Friday, October 5, 2012

MLM Basic: What is a buying club, and why MLM is NOT a buying club

English: The interior of a typical Costco ware...
English: The interior of a typical Costco warehouse club store. This is the apparel section of the warehouse in Mountain View, California. Photographed on October 9, 2005 by user Coolcaesar. (Photo credit: Wikipedia)
Very often, a suspect scheme's supporters will claim that they are a "buying club", where people can get things for a discount, and thus, membership in this "club" can be sold as a product. Then they cite "CostCo" or Sam's Club as examples.

This is a myth, and I will refer to a real lawyer's opinion on this. This lawyer is Spencer Reese, half of "Grimes and Reese", famous MLM lawyers. They know what they're talking about. You can see the link at the end.

If the company fits the following criteria, it is a buying club in fact, and thus, must follow buying club laws:

(1) Is the organization a corporation / Partnership / Unincorporated association / Other business enterprise?
(2) Is the enterprise organized "for profit"?
(3) Does the enterprise have "members"?
(4) Is the primary purpose of the enterprise to provide benefits to members (i.e., discounted goods or services)?
(5) Do these benefits result from, or are they promoted as stemming from, the cooperative purchases of goods or services?

Note that there is NOTHING in here about "making money" or "income". Indeed, you don't join a "buying club" to make money... You join a "buying club" to "save money" from purchases by leveraging the buying clout of the club.

Therefore, any comparison of a buying club to an "income opportunity" is already bogus.

Furthermore, buying clubs require registration in every state of the union, as well as posting of bond to operate, plus clearly posted rights of cancellation by members. Some states have additional requirements, such as promise of savings, record keeping requirements, longer period of cancellation and refund, and so on and so forth. The requirements are so numerous and so different from state to state that  MLM lawyer Spencer Reese specifically recommended MLM companies to NOT operate as a buying club.

That doesn't stop scamsters from claiming that their pyramid scheme is a buying club. TVI Express, the pyramid scheme disguised as a travel club, used this excuse quite a bit. They claim the discounts they offered and that initial trip you get for merely joining up is proof that they are legitimate discount club. Let us examine this argument:

1) Costco has annual dues.

TVI Express has a one-time join fee of $250 (plus misc. fees)

Similarity: medium to low. Where is TVI Express making the money to administer the discounts?

2) When you join Costco you merely get access to Costco itself and its services.

When you join TVI Express you get a voucher which you supposedly can redeem for a trip (but the details keep changing) and alleged access to "backoffice" where you can order trips at a discount.

Similarity: low to nil. The voucher is impossible to redeem and backoffice is just relabeled Travelocity

3) Costco has bazillion products both in-store and online.

TVI Express has whatever you can get through Travelocity (or whatever travel vendor they resell)

Similarity: low

Costco offers better quality and/or better prices. TVI Express has no real benefits as it is just relabeled Travelocity where you can get the same prices without paying TVI Express the $250 join fee

4) Costco has no requirements to recruit, and no benefits to do so

TVI Express requires you to recruit people, fill up 2 different 2x3 "matrices" and earn up to $10250 if you manage to do so.

Thus, it is clear that TVI Express is a pyramid scheme (you paid to join, then get paid for recruiting others who also pay to join) that lied about it being a discount travel club.

Similar arguments were made for almost ANY opportunity where there is NO difference between purchase and membership (frequently, the proponents claim "membership is the product"). If that's the case, they are probably using the "buying club" argument. Beware.

MLM Primer at, by Grimes and Reese
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