Montana State Auditor and Insurance Commissioner Troy Downing spoke to KGVO on Tuesday to let consumers know about the possible risks of multi-level marketing or MLM’s, especially those that don’t comply with Montana law in registering with the State Auditor’s office.
“We’re looking at multi level marketing programs, and we have a code on the books that requires them to register with this office, and the problem is that very few of them do,” said Downing. “There’s a bunch of them operating in the state and we’ve got about 10 of them that have registered. So we’re starting to crack down on those that haven’t.”
Downing described an average multi-level marketing operation.
“The multilevel marketing company is essentially a business that’s set up where you sell or offer some service to a network of customers or friends that you create,” he said. “And then they do the same thing and you get a piece of the business that they do and a piece of the business that their network does and it all kind of trickles up.”
Downing said it’s very important to know the difference between a legitimate multi-level marketing business and a pyramid scheme.
“The fact is on a typical pyramid scheme, there are a small percentage of people, usually the couple of top layers of founders that make money on it,” he said. “However, 98 plus percent of the people lose all of their money in these things, and so it’s just important for us to let consumers in Montana know that these things are out there and that they should scrutinize them properly.”
Downing said the state is only looking for basic information from a multi-level marketing company.
“Who is running it, how to get in contact with them, you know basic information about the business,” he said. “And again, I want to emphasize the multi level marketing companies are not illegal. They can legally operate in the state, but many of them are operating illegally by not following the rules and registering with this office.
Downing said the old maxim applies of ‘let the buyer beware’ always serves well in any enterprise, but that most MLM’s are legitimate, unless they fail to register with the state.
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