Recognizing Deceptive Practices in Direct Sales

Deceptive Practices Can Be Difficult to Spot!

What are “deceptive practices” Deceptive practices can be any representation (or omission) that can mislead you. In the direct selling field, deceptive practices often include inappropriate incentives to purchase (such as false or exaggerated product or income claims) or specific violations of state or federal law. Even otherwise legitimate companies may be represented by salespersons who are deceptive in their practices.


What are some examples of deceptive practices?

Promise of a “signing bonus” in support of sponsoring rather than sales.
Exaggerated income claims such as “You’ll make $27,000 per month!”
Showing big checks to support exaggerated income claims.”
Claims such as, “You don’t have to work to make money.”
Medical claims for nutritional products (claiming that their supplements can cure disease for example)

Is a “Pyramid Scheme” a deceptive practice? Yes! A pyramid is:
…characterized by the payment by participants of money to the company in return for which they receive (1) the right to sell a product and (2) the right to receive in return for recruiting other participants into the program rewards which are unrelated to sale of the product to ultimate users.
—In Re Koscot Interplanetary, Inc. 86 F.T.C. 1106,1181 (1975)


The following are characteristic of pyramiding.
Claiming, “No Customers are needed.”
Representing, “You’ll get paid just for signing up your friends as distributors.”
Making the price at which the products are sold more than their value.
Creating programs that emphasize the money to be made rather than the products or services offered.
Disguising a compensation plan participation fee as a monthly autoship program.

How do I recognize a Pyramid Scheme?
Pyramid schemes can be disguised as legitimate direct selling companies, so be careful. Always watch out for the unethical or illegal practices by unscrupulous independent distributors, such as:



Are distributors offering to pay you to join their company?
If so, that’s a form of illegal head-hunting. Be very skeptical of a promise of a “signing bonus.” They actually support sponsoring rather than sales.

Are distributors showing their commission checks, representing or leading you to believe that you too could make as much?

Are you being told there’s no selling involved? In a legitimate opportunity, selling is always involved.

If you’re in another program, are you being paid or financially enticed to bring your existing downline organization with you? Are you being pressured to make a large up-front purchase?

Why do I need to know?
If you are involved in any form of direct selling—Party Plan, Network Marketing, Event Programs (such as Spas)—you need to recognize and avoid all forms of deceptive trade practices, as regulators in recent years have brought actions not only against the companies guilty of such practices, but also the distributors representing them, often seizing their bank accounts in the process of prosecution. Don’t inadvertently fall into this nightmare – do your homework and don’t be drawn into an illegitimate scheme!

*All information obtained from www.Butterflyresults.com