(x) asaso003 Feb 16th 2012, 09:29pm

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(x) =o::,.ate7s Feb 16th 2012, 09:32pm
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(x) sh8*t,Lma,hem Feb 16th 2012, 09:32pm
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(o) sam6 Feb 16th 2012, 09:>3pm
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(x) asaso003 Feb 10th 2012, 0>:06pm
Jsam AN3 MY1BRO ! PRO N"/#OR4"R AN3 NCOM" 2- !A COMPANY A/ 5-
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(x) e(8matepmahtem Feb 10th 2012, 0>:09pm
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"Excuses are the nails used
to build a house of failure."
Don Wilder
One of the big differences between people who succeed
and those who don't is that people that succeed fail more
often.
I've written about that before, but our uote toda! adds
another dimension to it.
We all fail or fall short at one time or another. "ut there's a
big difference between the successful and ever!one else
when that happens.
#he successful person will sa! something li$e, "Well, I see
that doesn't wor$" or, "Darn, I didn't ta$e that into account"
or "O%, let's go to &lan "."
#he unsuccessful person, on the other hand, will come up
with excuses.
What is the difference between an explanation and an
excuse' (n excuse is a reason that explains wh! it's not !our
fault)
I saw that behavior a lot in m! corporate da!s. When
something would go wrong it started the search for the
guilt! and the punishment of the innocent.
What a waste of energ!) *ow much more useful it is to as$,
"What can we learn from this' *ow can we do it
differentl!'"
Our uote is right on the mone! when it points out that
excuses lead to more and more failure. It happens to !ou
in !our life, too, if !ou beat !ourself up because something
went wrong.
What !ou learned is more important, in the long run and in
the short run. +o avoid excuses li$e the toxic waste that the!
are.
How to differentiate a legitimate direct selling
company from pyramiding using the 8-point Test

,. Is there a product'
-. (re commissions paid on sale of products and not on registration.entr! fees'
/. Is the intent to sell a product not a position'
0. Is there no direct correlation between the number of recruits and compensation'
1. If recruitment were to be stopped toda!, will the participants still ma$e mone!'
2. Is there a reasonable product return polic!'
3. Do products have fair mar$et value'
4. Is there a compelling reason to bu!'
If the answer to all the uestions is 5E+, then the compan! being evaluated is a legitimate compan!. "ut if the
answer is 6O, then there is a high probabilit! that it is a p!ramid scam.
Industry Professionalism

*ow #o *andle &!ramiding and &rosel!ti7ing in the Direct +elling Industr!

8+peech delivered b! 9osiah :o during the ,st Direct +elling ;anagement <onference held (ugust =>,?, -??, at the
(I; (cceed <enter, &hilippines@
Aadies and gentlemen, good morning.
I shall divide m! presentation into - partsB #he first part deals with p!ramiding, while the second one with
prosel!ti7ing 8or more popularl! $nown as pirac! of distributors@.
I. Introduction
In ,==1, a #exas>based compan! called (uCuest International started offering gold coins, among other products. #he
compan! used the binar! compensation plan allowing individuals to bu! up to seven business centers with D+E-??
personal business volume ualification for each of these center.
In ;a!, ,==2, (uCuest was sued b! the state of <alifornia and the ;ontere! <ount! District (ttorne!'s office. It was
charged, among others, with conducting a p!ramid or endless chain scheme. #he state brought three lawsuits,
including criminal felon! charges against the owners, an inFunction lawsuit against the compan!, as well as a
separate lawsuit see$ing to confiscate D+E/-4,??? sei7ed in *ouston ban$ accounts. #he compan! countered with
its own lawsuit against the government officials for violation of their civil rights. #he ;ontere! <ount! +uperior <ourt
issued a temporar! restraining order and a preliminar! inFunction.
#oda!, we read parallel cases in the &hilippines and elsewhere. <onsumers would complain, the Department of
#rade and Industr! and . or the +ecurities and Exchange <ommission would investigate and file the appropriate
charges against these so>called p!ramiding companies. #he defendant companies, on the other hand, counter sue to
convince the <ourt of (ppeals to issue a temporar! restraining order against government authorities, so the! can
continue operations and refer to it as freedom, their moc$er! of the networ$ mar$eting concept.
II. &!ramiding
What is &!ramiding'
&!ramiding is an illegal mone! scam, often confused with legitimate networ$ mar$eting plans, where people are
convinced to pa! mone! for a chance to profit from the pa!ments of others who might Foin later.
Wh! is p!ramiding illegal'
,. &!ramiding violates the <onsumer <ode of the &hilippines, specificall! (rticle 1/ of Gepublic (ct 3/=0, which
states "<hain distribution plans or p!ramid sales schemes shall not be emplo!ed in the sale of consumer products."
-. (s far as the +ecurities and Exchange <ommission 8+E<@ is concerned, the! treat this t!pe of scam as an illegal
sale of investment contract or securities.
In its simplest explanation, a securit! is best thought of as a "passive investment", where the return on mone!
invested is substantiall! caused b! one other than the investor, i.e. not solel! from !our own wor$. Hor instance,
investing in the stoc$ mar$et is a passive investment.
Ai$e the stoc$ mar$et, an investment in a multilevel program which involves headhunting and inventor! loading,
where distributors expect to profit not b! selling products to retail customers but b! merel! introducing other investors
is actuall! classified as an unregistered investment contract in the Dnited +tates. I shall share the &hilippine scenario
before I end this section on p!ramiding.
/. *istor! has shown that plans that pa! commissions for recruiting new distributors inevitabl! collapse when no new
distributors can be recruited. (nd when a plan collapses, most people >> except those at the ver! top of the p!ramid >>
lose their mone!.
*ow to recogni7e p!ramiding vs. legitimate networ$ mar$eting'
#here are man! companies using p!ramiding schemes toda!. #he! manipulate the get>rich>uic$ mentalit! of man!
people. #he! ta$e advantage of the lac$ of manpower of the government in monitoring these schemes and the!
exploit certain ambiguities of the law b! going around its real intent.
Hor instance, (rticle 0 of the same <onsumer <ode defines <hain distribution plans or p!ramid sales schemes as
"sales devices whereb! a person, upon condition that he ma$es an investment, is granted b! the manufacturer or his
representative a right to recruit for profit one or more additional persons who will also be granted such right to recruit
upon condition of ma$ing similar investmentsB &rovided, #hat, the profits of the person emplo!ing such plan are
derived primaril! from the recruitment of other persons into the plan rather than from the sale of consumer products,
services and creditB &rovided, further, #hat the limitation on the number of participants does not change the nature of
the plan."
In the above definition, unscrupulous companies offer to$en products to go around the intent of the law, hiding under
the pretext that the! are offering products, even if these productsB
I have no real world value,
I are priced in an inflated manner,
I or have both no real world value and are priced in an inflated manner.
Hortunatel!, b! defining the 0 basic truths about legitimate networ$ mar$eting operations, we can easil! spot
p!ramiding. (s I present these 0 truths, I shall also present some case studies. 5ou be the one to determine whether
these can be classified as p!ramiding.
What are the 0 truths about legitimate networ$ mar$eting companies as practiced b! members of the Direct +elling
(ssociation of the &hilippines 8D+(&@'
,. Aow entr! barrier >> When distributors signs up, sales $its are sold at cost. #here is no other investment reuired
and distributors are not forced to bu! training materials or sales aids. #his is because companies should not be
dependent on selling the business opportunit! alone, nor should the! resort to merel! selling sales aids at exorbitant
prices while awarding commissions. Doing so establishes what is actuall! a headhunting or p!ramiding s!stem.
- tests of low entr! barrier exist. #he first is to determine if people are recruited and as$ed to pa! amount not
proportionate to the reasonable content of the firm's sales $it and second, whether distributors are paid based on
recruiting.
<ase stud!, >> +uppose some coo$ware companies would charge close to &/,???.?? registration fee per participant
Fust to attend a h!ped>up business opportunit! meeting and about half of the amount goes to the upline. Wouldn't
headhunting or recruiting become the prime tas$ here' (fter all, the distributors can ma$e substantial mone! b!
simpl! recruiting. Imagine, for ever! person recruited, a distributor ma$es close to &,,1??.??, recruit one ever! da!
and the distributor ma$es close to &0?,???.?? a month without selling a single product.
/. Hair mar$et value.regular retail reuirement >> Hair mar$et value is defined as price determined in an open mar$et
s!stem, while regular retail reuirement is defined as an ongoing bu!ing and selling of a firm's products to customers
who are not distributors.
- tests of fair mar$et value.regular retail reuirement exist. #he first is to determine if consumers would still be willing
to bu! a product at its uoted price even without participating in the compensation plan. #he second is to as$ "If all
recruiting stopped toda!, would the compan! still be able to pa! monthl! commissions in the immediate future'
<ase stud! - >> this t!pe of companies offer compensation plans that onl! reuire a one>time purchase. #he rationale
is uite simple, would products of no real world value or sold at inflated price be able to reall! attract retail
customers' If not, wouldn't their real product be the business opportunit!. "ut thin$ about this for a moment. If onl!
one>time purchase is reuired, where is the new mone! coming from to pa! the commissions' ( compan! can onl!
pa! to the extent of the mone! the! received, so the onl! wa! the program can continue is if the participants continue
to do recruiting. Is this not a t!pe of p!ramiding' Hor instance, do !ou thin$ people will bu! gold coins at D+E3??
without Foining the compensation plan when the mar$et value is less than half of that' <an evidence be presented
that there exists substantial retail sales to non>plan participants at D+E3??'
/. 6o inventor! loading >> direct sellers ma$e mone! b! simpl! boo$ing orders, not committing to a substantial
investment that ma! cause financial distress to the distributor subseuentl!. On the other hand, p!ramiding
companies do not as$ their distributors to bu! products to sell to consumers, the! are instead as$ed to bu! into a
position. #o circumvent the law, tangible products are added as a wa! to go around encouraging people to invest and
"to move mone!" to ma$e mone!)
( test if inventor! loading is not being practiced is to determine whether firms have a safeguard polic! against
excessive purchases. Hirms can actuall! enforce a polic! not to sell to distributors unless at least 3?of previous
stoc$s bought have been sold, plus a reasonable bu!>bac$ provision, which I shall discuss later.
<ase stud! / >> <ertain t!pes of compensation plans, often called binaries, offer potential to earn more b! investing in
multiple business centers, with the reuirement to invest more mone! in each business center, isn't this inventor!
loading in disguise' Wouldn't inventor! loading be considered a substantial investment subFect to the +E< rules' In
the Dnited +tates, an investment of D+E1?? to D+E,,??? is alread! considered substantial. It would be interesting to
$now how man! percent of those involved in binaries actuall! have multiple business centers, because the emphasis
of man! binaries program appears to be that to convince people to bu! multiple business centers than the purchase
of product for resale to the ultimate non>plan participant consumer.
"! the wa!, for those not familiar with binaries, these are actuall! a relativel! new innovation in compensation plan
where a distributor is limited to recruiting onl! - people directl! under them. #his allows for "spill over", which means
that new distributors are enrolled in the next available position below existing distributors who have alread! filled up
the maximum available positions of a certain level. (n upline can again sign up to become downline of a downline b!
bu!ing so>called business centers. &lease do not get me wrong, I am not against binaries per se. I am against
inventor! loading. It would be great if binar! companies will allow additional business centers without additional cost
to the ualif!ing distributors.
0. Aow exit barrier >> protection is given independent distributors who ma! want to get out of the direct selling
distributorship business.
( test is to determine if the compan! offer a "bu! bac$" polic! at a pre>determined formula that the firm will
repurchase, within a reasonable timeframe from last purchase, the unsold, unopened, unused, unexpired,
undamaged inventor! held b! distributors resigning from the compan!.
<ase stud! 0 >> <losel! lin$ed to case stud! /, when products cannot be returned within a reasonable time frame,
wouldn't that allow opportunit! for irresponsible inventor! loading' Wouldn't that also suggest that the product ma!
not have real value ma$ing it difficult to be sold in the mar$etplace'
What is being done about p!ramiding'
,. #he most recent prosecution of several website companies b! the +E< under <hairman Ailia "autista shows that
the +E< is serious and decisive in purging p!ramid schemes hiding as networ$ mar$eting companies. #he! have
classified these companies as selling securities or investment contracts that need prior registration and approval b!
the +E<.
*owever, in the &hilippines, since there is not much precedent, the interpretation of the &hilippine <ourt will now
serve as the bac$bone of the direct selling industr!. ( decision different to how the D.+. court treat p!ramiding will
open a flood gate of p!ramiding companies in the future and put the legitimate direct selling industr! at significant
ris$.
-. #he D+(& has in the past used the print media to regularl! warn the public about p!ramiding. #o this da!, it has
made itself readil! available to the Department of #rade and Industr! 8D#I@ and the +E< for education, consultation or
simpl! to provide a second opinion about companies suspected to be a p!ramiding front.
/. Individual companies li$e (mwa! and Waters have come up with their own anti>p!ramiding campaign and
brochures.
0. (t the De Aa +alle Dniversit!, students who too$ a />unit full semester "6etwor$ mar$eting and direct selling"
course decided to launch an anti>p!ramiding website. 8#he essence of education after all, is in being able to appl!
what it learned inside the classroom and thereb! become productive members of the societ!@. #he! have decided to
help protect consumers and fight p!ramiding via the education route, supplementing the effort of the D+(&. If !ou are
interested to view the collective wor$ of these !oung people, visit www.antip!ramiding.4m.com. 5ou will see that it
onl! ta$es commitment to get an!thing done. (nother group of students printed and distributed thousands of
brochures while a third group saved their "baon" so that anti>p!ramiding posters can be posted in the D#I and other
government offices nationwide. #he 9unior Entrepreneurship ;ar$eting (ssociation 89E;(@ of Aa +alle has adopted
and institutionali7ed this anti>p!ramiding proFect as a continuing social mar$eting proFect.
Effort will continue to be done to get rid of p!ramiding companies disguising as networ$ mar$eting companies. #hese
wolves in sheep clothing are not a welcome element in the direct selling industr!. #here are plans and programs
continuousl! being set up whether via media or education where the D+(& will definitel! be more proactive in
formulating a common stand to eradicate p!ramiding. In the end, the D+(& and other concerned groups will continue
to fight p!ramiding because self regulation will alwa!s be better than government regulation.
6ow, I turn to m! second topic on prosel!ti7ing, which is a problem ever! direct selling compan! faces almost ever!
!ear.
III. &rosel!ti7ing
&rosel!ti7ing is the act of recruiting co>distributors to Foin other companies to the detriment of the upline and the
networ$ mar$eting compan!. In short, it's about a distributor or distributors raiding a compan!'s sales force for
another compan! for personal gain. #he distributor can either be connected to or have departed from the original
compan!.
Wh! is prosel!ti7ing unethical'
,. #here are over 31 million Hilipinos, the mar$et is so big out there, there is no need to get people from somebod!
else's group. In a wa!, it's li$e loo$ing for a spouse, find someone single and not from among those who are alread!
married.
-. #he raiding distributors have somehow been benefited when the! were still connected with their original compan!,
it is unthin$able that the! now turn their bac$s and attac$ the compan! that enabled them to once support their
families then.
/. #he upline spent so much time and effort to train and develop their own downlines. In the case of the raiding sales
leaders, the predictable outcome is that downlines will most li$el! follow the uplines, therefore, a group reaction
designed to affect the uplines as well as the compan! would naturall! happen.
0. #here are universal laws against unfair competition. Would !ou li$e other people not onl! to raid !our downlines
but also to tell them to stop selling for !our compan!'
1. #he downlines recruited will now be Fun$ies. *istor! has never been on the side of Fun$ies who are affiliated with
several direct selling companies. #he! will become mediocre in their career.
Wh! do some distributors do it despite having a big mar$et for recruits'
I #he! are usuall! disgruntled. #he! ma! have been disualified for a maFor promo and expect management to
exempt them from the rule. #he! ma! not li$e management polic!. #he! have grown sic$ of being number - or / to
someone for a long time, or the! have been terminated for cause.
I #he! believe that there exists a free mar$et and the! can do an!thing to improve their own interest, even if the! will
resort to short>cuts.
I #he! believe that the! "own" their downlines 8actuall! no one is owner, not even the compan!, the downlines own
themselves@.
I #o the narrow minded, the! actuall! believe that their mar$et for downlines is limited.
*ow <an <ompanies Hight &rosel!ti7ing'
,. #here must be moral authorit! b! the compan! of not encouraging their distributors to do so. Otherwise, a culture
of prosel!ti7ing ma! unconsciousl! be developed.
-. Institute a clear polic! vs. prosel!ti7ing in !our distributors business manuals. &rosel!ti7ing is not onl! detrimental
to the compan!, it is also detrimental to the uplines. (ll distributors are entitled to protection of their recruits as the!
spent countless time and effort in helping their recruits start>up their business and become successful. #herefore, if
the prosel!ti7ing issue is well defined in the distributors business manual, the uplines affected can file a complaint for
violation against established ethical norm.
/. Enforce confidentialit! in using print>outs of genealog! report in recruiting. ;a$e sure !our business polic! explicitl!
include a provision that famil! tree reports are a trade secret, also ensure that the actual printout indicate the same
provision. 5ou can then consider legal remedies if the case warrants it assuming the raiding distributors cannot get
the report elsewhere easil!.
0. "alance ever!thing, inaction or slow action on the part of management ma! not onl! position the compan! as eas!
target for future raiding, but ma! affect trust and confidence of uplines towards their compan!.
1. Decide all issues based on facts, and not hearsa!. Emotions alwa!s run uite high in direct selling companies, this
is natural, as direct sales involves direct ego involvement. +ometimes however, facts get distorted when too much
emotions come into the picture. ;anagement should tal$ directl! on those solicited and not to those sa!ing their
downlines have been solicited. When done properl!, management ma! soon reali7e that there ma! be a big gap
between what was claimed and what reall! happened.
2. Aastl! and most importantl!, have periodic evaluation of the attractiveness of the compan!'s business opportunit!.
Impartialit! is of course the $e! in assessing whether a compan! still provides in a competitive manner the /
elements that are expected b! an! distributorsB ualit! of their product value, ualit! of their compan! 8training,
management support, customer service, etc.@ and ualit! of their compensation plan. If there is a need to redirect
towards greater effectiveness, the compan! should not hesitate to move towards that direction, otherwise, it will not
be able to solve the root cause of prosel!ti7ing.
In essence, business and government entities need to get their acts together b! defining clear rules and commit to
proper implementation. #he direct selling industr! must ta$e the lead towards self>governance to protect the
distributors and consumers against illegitimate practices and low ualit! products. #ogether, we can help improve a
lot of lives with good business opportunities for man! Hilipinos. Aet us help improve people ma$e an intelligent choice
b! educating them.
#han$ !ou for !our attention.
Networking: Building or Ban the Binaries?

6oteB #he author is a former chairman of the Direct +elling (ssociation of the &hilippines and is the first professorial
lecturer on networ$ mar$eting in the &hilippines and in (sia. *e is recipient of #he Outstanding 5oung ;en 8#O5;@
award in -??, for business education.
I Introduction
I What is a "inar! &lan'
I Wh! is the "inar! &lan (ttractive'
I What are Aimitations of the "inar! &lan'
I What is the &roblem with "inar! &lans'
I What are Gemedies to Defective "inar! &lans'
I <onclusion
Introduction
+ince the entr! of several multinational networ$ or multilevel mar$eting companies in the &hilippines starting the mid
,==?s, man! local companies have also ta$en advantage of the popularit! of networ$ mar$eting schemes b!
adopting it as their preferred distribution method of their products or services. Dnfortunatel!, man! have also abused
the relative newness of the concept b! introducing schemes that not onl! deviates from the original intent of networ$
mar$eting, i.e. legal distribution of products and services that are priced fairl!, but also dangerousl! borders on illegal
p!ramiding schemes. (lread!, government agencies have filed cases against highl! publici7ed companies promoting
internet>based services charging exhorbitant fees.
(mong the newer networ$ mar$eting compensation plans being used 8and abused@ nowada!s is the binar! plan. (n
ordinar! housewife or emplo!ee would most li$el! encounter people selling them an!thing from gold coins, web>
based products, prepaid cards, training services, and latel! pre>need plans from companies using binar! plans. #here
is no law that states that a binar! compensation plan is illegal or is a p!ramiding scheme, however, binar! plans,
being one of the 1 more popular t!pes of networ$ or multilevel mar$eting compensation plans, operate under the
same laws that govern other multilevel mar$eting schemes, specificall! the provision that disallow the practice of
p!ramiding schemes. (rticle 1/ of G.(. 3/=0 of the <onsumer <ode of the &hilippines state "<hain distribution plans
or p!ramid sales schemes shall not be emplo!ed in the sale of consumer products." 6etwor$ . multilevel mar$eting
companies, including those using binar! plans, must therefore clearl! distinguish themselves from those operating
p!ramiding schemes.
What is a "inar! &lan'
( binar! plan is a networ$ or multilevel mar$eting compensation plan, which allows distributors to have onl! two direct
or first>level distributors. (n! additional distributors sponsored have a "spillover" effect, meaningJ the! are placed at
levels below the sponsoring distributors' first>level.
Wh! is the "inar! &lan (ttractive'
#here are / common reasons wh! the binar! plans are uite attractive to both distributors and companiesB
I #he "spillover" concept attracts new distributors because technicall!, the! can receive commissions b! sponsoring
onl! two distributors and let uplines 8those who signed up earlier@ do the "spillover" for them.
I "inar! plans are uite simple to understand. #his allows distributors to duplicate their effort easier, a necessar! tool
to succeed in networ$.multilevel mar$eting.
I "inar! plan offers fast>paced growth opportunities, which attract the segment of our population who wish to "get>
rich>uic$".
It is said that there are onl! two t!pes of motivation >> greed or service to humanit!. "inar! offers a potentiall! uic$
wa! to ma$e mone! while providing a "service" that allows recruits to earn from the same method. :iven the above, it
is understandable that more and more companies have adopted the binar! compensation method to attract new
distributors.
What are Aimitations of the "inar! &lan'
#he primar! limitation of the binar! plan is that distributors must "balance" sales from their two first>level legs to
receive commissions. #his t!picall! means that the number of sales from the right first>level leg 8exampleB 1 pre>need
plans@ must balance with that of the left first>level leg 8exampleB 1 pre>need plans too@. In some companies, exact
balancing of the two first>level legs is not reuired but sales from one leg must not be greater than a specified
percentage of the distributor's total sales, for instance, one leg must at least account for ,./ of the total sales.
What is the &roblem with "inar! &lans'
Aegitimate networ$.multilevel mar$eting companies have been grouped together with the bad eggs of the industr!.
#he worst scenario in the late ,==?s was the reali7ation that <hina banned all direct selling or networ$ mar$eting
operations because of the presence of man! unscrupulous individuals and companies that g!pped consumers of
their mone! into investing in p!ramiding operations. :overnment of other countries have also been more vigilant in
protecting consumer interest.
+ince binar! plans are uite new and do not have an! precedent in the &hilippines, a loo$ at the abuses of binar!
plans in the Dnited +tates reveals potential huge penalties not onl! to the companies operating binar! schemes
wrongl! but also to the independent distributors promoting them, to wit 8sourceB +penser Geese, ,==3@B
,. On Hebruar! 0, ,==3 the (ri7ona (ttorne! :eneral entered into a settlement agreement with #ele>+ales, Inc.
wherein the compan! was reuired to pa! a E-1,??? settlement fee. ;ore importantl!, however, the (ri7ona (ttorne!
:eneral also sent letters to the compan!'s top distributors in the state, accusing them of violating the state's p!ramid
law. #he letters demanded that the distributors enter into a settlement agreement and that each individual distributor
pa! a E-1,???.?? fine, otherwise, the (ttorne! :eneral would sue them individuall!.
-. On Hebruar! -4, ,==3, the (lameda <ount! &rosecutor and the <alifornia (ttorne! :eneral entered the offices of
Destin! #elecom and sei7ed business records to be used in actions against the compan!. #he same da!, the! filed a
E-?,???,???.?? civil suit against the compan!, alleging it was promoting an illegal p!ramid. #wo wee$s after the suit
was filed, Destin! settled the case for E,.2 million.
/. In ,==2, +trategic #elecom +!stems, Inc. was investigated b! the states of &enns!lvania and Hlorida, which
resulted in fines against the compan!, and the imposition of sales reuirements, which reuired the compan! to
dramaticall! change the wa! it conducted and promoted its business.
+o wh! have government regulators in other countries been increasingl! pa!ing attention to companies utili7ing
binar! plans than the more traditional compensation plans li$e stair step.brea$awa! plans adopted b! the most
members of the Direct +elling (ssociation'
,. #he stair step.brea$awa! plans populari7ed b! (mwa! have been ruled legal in a landmar$ decision b! the D.+.
Hederal #rade <ommission in ,=34.
-. #he legal principles governing the networ$ mar$eting industr! have not been adhered to in man! binar! plans,
leading to the belief that the! are p!ramiding schemes. #hese includesB
,. Emphasis on recruitment
<ompanies pa!ing its distributors based on the recruitment of other distributors rather than for legitimate sales to end
consumers are guilt! of p!ramiding. In this da! and age, no compan! in their right mind would of course expose
themselves to outright p!ramiding. ;ost would sell some products or services to hide the scam but their products or
services have no real world value and.or are overpriced such that onl! those interested to participate in the
compensation will bu! these products Fust to compl! with their compan!'s reuirements.
( good test is to as$, "Is there a direct one>to>one correlation between recruiting and distributors' commissions'" If
the answer is !es, it is a p!ramiding case. (n investigation of the man! binar! plans reveal that man! companies
classif! the enrollment of a business centers as a sale, hence the problem.
(nother good test is to as$ is "If recruitment were to be stopped toda!, will distributors still ma$e mone!'" if the
answer is no, isn't the principal source of commissions coming from recruiting and not from retail sales' hence, a
p!ramiding.
( /rd test is to as$ is "Will people bu! without Foining the compensation plans'" If the answer is no, the products
being sold have no real world value and.or is overpriced, hence, a p!ramiding. If a product is priced so high that no
reasonable person would bu! it, it is obvious that the main motivation for distributors to bu! the product is to Foin in
the compan!'s compensation plan, a p!ramiding scam 8profiting from recruiting@ disguising as a legitimate networ$
mar$eting operation.
-. "u!ing of multiple business centers
When a distributor enrolls, he is automaticall! assigned his first business center or a position within his own personal
sales organi7ation 8&+O@. #o maximi7e earnings, the distributor are then strongl! encouraged to purchase additional
business centers and place as much as seven business centers at strategic locations within his &+O with each
business center costing a few thousand pesos each for a total of a few hundred thousand pesos. Each of these
business centers must independentl! meet their two recruits reuirements with their corresponding purchase.
*owever, the probabilit! that a distributor will be able to use or resell these inventories is dubious.
#hree important uestions must be as$ed as far as purchasing multiple business centers are concernedB
,. Isn't the intent to sell "positions" more than to sell products to end consumers'
-. Isn't there existence of significant investment and inventor! loading'
/. Isn't the focus to gain from recruiting rather than sale of products since upline distributors get commissions on the
purchase of these business centers'
/. Dnregistered Investment
#he +ecurities and Exchange <ommission 8+E<@ regulates selling of investment instruments. #he relativel! big
amount of investment reuired for bu!ing multiple business centers ma! constitute selling an unregistered investment
contract, a serious offense where both criminal and civil penalties can be imposed to the offender. +ince binar! plans
are $nown for their "spillover" effect, the distributor>investor is led to anticipate profits primaril! from the efforts of the
others, constituting a passive investment.
#he above are some of the more obvious violations of binar! plans. Dnfortunatel!, when pride and emotions get in
the wa!, logic is seldom followed and the companies, as well as the plan originator, defend their defective binar!
plans instead of listening to potential remedies.
What are Gemedies to Defective "inar! &lans'
"inar! plans can be designed to operate and be implemented legall! as followsB
,. "alance must be done between recruiting and retail sales of products, as evidenced b! a significant number of
non>plan participants who purchase products without signing up as a distributor. #his can be done b! allowing
distributors to ualif! for commissions or subseuent commission phases after the! have complied with personal
retail volume.
-. <onsumers must have a compelling reason to bu! from a networ$ mar$eting compan!. Hor example, given the
wide availabilit! of phone card retail store outlets nationwide, there is no compelling reason for a consumer to bu! a
phone card through a binar! plan. #he li$elihood is to simpl! participate in a compensation plan.
/. Getail prices must be fair to encourage retail sales opportunities. Hair mar$et value means price determined in an
open mar$et s!stem where consumers are willing to bu! a product at its uoted price even without participating in the
compensation plan.
0. #o avoid a direct one>on>one relationship between enrollment and commissions, pa!ment of commissions must
not be based on balancing the number of enrollments in each leg but in the sales volume in each of their legs.
1. Income must not be primaril! dependent on the efforts of others. <ompanies must reuire personal involvement b!
distributors. #his the! show b! training and motivating their downlines continuousl!, as well as do personal retail
sales.
2. 6ever use the line "get - people and let the s!stem wor$ for !ou)"
3. Aimit the number of business center a distributor can bu! to / instead of 3, and
4. Initiate a bu!>bac$ of unwanted inventories program. #his polic! will at least discourage inventor! loading which is
disapproved b! all members of the Direct +elling (ssociation of the &hilippines.
=. "u!ing of additional business centers must be based on ualification, not investment. #his can be done via
removing all mandator! purchase reuirements from the multiple business center program of binar! plans.
Cualification can be awarded after a distributor has shown personal involvement in downline management. Hor
example, attaining a specific group sales volume 8not number of people@ in a specific number of months.
<onclusion
"inar! plans are not illegal per se. It becomes illegal if the design is abused to create wealth from recruiting.
:overnment regulators will ta$e an increasing role in reviewing binar! plans. "ased on D.+. experience, a negative
publicit! alone from a government investigation is enough to ma$e distributors and prospects of a binar! compan!
nervous, seriousl! impairing its abilit! to be a continuing concern.
#o existing binar! companies violating certain practices, there is still time to correct these deficiencies before
government regulators catch up and force these changes through regulator! actions.
#o prospective binar! companies, the "Aaw of Hoolish Hellowship" must be avoided >> Fust because a competitor or
man! companies are Foining the bandwagon does not mean !ou should Fump into it uic$l! without reviewing the
elements that ma$e up a legitimate networ$.multilevel mar$eting operation.
( final warning >> "eware of too much emphasis on speed. It ma! eventuall! cost !ou more)
epartment !dministrati"e #rder No$ 8

DE&(G#;E6# (D;I6I+#G(#IKE OGDEG 6O. L4L+eries of -??-

+D"9E<#B Gules and Gegulations Implementing (rticle 1/ of the <onsumer (ct of the &hilippines 8G.(. 3/=0@ in
Gelation to +ection 4 Gule II, <hapter I, #itle III of Department (dministrative Order 6o. -, +eries of ,==/ &rohibiting
<hain Distribution &lans or &!ramid +ales +chemes in the +ale of <onsumer &roducts.
W*EGE(+, Gepublic (ct 6o. 3/=0 otherwise $nown as <onsumer (ct of the &hilippines states that it is the polic! of
the +tate to protect the interests of the consumer, promote his general welfare and to establish standards of conduct
for business and industr!J
W*EGE(+, the (ct provides that the +tate shall implement measures to achieve the obFective of protecting
consumers against deceptive, unfair sales and unconscionable sales acts and practicesJ
W*EGE(+, the (ct further provides that chain distribution plans or p!ramid sales schemes shall not be emplo!ed in
the sale of consumer productsJ
W*EGE(+, the D#I has received numerous complaints and ueries regarding sale of products using p!ramid sales
scheme and such sales scheme have been used in the guise of legitimate multi level mar$eting, thus depriving
consumers of their savings and hard>earned mone!J
W*EGE(+, it becomes imperative to define the instances constituting chain distribution or p!ramid sales scheme
practices to prevent the public from being victimi7edJ
W*EGE(+, the (ct provides the procedures under which a consumer, a natural person, ma! file his complaintJ
W*EGE(+, Executive Order 6o. =,/ as amended b! ;inistr! Order 6o. 2= strengthens the rule>ma$ing and
adFudicator! powers of the ;inister 8+ecretar!@ of D#I b! providing the procedures under which Furidical person and
D#I initiated complaint ma! be availed ofJ
6OW, #*EGEHOGE, the following rules and regulations are hereb! prescribed for the information, guidance and
compliance of all concernedB
+ection ,. +cope
#his Order shall appl! to an! person, natural or Furidical, who shall establish, operate, advertise or promote a chain
distribution plan or p!ramid sales scheme as defined under the <onsumer (ct and reiterated in +ection -., of the
Order.
+ection -. Definition of #erms
-., "<hain Distribution &lans or &!ramid +ales +cheme" means sales devices whereb! a person, upon condition that
he ma$es an investment, is granted b! the manufacturer or his representative a right to recruit for profit one or more
additional persons who will also be granted such right to recruit upon condition of ma$ing similar investmentsB
&rovided, #hat, the profits of the person emplo!ing such a plan are derived primaril! from the recruitment of other
persons into the plan rather than from the sale of consumer products, services and creditB &rovided further, #hat
limitation on the number of participants does not change the nature of the plan.
-.- Other Horms of <hain Distribution &lan.&!ramid +ales +cheme. > Without limiting the coverage of the term "chain
distribution plan or p!ramid sales scheme" above, business, sales or mar$eting plan or scheme is considered as
<hain Distribution &lan or &!ramid +ales +cheme ifB
a@ ( promoter persuades recruits to purchase products, services, credit, title or ran$ whereb! the recruits can receive
income primaril! from the mere introduction, recruitment or sponsorship of other participants into the scheme rather
than from the mar$eting and sale of productsJ or
b@ Where the profits of the person emplo!ing such are derived primaril! from the recruitment of the other persons into
the plan or scheme rather than from the sale of consumer products, services and credit and said plan.scheme
includes, but not limited to, one or more of the following attributesB
b.,. revenues or income are derived from participants' entr! feesJ
b.-. in order to earn income, participants must sponsor a fixed number of other participants, each of whom must in
turn sponsor a fixed number of participants as in a plan compensating participants balancing number of recruits than
number of sales volumesJ
b./. a participant's income is dependent primaril! upon the participant's slot or position within the organi7ation as
determined b! the time, date and order of participationJ
b.0. participants are not allowed to return mar$etable and unused products for refund within a reasonable period of
time or the conditions for such product return are contrar! to the provisions of the <onsumer (ct and.or its
Implementing Gules and Gegulation 8D(O 6o. -, s. of ,==/@.
b.1. there is no fair mar$et value for the goods received 8Hair mar$et value is a price determined an open mar$et
s!stem. (n indicator would be that consumers would still be willing to bu! a product at its uoted price even without
participating in the compensation plan@.
+ection /. (dministrative &roceedings
#here are two (dministrative procedures whereb! complainants ma! see$ to avail for themselves, to witJ
G.(. 3/=0 otherwise $nown as the <onsumer (ct provides the procedures whereb! a consumer, a natural person,
ma! see$ redress.
E.O. =,/ as amended b! ;.O. 2= provides the procedures whereb! Furidical persons and D#I initiated complaint ma!
be adFudicated accordingl!.
/., (dministrative &roceedings under G.(. 3/=0
/.,., Who ;a! Hile a complaint
"<onsumer" is defined b! the <onsumer (ct as a natural person who is a purchaser, lessee, recipient or prospective
bu!er, lessee or recipient of consumer products, services or credit.
/.,.- When to file complaint
#he complaint shall be filed within two 8-@ !ears from the time the consumer transaction was consummated or the
deceptive or unfair and unconscionable act or practice was committed and in case of hidden defects, from disarra!
thereof. 8sec. ,2=, <onsumer (ct@
/.,./ Kenue of (ctions
&ursuant to Department Order 6o. 0, s. of ,==3 the complainant ma! file the complaint in duplicate with the
&rovincial Offices, or in an area where there is no &rovincial Office, with the Gegional Offices, in an! of these places,
at his optionB
a.@ place where the offense was committed wholl! or partiall!J
b.@ place where an essential ingredient of the offense was committedJ
c.@ place specified b! the parties b! means of a written agreementJ
d.@ place where transaction was consummatedJ
e.@ place of the execution of the contract sued upon as appears therefromJ
f.@ place of residence of the complainantJ
g.@ place of the residence of the respondent.
#he option of the complainant shall be limited to the venues as enumerated. #he choice however shall not be such as
to restrict the speed! resolution of the case.
"! written agreement of the parties, the venue of an action ma! be changed or transferred from one province to
another
/.,.0 &rocedure.
(.@ <ommencement of (ction
a.,. (n action under the <onsumer (ct is commenced onl! b! the
filing of a complaint b! a "consumer" 8as this term is defined in +ection /.,., hereof@ in an! of the places listed in
+ection /.,./ hereof. In those instances where there is a violation of the <onsumer (ct but there is no consumer
complainant, the action ma! be commenced motu proprio b! the proper D#I office, but the procedure that shall
govern is ;.O. 6o. 2=, +. ,=4/.
".@ ;ediation +tageB
b.,. #he (rbitration Officer 8(O@ schedules a date 8an!time within ,1 wor$ing da!s from the time a complaint is filed@
for a mediation conference where concerned parties are ordered to attend. #he purpose of this is to provide
opportunit! to settle the case amicabl!.
b.-. If the parties agree on an amicable settlement of the complaint, the! shall sign an agreement indicating the terms
and conditions thereof. #he agreement shall not be contrar! to law, morals, good customs, public order and polic!.
#he (rbitration Officer shall render a decision based on the compromise agreement.
<.@ &re>*earing +tage 86o <ompromise.(micable +ettlement has been reached b! the parties@B
c., +ummons and schedule of *earing are sent to the respondent who is reuired to file his (nswer to the complaint.
<omplainant is also notified of such summons and schedule.
c.- If respondent fails to file an (nswer within ,? da!s from receipt of summons, he is declared in default. +uch
declaration will enable (rbitration Officer to receive the evidence of the complainant .
D.@ *earing +tage
d., #he (rbitration Officer shall have the discretion to conduct a &reliminar! <onference on the first da! of hearing in
which the (O will clarif! the issues, allow stipulation of facts, and.or provide a last opportunit! for amicable settlement
of the case.
d.- If the complainant fails to appear, the case shall be dismissed for failure to prosecute.
If respondent fails to appear, he shall be declared in default.
d./. *earing &roper > presentation of witness and documentar! evidences
E.@ Gendition of Decision
Within fifteen 8,1@ da!s after the end of hearing or upon submission of reuired document.memoranda.
H.@ Decision on (ppeal > #he +ecretar! shall decide the appeal within thirt! 8/?@ da!s from receipt thereof. #he
decision becomes final after fifteen 8,1@ da!s from receipt thereof unless a petition for certiorari is filed with the <ourt
of (ppeals under +ection 0, Gule 21 of the Gules of <ourt.
/.,.1 (dministrative &enalties. > (fter formal hearing, the <onsumer (rbitration Officer ma! impose one or more of
the following administrative sanctions.penalties, even if not pra!ed for in the complaint, when warrantedB
a@ the issuance of a cease and desist orderJ
b@ the acceptance of a voluntar! assurance of compliance or discontinuance from the respondent which ma! include
terms and conditions set forth in (rticle ,20 of G( 3/=0J
c@ the restitution or rescission of the contract without damagesJ
d@ condemnation and sei7ure of the consumer product found to be ha7ardous to health and safet! unless the
respondent files a bond to answer for an! damage or inFur! arising from the continued use of the productJ and
e@ the imposition of administrative fine in an amount which shall in no case be less than Hive hundred pesos
8&1??.??@ nor more than #hree hundred thousand pesos 8&/??,???.??@ depending on the gravit! of the offense and
an additional fine of not more than One thousand pesos 8&,,???.??@ for each da! of continuing violation.
( schedule of fines contained in (nnex "(" which is made an integral part of this Order shall be the basis in the
imposition of administrative fine for the violation of the <onsumer (ct involving provisions on chain distribution plans
and p!ramid sales scheme.
#he filing of an administrative case does not bar the complainant from filing a criminal case under +ection 2? of the
<onsumer (ct or under other applicable laws.
#he procedure provided in this +ection / shall be supplemented b! D#I>DO*>D( 9oint (dministrative Order 6o. ,,
+eries of ,==/ and other existing rules.
+ection 0. (dministrative &roceedings under E.O. =,/ and ;.O. 2=
a@ Who ;a! Hile a <omplaint
,@ D#I on its own initiative 8motu propio@
-@ Furidical person
b@ When to file a <omplaint.
#he <omplaint shall be filed within three 8/@ !ears from the da! of the commission of the offense or if such date is
un$nown at the time, from the discover! thereof. (fter the said period of three !ears, the filing thereof shall be barred.
&rocedure > #he following procedures shall be underta$en in the enforcement of this Order.
D#I &rovincial Directors shall underta$e to do and perform the following acts, for and on behalf of the +ecretar! of
D#IB
c.,. #o file and institute a formal charge against an! person, compan! or entit! who is found, upon verified
complaint.reports supported with documents and other papers committing an! act or activit! in violation of trade and
industr! laws.
c.-. #o designate an! emplo!ee, under his.her supervision or control to act as the investigation.mediation.prosecution
officer where the services of said officers are necessar!.
c./. If during mediation, respondent admits the violation, the &rovincial Director shall issue the decision and impose
such administrative penalties as ma! be provided under E.O. =,/. If respondent does not admit the violation, the
&rovincial Director shall file statement of violation with the Gegional Office concerned.
c.0. #he Gegional Director shall conduct a formal investigation and render a decision in accordance with E.O. =,/.
c.1. Hormal *earing > #he &rovincial Director who instituted the formal charge.statement of violation shall prosecute
the case himself or through his dul! authori7ed representative.
c.2. Decision > Within fifteen 8,1@ da!s from the termination of the administrative proceedings, a written decision shall
be served on the complainant and the respondent either b! mail or personal service
c.3. Execution > Dnless a motion for reconsideration is filed within fifteen 8,1@ da!s from receipt of the decision b! the
part! adversel! affected or an appeal is made to the undersigned within said period, the decision shall become final
and executor! after fifteen 8,1@ da!s from receipt of such decision.
d@ (dministrative &enalties. (fter formal hearing, the proper D#I Office ma! impose one or more of the following
administrative penalties, even if not pra!ed for in the complaint, when warrantedB 8;.O. 2= , E.O. =,/@
d.,. the issuance of a cease and desist orderJ
d.-. the acceptance of a voluntar! assurance of compliance or discontinuance under such terms and conditions ma!
be imposed.
d./. the condemnation or sei7ure of products which are the subFect of the offenseJ
d.0. the forfeiture of the products subFect of the offense, the paraphernalia and all properties, real or personal, which
have been used in the commission of the offenseJ
d.1. the imposition of administrative fines in such amount as deemed reasonable b! the proper D#I office which shall
in no case be less than five hundred pesos nor more than one hundred fift! thousand pesos plus not more than one
thousand pesos for each da! of continuing violation. #he fine imposed under this +ection shall be regardless of the
limits of the criminal fine fixed in the "trade and industr! law" violatedJ
d.2. the cancellation of an! permit, license, authorit!, or registration which ma! have been granted b! the
Department, or the suspension of the validit! thereof for such period of time as the proper D#I office ma! deem
reasonable which shall not, however, exceed one !earJ
d.3. the withholding of an! permit, license, authorit! or registration which was obtained b! the respondent from the
DepartmentJ
d.4. the assessment of damagesJ
d.=. censureJ and
d.,?. other analogous penalties or sanctions, such as closure for a period not exceeding one 8,@ !ear
e. #he procedure provided in this +ection shall be supplemented b! ;.O. 6o. 2=, +. ,=4/ as amended.
+ection 1 ( schedule of fines contained in (nnex "(" which is made an integral part of this Order shall be the basis in
the imposition of administrative fine for the violation of the <onsumer (ct involving provisions on chain distribution
plans or p!ramid sales schemes. #he circumstances such as mitigating, aggravating, alternative, set forth in D(O 6o.
3, s. ,===, shall be ta$en into account to arrive at an appropriate fine.
+ection 2 #he filing of an administrative case does not bar the complainant from filing a criminal case under +ection
2? of the <onsumer (ct or under applicable law.
+ection 3. +eparabilit! <lause. > If for an! reason these rules and regulations or an! of this provision or provisions or
the application of such provision or provisions or portions thereof is declared invalid, all other provisions unaffected
thereb! shall continue to remain in full force and effect.
+ection 4. Effectivit!. #his Order shall ta$e effect ,1 da!s after publication in two newspapers of general circulation.
Done in ;a$ati <it!, this LLLLda! of LLLLLLLL -??-.
;(G GOM(+
+ecretar!
Gecommending (pproval b!B
9E+D+ A. ;O#OO;DAA .
<areta$er, "#G<&
(DGI(6 +. <GI+#O"(A, 9G.
Dndersecretar!, D#I><W#G: