Market America Sued For Being A Pyramid Scheme
MarketAmerica is being sued for operating an illegal pyramid scheme that targets Chinese immigrants by convincing them they have an incredible opportunity to make money by following Market America’s blueprint for success. It looks like Market America is a great way to lose money.
MarketAmerica was founded in 1992 by a former Amway Distributor JR Ridinger. MarketAmerica has very little costs, nor production requirements because it does not directly manufacture its own products. Instead, MarketAmerica offers products from third party manufacturers, but requires distributors of MarketAmerica to pay monthly fees just for the opportunity to sell these third-party products, the touchstone of a pyramid scheme.
Here are the details of the lawsuit:
Market America, Inc. (“MarketAmerica”) and their cohorts represented to plaintiffs Chuanjie Yang and Ollie Lan (collectively, the “Plaintiffs”) that Market America provides a business opportunity “unlike any seen in history before” and that Plaintiffs could formulate their growth for future financial success through MarketAmerica. Plaintiffs and hundreds of thousands, have joined MarketAmerica and have become distributors.
MarketAmerica touts that by following a “two-year blueprint,” any person can formulate, grow, and shape his or her growth for financial success. According to MarketAmerica, the only way to fail under MarketAmerica’s business model is to quit. Meanwhile, MarketAmerica and its confederate conspirators now assert a business valuation of $7.3 billion that they have made off the backs of millions of people in their pyramid.
MarketAmerica targets Chinese-American immigrants who do not have regularly available legal channels to vindicate their legal rights, and in hope of selling “wonder” products to their relatives in China. Further, these connections help MarketAmerica connect to billions of potential victims thousands of miles away.
Plaintiffs did not make money as promised. As with the case of hundreds of thousands of MarketAmerica distributors before and after them, the Plaintiffs failed. Plaintiffs and those similarly situated, failed even though they were committed and put in the time and effort. They failed because they were doomed from the start by a MarketAmerica marketing plan that systematically rewards recruiting Distributors over the sale of products.
Over 90% of MarketAmerica Distributors average net losses. No persons, except Individual Defendants and secretly placed individuals into the “representative” tiers of the company, makes any money.
Defendants run an illegal pyramid scheme. Defendants take money in return for the right to sell products that they do not even manufacture, and reward for recruiting other participants into the pyramid.
To sign up as a Market America distributor, an enrollee must pay a start-up fee of $399.00 (which was even greater prior to 2013), and further, a distributor must pay MarketAmerica a monthly fee of $129.00, per month. Further, an enrollee must spend between $130-$300 on products offered on Shop.com, per month to allegedly maintain qualifications as an enrollee. MarketAmerica also requires distributors to attend trainings, events and seminars, which cost between $20 and $200.
MarketAmerica pays to an infinite level deep with the downline. In other words, for every dollar earned by a distributor for start up-fees, all those lines above the person on the pyramid receive revenues from the person being enrolled.
Rewards paid in the form of cash bonuses, where primarily earned for recruitment, as opposed to merchandise sales to consumers, constitute a fraudulent business model. See F.T.C. v. BurnLounge, Inc., 753 F.3d 878 (9th Cir. 2014).
Distributors are unable to consistently sell MarketAmerica products for a profit for many reasons. First, the products are overpriced. Interchangeable products are available online or in brick-and-mortar stores for amounts far less than MarketAmerica’s suggested retail price, and even lower than its wholesale prices.
Second, MarketAmerica’s products themselves are available online for the wholesale price or less. That these products are sold at or below the Advisor price makes it difficult for Distributors to sell the products for a profit. MarketAmerica may have taken action to reduce resales, but the fact remains that MarketAmerica products are available below the discount prices. Moreover, many of these sales are likely made by current or former Distributors desperately trying to offload excess product at whatever price they can get, which further supports the propositions that Distributors Inventory Load and that the MarketAmerica products are overpriced.
Third, MarketAmerica prohibits Distributors from selling the products in the only forum for a where Distributors could reasonably expect to sell enough product to make a meaningful profit: the internet. Some examples of these prohibited websites include, but are not limited to: eBay, Amazon or Craigslist. In addition, MarketAmerica forbids its Distributors from selling MarketAmerica products at almost all brick-and-mortar establishments. MarketAmerica seeks to limit the Distributors to one-on-one situations in private locations (such as the Distributor’s or a friend’s home), but achieving significant, profitable retail sales by this method is extremely difficult.
Yang became an MarketAmerica distributor in 2010 through 2016 by making purchases and buying the starter pack. Plaintiff paid the monthly membership for years, attended multiple seminars, and in total paid MarketAmerica approximately $35,000 towards this opportunity. Plaintiff Yang was deceived by MarketAmerica’s misleading opportunity believing, the opportunity was a legitimate way to earn money (even though that representation by Market and the Individual Defendants was false), and Plaintiff Yang did in fact lose money as a result of Defendants’ unfair, unlawful, and fraudulent business practice.
Lan became a MarketAmerica distributor in December of 2015 through present. Lan paid monthly distributor fees for three months. Plaintiff Lan was deceived by MarketAmerica’s misleading opportunity believing the opportunity was a legitimate way to earn money (even though that representation was false), and Plaintiff Lan did in fact lose money as a result of Defendants’ unfair, unlawful, and fraudulent business practice.
Market America Conclusion
It looks like Market America is a MLM scam even though they claim to not be MLM. We will see how Market America does in the courts. More than likely there will be a settlement and things will continue on unchanged.