Coupons, Vouchers, Gift Certificates, and Down Payments

The title of this article lists names of pieces of paper and business transactions that are perfectly legal. Even paying commissions to the person arranging the transaction can be structured so as to be perfectly legal.
So why am I writing about it? Because the payment of multilevel commissions on JUST that kind of paper CREATES HIGH-read that as-UNACCEPTABLE LEGAL RISK. The reason is that the multilevel commissions are being paid on the movement of money, WITHOUT the delivery of a product.

In the simplest form, one pays money and gets a piece of paper that evidences a promise to deliver a product at a later date, if certain specified conditions are met. Sometimes the conditions are as simple as showing up and presenting the coupon as an exchange for the product. Sometimes you must buy a burger, present the coupon, and then get free fries.

In direct selling, the conditions can get more complicated. In a famous example, one set of “conditions” (to ultimately receive the product for which you only made a down payment) was to sponsor a given number of additional persons who make more “down payments.” That has been tried. It has been found to be illegal and pyramidal. You (the company) CANNOT pay multilevel commissions simply on the movement of money, and you (the distributor) CANNOT receive multilevel compensation based upon your downlines’ movement of money. Multilevel compensation, to be legal, MUST be based on completed sales of products or services. One state’s anti-pyramid statute specifically uses the words “bona fide sales to consumers.” An excerpt is below:

In Florida the following is Prohibited Activity:

. . . any sales or marketing plan. . . whereby a person pays. . . in excess of $100 and acquires the opportunity to receive a benefit. . . not primarily contingent on. . . goods (or) services sold in bona fide sales to consumers, and which is related to the inducement of additional persons. . . to participate in the same sales or marketing plan. (“Consideration” exclusion: goods or services furnished at cost for use in making sales.)

Attorneys and investigators in the Office of the Attorney General of Florida have told me personally that they interpret the above language as prohibiting the payment of multilevel compensation on just the movement of money, without the sale and delivery of a product or service. They have said they are willing to litigate their position in the Florida courts. If that isn’t enough, the following regulatory actions make the point very emphatically: the voucher – and down payment – driven programs of AuQuest, Gold Unlimited, and International Metals & Trade were shut down, and corporate officers and distributors were arrested.

So, what is the bottom line? Do not design, and do not work, a program where multilevel commissions flow ONLY FROM the movement of money and BEFORE a product or service is delivered to an end user. When in doubt, consult an MLM attorney for guidance.