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Can MLMs be a crime?

Can MLM Be a Crime?
Canadian Police Bring Criminal Fraud Charges against Multi-Level Marketing Company, "Business in Motion"
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Royal Canadian Mounted Police (RCMP) in the province of Manitoba in central Canada have brought criminal fraud charges against a multi-level marketing company that had been large, very visible and quite popular in Canada. The target of the fraud charges also include 12 consumers who had been active recruiters. The company, called Business in Motion (BIM), sold a package of travel discounts, and it offered each new salesperson the right to recruit other salespeople. Like most MLMs, no payments were offered directly for recruiting, but only when a recruit "purchased" a product or sold one. As in some other MLMs, the salespeople were also purchasers of the product they sold. As others joined and "purchases," were made, rewards accrued to those on the upper levels of the recruiting chain. As in all other MLMs, the recruitment chain was said to be endless and the opportunity "unlimited."

Criminal prosecution of MLMs is relatively rare but it is a jeopardy to all such companies and all consumers who join them. Pyramid Scheme Alert, president Robert FitzPatrick served as expert witness in two cases where the presidents of the MLM companies were later prosecuted for criminal fraud and are now in prison. These include International Heritage Inc., which had over 140,000 distributors, and Renaissance, the Tax People. In most other cases, the schemes are pursued in civil court by regulators, resulting in minor fines and often with the schemes' leaders continuing deceptive practices or setting up new scams under different names.

Private citizens have also charged that MLMs are engaging in crimes. The most recent case is the consumer class action lawsuit against the largest of all MLMs, Amway. The suit charges Amway with violating laws against racketeering and mail and wire fraud.

The prosecution of BIM should, therefore, serve as a sober notice to any consumer of the risks of joining or recruiting for a multi-level marketing company. Selling a product does not necessarily make the scheme legal. BIM sold one. Technically not paying rewards for recruiting, but only after a "purchase" occurs does not assure legality. BIM claimed all its rewards were tied to product sales. Previous lack of prosecution or claims of legality by the company are no protection against prosecution. BIM made this claim on national TV, daring the news media to prove BIM was a pyramid scheme and pointing out the absence of prosecution by the Canadian government. Business in Motion held public recruitment meetings in hotels all over Canada for years, advertised with billboards and, for a time, had thousands of satisfied and loyal supporters.

The BIM prosecution shows that not only can a scheme be charged with illegality even when these technicalities are met, but it could also be charged with criminal fraud. If you are a recruiter, you could also be charged, as about a dozen of BIM's promoters now have been.


Whistle blowers alerted the media and the government that something was wrong with BIM several years ago. As a result of these consumer actions, Business in Motion, became the subject of a national television news exposé in 2009, in which Pyramid Scheme Alert president, Robert FitzPatrick, went undercover with the news producers to attend a recruitment meeting with hidden cameras and microphones. He was then interviewed on the news show to explain the scheme's deceptive income promise and pyramid business model. The company president, Alan Kippax, now charged by police with criminal fraud, aggressively defended BIM on the news show, asserting that BIM was perfectly legal and claimed that his main proof of legality was that the company had never been prosecuted.


The news program also showed video of local police arresting Canadian consumer advocate, David Thornton, founder of crimebustersnow.com, while he peacefully and legally protested the BIM scheme and warned consumers that it was fraudulent. He was quickly released without charges, raising the obvious prospect that local police were protecting the BIM recruitment meeting, not the public. BIM and its president Alan Kippax had earlier sued Thornton for $10 million claiming defamation for calling the company a pyramid scheme. Thornton defended himself in court without an attorney and won the case.


The news program also showed how the Canadian Competition Bureau, equivalent to the US Federal Trade Commission, had remained silent for years in the face of mounting evidence of BIM fraud. The Competition Bureau still has not prosecuted the scheme and never issued even a warning to consumers.


In another infamous failure of the Canadian Competition Bureau to act against a scheme that later was charged with criminal fraud, about 1,000 family farmers were lured into a pigeon-breeding Ponzi scheme. Now, the founder of that scheme, called Pigeon King International, has also been arrested by police and charged with criminal fraud. Whistle-blowers in Canada, including a former employee and consumer advocate, Dave Thornton of Crimebustersnow.com analyzed and warned about the fraud. A detailed account of the scheme's deceptions were published in farming trade magazines.


Yet, In response to a whistle-blower letter that Pigeon King was a fraud that would ruin family farms, one official from the Competition Bureau wrote that even if it were a fraud, Canada's anti-pyramid scheme law did not cover it, and it therefore might be perfectly legal in Canada.


He wrote, "the business practices of Pigeon King International do not appear to meet the definition of a "scheme of pyramid selling" which must first and foremost meet the definition of a "multi-level marketing plan" as stated in section 55. (1) of the Act. I have taken the liberty to forward your concerns to the Ontario Provincial Police Anti Rackets Section."


The Canadian Competition Bureau allowed the scheme to continue. Only after Pigeon King International went bankrupt, largely due to negative publiciity, did the Canadian regional and national police arrest the scheme's founder and promoter, Arlan Galbraith.