There are several regulatory bodies that govern the network marketing industry. I call these regulatory institutions — 3 lettered agencies because the acronyms of their full names are formed of three letters.
We’ve already discussed the BBB and FTC as credible sources to fall back on in your assessment of a network marketing company before you join.
Today’s 3 Lettered agency I want to talk about is the SEC — Securities and Exchange Commission
Like the FTC, the SEC is also an independent government agency but while the FTC’s primary responsibility is to ensure fair market play and protect customers, the SEC’s primary role is to regulate U.S. securities markets and protect investors.
Loosely speaking, the term “security” includes all different kinds of commonly used documents traded for investment, such as stocks, shares, bonds, notes, or other financial instruments, etc.
So when companies, MLM or not, sell securities, they need to register those securities with the SEC.
Therefore when a network marketing company, let’s say company XYZ positions its products/services as investment it must comply with SEC regulations and go through the legal process of registering its product/service as a security.
That said, distributors of company XYZ who are selling the security also need whatever licenses are required by the SEC to broker said security.
There are many network marketing companies that sell registered securities. Tranont and Primerica are two good examples of companies with an insurance product and their reps/agents can not sell insurance unless they get licensed first.
The trouble with network marketing companies is when they dress the product or service they are selling with the language of security.
So they make BIG investment enticed income claims and use particular SEC alarming phrases and words like ROI, investment, returns, profits etc.
Words such as these are things network marketing companies and their distributors should steer clear of saying, unless what is being sold is a registered security and the company is compliant with SEC regulations.
So be careful of such messaging coming out of the marketing department of a company. Sometimes distributors throw around such terms loosely, when they shouldn’t. However if the company is doing it and not actively policing it, then it’s a HUGE problem.
Here are my 3 secret TIPs when it comes to assessing an MLM company within the context of the SEC.
Tip 1: If the company you’re looking at expects distributors to spend money, and those people are promised a return on their purchases / investment in U.S. dollars, this company is likely to fall on the wrong side with the SEC and the SEC will mostly likely intervene. Your best bet is to RUN.
Tip 2: If the company you’re looking at has a history of violating SEC compliance laws be cautious. However, if it has successfully resolved them, it bodes well for the company you’re evaluating because it is a token of company’s good faith and serious effort to move towards compliance and more than likely the worst is over.
Tip 3: If the company you’re looking at has a business model that is similar to let’s say company ABC that has had a messy history with the SEC, then you want to know what the similarities and differences are between the two companies. In your research you want to identify how and why Company ABC got into trouble with the SEC in the first place. Remember, the best way to stay out of trouble is to understand the very things that lead to it.
So today’s research question to ask is:
#23: Are there any SEC law suits filed against the network marketing company you’re currently considering to join?
Till next time,
Co-authored with Dr Maral “YESS” Yessayan, PhD.
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