Consumer Items - Multi-Level Marketing, Pyramid Selling

A company that markets consumer items sought an written opinion in July 2005 on whether its proposed multi-level marketing plan would raise concerns under the Competition Act.

The Competition Bureau provided a negative opinion on the basis that the plan appeared to constitute a scheme of pyramid selling for the following reasons:

• In this plan, participants were compensated for every participant that they sponsored into the plan that purchased a product package. Since membership into the plan required the purchase of a product pack, this would be deemed to be compensation based on the recruitment of participants, thereby meeting the definition of a pyramid selling scheme in paragraph 55.1(1)(a) of the Act.
• The plan did not appear to contain a buy back policy. This raises issues with paragraph 55.1(1)(d) of the Act.
• References were made to financial freedom in this plan, however, there did not appear to be a disclosure of earnings of a typical participant thus raising issues under subsection 55(2) of the Act. 
• Participants in this plan were required to purchase a product package. Any required purchase  must be for the purpose of facilitating sales and must be sold at the seller’s cost. Three of the benefits listed in this package were not necessary in this regard. This required purchase would raise issues under paragraph 55.1(1)(b) of the Act.

For the above reasons, the Bureau provided a negative opinion on July 22, 2005, that the proposed plan, if implemented, would give the Commissioner grounds to commence an inquiry under the pyramid selling provision of the Act, section 55.1.

(3099064)