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Economics, Politics, Legalities, Ethics and Sociology of Pyramid Schemes / Multi-level Marketing.
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ACN Phone Scheme Target of
Fox News (Los Angeles) Investigation

The MLM scheme, ACN, was featured in a news investigation by Fox News in Los Angeles, CA. As in other similar news reports on this scheme, the story focused on the obvious – ACN looks and behaves as a pyramid scheme. In particular, the story asked why ACN recruits pay the company $499 for the right to sell the product and questioned the link of this payment to rewards for recruiting other ACN "sales" agents.

Fox11 in Los Angeles sent a camera crew to interview PSA President Robert FitzPatrick in Charlotte, NC, who offered the analysis that the upfront payment is the "pyramid money" that is later redistributed to the upline as a reward for recruiting. In short, ACN is just using a version of the "endless chain" trick to get consumers to pay the fees and buy its telephone services. Primarily, ACN is selling a "business opportunity" based on endless chain recruiting.

The Fox News report also revealed consumer complaints that have come into that popular website, Ripoff Report. The publisher identified ACN as a source of major consumer complaints. ACN is also among the top sources for complaints and questions that come to the Pyramid Scheme Alert website.

ACN does not disclose to the recruits or to the public how much of its "commissions" goes to what percentage of its "upline." In most MLMs of this type 50-80% goes directly to the top 1%, dooming the other 99% to losses. Additionally, ACN withholds information regarding dropout rates or average incomes. In most MLMs of this type average incomes do not reach anywhere near the levels of costs, leaving a net loss to virtually all that join. Most schemes of this sort also experience 70% annual dropout rates, putting recruits on a treadmill of further recruiting and paying fees all the while. The companies and the uplines feast on the money lost by the "churned" recruits.

One consumer website has analyzed the pay plan and illustrated the pyramid characteristics. One of the most obvious is that ACN pays a progressively higher commission to the highest levels of the upline. Translation: the higher you move up the pyramid, the greater the reward, per sale. This is the reverse of a legitimate sales company that would pay the highest percentage of commission to those actually making the sales.

The site also shows that it is virtually impossible to earn any significant commissions based on "services" used by the downline, unless a new recruit could build a huge downline. This can only be mathematically possible for a tiny few. The other bucket of money that the recruit is told he can benefit from comes from "bonuses", but this is reserved for those that pay the $499 fee - the classic "pay to play" feature of a scam.

ACN is not stranger to charges that it is an illegal pyramid scheme. It halted the sales of electricity products in California due to regulatory action. It was prosecuted in Canada and Australia for operating as a pyramid scheme but friendly judges allowed it to continue in both cases, citing technical definitions of pyramid schemes.

It has become increasingly difficult for regulators to prosecute multi-level marketing schemes such as ACN on charges of pyramid scheme operation. Laws have been poorly or narrowly written, often heavily influenced by the schemes themselves and their lobbyists.

The USA and Canada have been most lax in recent "anti-regulatory" years, allowing schemes to develop and then migrate to other countries. Police Departments have been reluctant to bring criminal fraud charges against MLMs. Canada, for example, does have a strongly worded criminal fraud statute that defines pyramid sales scheme as frauds, but seldom enforces it. The lax law enforcement may change as the political climate has recently changed and the awareness of the role of fraud in government and business is becoming more heightened.

Related Links on ACN



This page last updated on 12/2/08