The MLM scheme, ACN has been charged with operating as an illegal pyramid scheme by regulators in Montana.
The charges brought by the state securities commissioner are depressingly familiar. They describe a predatory recruitment program based on outrageously false income claims and documented financial losses by the vast majority of all participants. The regulators’ charge that consumer losses in ACN are not due to market forces or competition, but to its design and structure — a classic money transfer. In the words of Montana’s Securities Commissioner, “ACN operates an illegal pyramid scheme that only benefits members if and when they find enough new members to join the scheme. Once enrolled, members who join the program earn compensation for each new person they enlist.”
For those who have not examined such recruitment schemes, which are prevalent and definitive in the multi-level marketing industry, the key fact to know is that these schemes always produce 99% loss rates. This is intentional.
Here is the crux of the Montana case: ACN sells a fake income opportunity in which almost no one earns a profit. If Montana is a guide for the whole country, where perhaps more than 100,000 people invest in the scheme, ACN is sucking tens of millions of dollars out of the pockets of tens of thousands of people who “fail” to earn a profit. Their losses are passed upwards to the recruiters and the company. Here are the numbers in Montana as cited in the lawsuit:
- In 2009, 312 people in Montana were listed as ACN salespeople.
- They paid to ACN in “fees, renewals, supplies and conventions” (not products) a total of $234,813.02
- This is an average payment, before products and other normal business expenses, of $752 per person.
- In the same time period, this group was paid a total of $16,615.08 in commissions by ACN.
- That is an average income of $53 each, a net loss of about $700 a person, just from fees and and other direct costs to participate.
- However, from actual sales to end-users, they earned only $896 in total
- That is an average of $2.82 per person in revenue from sales.
There are a several additional facts about ACN that bear scrutiny by consumers and regulators:
- ACN recently moved its headquarters to Charlotte, North Carolina area, where local officials welcomed the company and gave it special tax breaks to move there. The North Carolina officials ignored warnings that about ACN’s regulatory history, pyramid structure and possible controversies.
- Real estate speculator and casino mogul, Donald Trump, personally endorsed the scheme, which should raise questions about the credibility of the scheme as an “income opportunity” supposedly for average people.
- ACN was charged with operating a pyramid scheme in Canada and Australia, but escaped prosecution by favorable rulings by judges. In Canada the ruling was that the scheme could not be defined as “multi-level marketing”, within the terms of Canadian law, and therefore could not be held to account for not disclosing losses suffered by consumers.
- ACN has been questioned by news media in Los Angeles where its inquiries were ignored and the efforts by reporters to ask questions were blocked.
- ACN solicits consumers with great promises of income but offers no information on actual income average, payouts or dropout rates. It does not even disclose total revenue of the company and how much of that revenue comes right out of the pockets of the “salespeople.”