direct selling industry whether a participant for an MLM company
can be an “ultimate user.” In Webster v. Omnitrition, 79 F.3d 776 (9th Cir. 1996), the court stated
for purposes of the Koscot test, “a sale [to a participant] cannot satisfy the requirement that sales
be to ‘ultimate users’ of a product.” 79 F.3d at 783. With that statement 1, the line between
industry and the regulatory community was drawn. Industry stridently took the position that a
participant in an MLM program could be an ultimate user if they legitimately consumed the
products or used the services they purchased from the company, whereas the regulatory
community argued that a participant in an MLM program could not be an ultimate user and that
participants’ purchases were always “investments” or fees that were ancillary to participation in
a program.
It took 18 years for a court to directly address this debate. In 2014, in F.T.C. v.
BurnLounge, Inc., 753 F.3d 878 (9th Cir. 2014), the Ninth Circuit Court of Appeals finally
addressed the issue. BurnLounge is a landmark decision in the analysis of pyramid schemes
because it clarified that an MLM company’s participants can be bona fide end-users under the
Koscot test. However, the ruling is very clear that participants’ purchases and use of their
company’s products or services are only bona fide end-user sales if the purchases are driven
primarily by market demand for the products/services and not by a financial incentive to buy the
merchandise. If purchases are driven by a financial incentive, then the true nature of the program
is to reward participants for recruiting because the product/service purchases are simply
incidental to participation in the program, and thus the program is a pyramid scheme.
Because the BurnLounge court was trying to determine whether the BurnLounge program
was driven by recruiting or product sales, the court sought to ascertain whether the primary
reason that participants were buying the products was due to a financial incentive to do so.
Therefore, the court closely analyzed the financial incentives built into the BurnLounge
compensation plan. In its analysis, the court considered the following questions:
1
This statement is “dicta” issued by the Ninth Circuit. “Dicta” is an observation or remark by a court that is not
central to the decision, and therefore does not hold precedential value. However, the regulatory community regularly
cited this statement as a standard of law rather than nonbinding dicta in pyramid cases.
4. Do participants recoup their investment (that is, do they earn more than they spend)?
A highly significant fact supporting the court’s finding that BurnLounge was a pyramid
scheme was the fact that BurnLounge participants were required to purchase a product package
to participate in the compensation plan. In MLM parlance, programs that require participants to
purchase the company’s commissionable products or services to qualify for compensation are
called “Pay-to-Play” plans. On this point, the Court of Appeals stated:
753 F.3d at 883. Thus, any multilevel compensation plan that requires its participants to
purchase the multilevel company’s products or services will be deemed a recruitment-based
(Pay-to-Play) program and therefore an illegal pyramid scheme.
The compensation plan analysis below will follow that applied by the BurnLounge court.
In addition to the compensation plan, the BurnLounge decision also considered sales and
compensation data submitted into evidence at trial. However, as noted above (and below), our
review of the iMarkets Live program will be limited to the Compensation Plan as written.
As used in this section, an “endless chain” means any scheme for the disposal or
distribution of property whereby a participant pays a valuable consideration for
the chance to receive compensation for introducing one or more additional
persons into participation in the scheme or for the chance to receive
compensation when a person introduced by the participant introduces a new
participant. Compensation, as used in this section, does not mean or include
payment based upon sales made to persons who are not participants in the
scheme and who are not purchasing in order to participate in the scheme.
A “pyramid promotional scheme” means any program or plan for the disposal or
distribution of property and merchandise or property or merchandise by which a
participant gives or pays a valuable consideration for the opportunity or chance to
receive any compensation or thing of value in return for procuring or obtaining
one or more additional persons to participate in the program, or for the
opportunity to receive compensation of any kind when a person introduced to the
program or plan by the participant procures or obtains a new participant in such a
program.
In general, state anti-pyramid laws most commonly define a pyramid as any program that
is primarily based upon distributor-recruitment. Moreover, they generally provide that at-cost
purchases of sales aids, tools or product samples from the multilevel company are not
“consideration” for purposes of the statutory definition of a pyramid scheme. The bottom line of
all state statutory pyramid definitions is that a pyramid is any program in which the
compensation that is paid to distributors is derived primarily (but not exclusively), whether
directly or indirectly, from activities related to distributor recruiting. Sales of legitimate products
or services may be involved in a pyramid, but they will not render a pyramid a legitimate
multilevel marketing program.
A. Bonuses.
The Compensation Plan includes the following bonuses: (1) Customer Acquisition
Bonus; (2) Perfect Storm Bonus; (3) Team Builder Bonus; (4) Rank Achievement Bonus; (5)
Team Residual Bonus; (6) Check Match Bonus; (7) Infinity Bonus; and (8) Chairman’s Club
Bonus. Each of these elements will be discussed below. However, before discussing each
bonus, a few underlying requirements must first be described.
In order to earn any compensation under the Compensation Plan, an iMarkets Live
“Independent Business Owner” (“IBO”) must be a Platinum Director. To become an IBO, a
person must complete the IBO agreement any pay the $15.00 monthly IBO kit fee. The
Compensation Plan states “Other than your subscription to the IBO Kit, there is no requirement
that you personally purchase any IML product. Your purchase of an IML product will not qualify
you for income under the compensation plan.” To become a Platinum Director, an IBO must
generate at least $145 in “Personal Retail Sales Volume” (“PRSV”). PRSV is defined as
follows: “PRSV is generated by the sale of an IBO to a Retail Customer who is not participating
in the IML Compensation Plan.” The term “Retail Customer” is defined as “an individual or
entity who purchases the Platinum Package for $195.00 with a monthly subscription of $145.00
and does not participate in the compensation plan or IML opportunity.”
Thus, under the written Compensation Plan, the iMarkets Live program is designed to
REQUIRE that participants make retail sales to non-IBOs in order to participate in the program.
Secondly, unlike many multilevel compensation plans, the iMarkets Live program does not allow
participants to qualify through their own purchases—as designed, the Compensation Plan is not a
Pay-to-Play plan.
In order to earn this bonus, an IBO must be at the Platinum 150 rank or higher. Rank
advancement in the iMarkets Live program has two primary criteria: (1) the IBO’s PRSV; and
(2) the IBO’s Group Volume (“GV”). PRSV has been described above. GV is described as the
total PRSV of an IBO and the sales volume of the IBOs in the subject IBO’s unilevel
organization. Whenever an IBO must meet a GV requirement to advance in rank, a minimum of
55% of the volume must come from retail sales. For example, if a particular rank required
$1,000 in GV, at least $550 must come from retail sales. In order to advance in rank, an IBO
must meet increasing PRSV and GV requirements.
Although this bonus is multilevel in nature, it does not raise regulatory issues because it
is paid only on retail sales. As such, it is not paid on purchases made by IBOs. It is purely retail
sales based. Moreover, in order to earn the bonus, an IBO must make retail sales and the
majority of his or her GV must come from retail sales.
As with the Rank Achievement Bonus, this bonus is dependent on recruiting and an IBO
must have made retail sales and have active personal retail customers in order to qualify for the
bonus. Thus, the bonus incentivizes IBOs to generate retail sales. Although the Team Residual
Bonus is unquestionably multilevel compensation, and thus, falls within the purview of anti-
pyramid statutes and case law, it appears to be primarily derived from activities related to
product sales rather than IBO recruiting. As such, it appears to constitute legitimate multilevel
compensation rather than pyramiding.
Because the bonus is a match of the Team Residual Bonuses earned by an IBO’s
personally enrolled IBOs, it necessarily promotes recruiting. However, it is necessary for an
IBO to have significant numbers of active personally enrolled customers in order to earn the
bonus. Thus, it also promotes retail sales. This bonus is also a form of multilevel compensation
and therefore subject to the anti-pyramid laws. However, because the bonus appears to be
derived from activities related to retail sales rather than just IBO recruiting, it appears to
constitute legitimate multilevel compensation.
“Cost” is an accounting concept rather than a legal one. Therefore, “cost” will be
determined pursuant to Generally Accepted Accounting Procedures (“GAAP”). “Cost” may
include “hard” or direct costs, as well as “soft” or indirect costs (e.g., overhead, labor, etc.). One
component that may not be included in the start-up cost is multilevel compensation that is paid to
upline IBOs out of the payment of such required fees/purchases. The state anti-pyramid statutes
prohibit both companies and distributors from making money in the enrollment or recruitment
process.
So long as the goods or services that iMarkets Live provides IBOs with the IBO Kit costs
iMarkets Live $15 or more per month to provide, there should be no legal issues associated with
these required payments.
III. Analysis
As I am sure you can appreciate, I can neither “approve” a compensation plan nor
guarantee that there will be no regulatory or legal challenges to a compensation plan. This is
because the vast majority of legal and regulatory challenges that are made against multilevel
companies are based on the operational aspects of the multilevel program. In other words, it is
the behaviors and actions of the company and the field that are the impetus for legal and
regulatory action. That said, the design of a compensation plan is going to be a major factor in
influencing company and IBO behavior. If the design of a compensation plan necessarily
incentivizes recruiting over retail sales, then both the company and the field are going to spend
their time and energies recruiting other IBOs. As you will recall from the above discussion
regarding Koscot and BurnLounge, a multilevel program that is based primarily upon recruiting
other IBOs is going to be at risk for legal and regulatory action. Where the design of a
compensation plan significantly promotes and incentivizes retail sales and customer acquisition,
then those activities will likely predominate over recruiting.
In addition, the Compensation Plan requires that the majority of the sales that make up an
IBO’s Group Volume must be sales made to non-IBO customers. This aspect of the plan further
incentivizes IBOs to work with their downline IBOs to acquire customers. An IBO has a direct
financial interest in the ability of the IBOs in his or her downline organization to also acquire
retail customers. Therefore, IBOs who understand and appreciate the Compensation Plan will
necessarily devote significant efforts to assisting their downline IBOs to acquire customers rather
than simply promoting IBO recruiting-based activities.
IV. Conclusion
For the foregoing reasons, it is my opinion that the design of the iMarkets Live
Compensation Plan appears to be in compliance with applicable anti-pyramid laws in the United
States.
This opinion is based solely on the design of the iMarkets Live Compensation Plan as
reflected in the 17 page Compensation Plan that was emailed to my attention on June 6, 2016,
and does not constitute an endorsement or approval of the iMarkets Live multilevel marketing
program. This letter shall not be relied upon as validation of the legality of the iMarkets Live
multilevel marketing program as the ultimate legality of any multilevel program will be based on
how the program actually operates in practice and the promotional and other activities of the
company and its IBOs.
For purposes of this opinion, we express no opinion as to the applicable laws of any
jurisdiction other than the United States. This opinion represents the judgment of the
undersigned as to certain legal matters, but they are not guarantees or warranties and should not
be construed as such.
By rendering this opinion, we do not undertake to update this opinion to reflect any facts
or circumstances not known to us as of the date of this letter or that become known later. This
letter is rendered to iMarkets Live on condition that: (a) the opinions expressed herein may be
relied upon only by iMarkets Live and its successors, assigns, management, and counsel in
connection with the operation of the iMarkets Live business; and (b) this letter and the opinions
expressed herein may not be used, circulated, distributed, quoted, or otherwise referred to any
other person or entity or for any purpose without our prior written consent in each instance. In
no event may this letter, the opinions expressed herein, or the name of this law firm or any
of its attorneys be used by iMarkets Live in the promotion or advertising of its multilevel
marketing program.
If you have any questions regarding this letter, please do not hesitate to contact me.
Sincerely,
Steven A. Richards