Rod Cook B.s., M.A., M.B.A.


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Let's face it!  Regulatory Agencies don't like the MLM Binary Compensation Pay Plan.  Why?  Same guilt as the matrix pay plan - Binary MLM pay plans....   They look like a pyramid.   They are not!  Yours truly likes the Binary pay plan.


I currently have two patents pending on Customer based Binary Compensation pay plans to ward off regulatory attacks.  These patent pending Binary plans are probably the only ones for new Binary companies to survive with (one even creates extreme excitement). 


The U.S. FTC has been moving steadily toward measuring the amount of Sales to Distributors compared to the dollar amount generated by sales to end consumers (Customers that do not belong to the pay plan).   If there aren’t enough Customers, the MLM Company is considered a Pyramid Scheme and dealt with severely.  Regulators have found that pure pyramid schemes don’t have any customers.   MLM Binary compensation pay plans usually fall short without my input. In the case of Burn Lounge in 2007 the FTC said that $386 of "head hunting" pyramid dollars were taken in for each $1 of consumer customer money.   Those stupid fools put $40 million of investment money into that Binary pay plan company just to see it flushed down the sewer.  If they had given me a lousy $20k they would still be running with the Binary pay plan today!


The definition of a Customer is a person that only buys product or services and doesn’t belong to the Binary compensation plan and has no expectation of making money.  They are only an end consumer or user of the product or service.  Not to identify your customers is a risky business in today’s MLM market especially with a Binary pay plan.


I recognized the emerging “Customer Requirement” need for the Binary pay plan after reviewing the thrust of the court cases below.  I started designing “Customer” based MLM pay plans that would benefit not punish distributors.  Rather than punish the distributor (requiring Customers in qualifications) you have to give a multiple award FOR BINARY PAY PLANS.  More Customers = More Money.  Binary plans in the U.S. have been restricted to one business center because the normal 3 business centers were considered back end loading pyramid schemes.


In addition to the FTC pioneering this the States in the U.S. have picked up the Customer requirement for all pay plans not just the Binary pay plan.  Nevada actually was a pioneer in “hitting” supposed Binary pay plan MLM Companies for not having enough customers by counting the dollars that produced commissions in Binary pay plans. North Dakota has speared several companies on the “no customer” issue.  It has been an excited topic of discussion at National Association of Attorney Generals (NAAG) meetings.


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One of the most famous Binary pay plan shut downs was Sky Biz.  The FTC and Federal Marshals walked into SkyBiz offices on 31 August 2001 and shut the company down.  This is normal for the FTC since they don’t want to fight the legal power MLM and other types of companies have.  They get a preliminary injunction in secret, walk in, and shut the company down.  This is from 2 Jan 2002 FINDINGS OF FACT AND CONCLUSIONS OF LAW AND ORDER FOR PRELIMINARY INJUNCTION REGARDING SKYBIZ INTERNATIONAL LTD. (which was put in place, shutting down SkyBiz August 31, 2001).  See CD-ROM #1 FTC.  Please note the critical elements (causes for action) presented on pages 14 and 15 of the lawsuit this case.  The third paragraph is the newest refined and the biggest change in the Customer direction for the FTC.  The highth of humor was when SkyBiz sent out this email looking for Customers a couple of days after the trial started.  Have a laugh Skybiz did not even know if they had customers in their Binary pay plan - NO BINARY PLANNING - BAD DESIGN !  Read This:


Friends of SkyBiz:

If you know anyone who (in U.S. preferable) would want to be a part of effort described below, please have them reply to: Zakia Maaroof


There is only a possibility those who volunteer will actually be used. Please do not indicate to anyone that being a witness is for certain. Corporate will contact those who respond, and evaluate the need, accordingly.

Thank you,



We need the names and addresses E VERY SATISFIED consumers that bought the SkyBiz products and have never sold the business opportunity. We also need the names and addresses of five VERY ZEALOUS Associates who are in the program, but haven't made a whole lot of money. Please keep in mind, we need consumers and associates who would not be reluctant about testifying in court and who presumably are in the United States (for travel purposes). If any of the potential witnesses you suggest are outside the U.S., please identify what country they're in. I need this information at your earliest convenience. Thank you.

Martin Allen Brown, General Counsel

World Service Corporation



 Some legal MLM experts, including my mentor Professor Paul Greenburg, believe that the FTC has been very kind to the MLM industry.   If a hard line had been taken with 100% or even a 70% end consumer – customer who does not belong to the pay plan, the MLM industry would almost be defunct except for party plans.


The FTC is made the distinction that pyramids grow fast (income claims) and hype and eventually they collapse (which SkyBiz had done when hit by the FTC) because of a lack of bodies to keep filling the pyramid scheme!  Throw in some customers in the Binary compensation pay plan and fix this problem... Binaries = NO PROBLEM.



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2. In this case with the  Mall Ventures Binary pay plan the FTC did not shut the company down.  It started as an investigation  with Mall Ventures Owners called in for interrogation.  They had a very good lawyer.


a. Mall Ventures with a Binary Pay Plan had 50,000 distributors and 98,000 pure Internet access and telephone customers who did not belong to the pay plan.  The FTC fined them severely and put severe financial restraints on the owners.  Why?  The money coming from Customers (not belonging to pay plan) was less than 50% of overall income. 


b. This was the final evidence to us (legal observers of governmental direction) that when the FTC said 50% of the business must be from customers, they intended that to be money and not just the body count.  The FTC does not put out directives.  You have to watch litigation and charges which creates “precedent law.” 



3.  In the next Binary compensation pay plan case, NexGen3000,  the FTC went venue shopping for a Federal Judge that will allow them an injunction to shut an MLM Binary Company down.  You will notice the FTC Prosecutor is from the FTC office in Georgia and the FTC when to a Federal court in Arizona that had shut down Binary pay plan companies before.  The FTC got and injunction and it was a walk in and shut down case with Federal Marshals carrying guns.  They somehow think Binary folks are mean!

Chris M. Couillou, Georgia Bar No. 190062
Robin L. Rock, Georgia Bar No. 629532
225 Peachtree Street, Suite 1500
Atlanta, Georgia 30303
(404) 656-1353, (404) 656-1368
Attorneys for Plaintiff Federal Trade Commission




EDWARD G. HOYT, Defendants.




In the MLM BINARY “BigSmart” case, you can see that the FTC is refining its wording of end user and customer when dealing with Binary pay plans.   This was a walk in and shut down operation by the FTC and Federal Marshals.  You can see some outline of changing requirements:   “Retail Sales” means sales of products, services, or business ventures by Defendant, his successors, assigns, agents, servants, employees, and those persons in active concert or participation with them to third-party end users. “Retail Sales” does not include sales made by participants in a multi-level marketing program to other participants, recruits, or to such a participant’s own account. "Ultimate users” are purchasers of retail sales.




SUMMARY:  I love the Binary but a lot of  State and Federal Investigators look at it and immediately think "Pyramid!"  That is unless you pay me to sprinkle END CONSUMER CUSTOMER mathematical, Distributor loved requirements in your Binary Pay Plan.


You can see how the FTC has marched forward with the “customer proof of innocence” for an MLM Company.  The previous page of this presentation deal with this more in depth.  This one is focused on one of the two most successful pay plans there is ... The Binary Compensation Pay Plan in it's full glory.


When the FTC calculations on Mall Ventures Binary pay plan started in the State of Nevada (I knew the very excellent MLM lawyer on the case) I started designing my 2 patent pending Binary pay plans, to include customer acquisition.  I knew in the future that this would be a key to Binary Plan success and survival.  The trick is not to just require customers, but to give Distributors a benefit for getting customers in the Binary pay plan.  If you make getting customers exciting it becomes natural for marketers to grab them.


One fact many MLM Company owners do not grasp is that distributors come and go... but Customers stay!   As companies mature they accumulate more customers.  Amway has five times as many customers as it has distributors in the U.S.   Melaluca, with sales of 750 million a year, derives an estimated 50% of its sales from Customers.  You want Customers in your Binary.


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For Release: April 8, 1998


FutureNet Defendants Settle FTC Charges;
$ 1 Million in Consumer Redress for "Distributors"


According to the FTC's complaint, FutureNet, Inc. claimed that its recruits could earn substantial income for the rest of their lives by joining a multi-level marketing program selling Internet access devices. Consumers paid fees ranging from $195 to $794 to become Future-Net distributors in the scheme, which was promoted on the Internet. But, according to the FTC, a major portion of the income the defendants promised was not based on sales of the devices, which are easily available at other retail distributors, including Sears and Circuit City, at comparable or lower prices. Instead, the promised income came from fees paid by newly recruited distributors who would then bring on more recruits to provide a nonstop "downstream"of paying members. FutureNet claimed that their recruits -- so called "Internet Consultants" -- would receive $200 - $400 when they personally recruited another consultant, and $25 - $50 when a person in their downline recruited a new member. The agency charged that income from the FutureNet multilevel marketing plan did not depend on sales of the Internet devices they were purportedly selling, but rather on the recruitment of new distributors -- the typical profile of an illegal pyramid.


he stipulated final judgment announced today would settle charges with FutureNet, Inc., FutureNet Online, Inc., and two corporate officers: Alan J. Setlin and Chris Lobato. Three other defendants, Larry Huff, Robert Depew and David Soto, did not settle the FTC charges and the FTC's case against them will proceed to trial.


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The Federal Trade Commission has settled charges against JewelWay International, Inc., and its corporate officers in an agreement requiring a $5 million payment, which will be distributed to harmed consumers, and provisions halting the challenged conduct. In June of this year, the FTC charged JewelWay and six individual defendants with making deceptive earnings claims, and promising lucrative earnings and other benefits to induce almost 200,000 consumers to invest more than $1000 per person in an illegal multi-level marketing plan, or pyramid scheme. The suit was filed as part of the FTC’s "Project Field of Schemes" - a sweep targeted at investment-related fraud.

Legitimate multi-level marketing plans are a way of making retail sales of products or services to consumers through a network of representatives. However, in an illegal pyramid scheme the main focus is not on sales, but on recruiting new representatives into the program. Typically, each new representative must buy a certain amount of products and must recruit a specified number of new participants in order to earn money in the program. In a pyramid scheme there is almost no emphasis on making retail sales of products to persons who are not participants in the program. According to an FTC expert, earnings claims made in conjunction with promoting a pyramid scheme are false because pyramids inevitably collapse when no new participants can be recruited and approximately 90% (or possibly more) of the participants consequently lose their money.

15. A lawful multi-level marketing program is distinguishable from an i1legal pyramid scheme in the sense that the "primary purpose" of the enterprise and its associated individuals is to sell or market an end-product with end-consumers and not to reward associated individuals for the recruitment of more marketers or “associates” See Gold Unlimited, 171 F.3d at 483-84 (suggesting that based on a statutory survey of state criminal laws against pyramid schemes, this is a difference). See also Ger-Ro-Mar, Inc. v. FTC, 518 F.2d 33. 36 (2d Cir. 1975) (explaining that the distributors profited by earning commissions from their own sales and those of their recruits); In re Amway Corp., 93 F.T.C. 618, 716 (1979) (sponsors do not make money from their recruits' efforts until a newly recruited distributor begins to make wholesale purchases from his sponsor and sales to consumers) .


16. Another distinction is that an unlawful pyramid scheme will saturate the market of potential participants to the point where it is unrea1istic to expect that such a large number of individuals will become involved and the pyran1id must therefore eventually collapse. A legitimate multi-level marketing program does not have such a propensity for saturation. See Five-Star Auto Club 97 F. Supp. 2d at 518 (S.D.N.Y. 2000) (“[i]f ...each Five Star participant recruited only three members. Five Star would have 387,000,000 members ...exceed[ing] the populations of the United States and Canada”); Gold Unlimited, 177 F.3d at 481; Ger-RO-Mar, 518 F.2d at 36-38 (if even a small number of individuals are recruited each month by each member, after a year the numbers of members would exceed the population of the United States)


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