25 Years of Our Industry's Legal History - Paul R. Greenberg
Paul R. Greenberg has been a lawyer and executive in the Network Marketing industry for 26 years, since graduating with honors from Columbia University Law School. He's been a senior executive in two companies (Shaklee and Quorum) and a private lawyer for dozens of industry members. We asked Mr. Greenberg to share with us what changes he's seen from his unique legal perspective over the last quarter century in Network Marketing. . . .
Mr. Greenberg, when and how did your law career begin to evolve into a Network Marketing specialty?
In 1972, the law firm I was working for acquired Shaklee corporation as a client. One of the earliest major projects was the preparation of the filing materials for the Securities and Exchange Commission in connection with Shaklee registering its stock and having an initial public offering. I really had to learn Shaklee and multi-level marketing as it existed in 1972-- that was my first familiarity with the industry, and I've been involved ever since.
What changes or trends have you witnessed over the years you've been involved with Network Marketing?
One of the biggest changes is that companies have shifted to a policy of mailing commission checks and shipping products directly to distributors at all levels. Back in the Seventies, companies like Shaklee and Amway would ship only to a subgroup of distributors who had direct ordering privileges and responsibilities, and those distributors would warehouse the inventory, then turn around and ship it. It was quite burdensome.
Laws like the 70 percent rule and the buy-back rule are primarily precautions against garage loading, not pyramiding, and with people not carrying large quantities of inventory or making substantial investments anymore, they are less relevant. However, by having these laws available to follow, it makes it easier for companies to show regulators in courts that purchases are being made voluntarily and not to fulfill an illegal objective.
Another change is that there are more companies now, and it's harder to distinguish between the legal companies and the pyramids. Back in the Seventies, companies were more often either clearly legal or clearly illegal-- "good" companies focused on product, and "bad" companies focused on income opportunity without a real product. Now, there's more of a continuum. Most companies strive for a balance between product and opportunity, and it's not always clear when companies are off balance-- focusing too much on income. Eventually you cross the line into something that's more like a pyramid, but it's a lot harder to identify.
Another reason is regulators are following, in many cases, the wording in the Webster v. Omnitrition case, which is probably the most poorly decided case in history of the industry. Because of it, regulators are more and more saying that a "legitimate" company is one that is primarily based on sales of product to non-participants. That's obviously an absurd misreading of the Amway case, and if it's not changed, it will significantly and adversely affect the whole industry.
Many of the companies under attack deserve it, but the arrows that are slung at them by the regulators and the consent orders that they sign are so broad that everybody seems to be illegal. They'll usually agree to sign any consent order (if they can avoid jail time and give the company a chance to survive) which can be misread as the law.
The other major change I've seen is that the field force has greatly diversified, and there's a much broader and more positive awareness in the general population about Network Marketing.
Consumer advocates are not at war with the industry the way they were at one time, and academics have more understanding about it. I would like to see clearer rules that are fair. q
Paul practices at 1875 Century Park East, Ste. 700, Los Angeles, CA 90067; telephone 310-277-6109.
Reprinted with permission from Upline, Upline Legal - October 1998, 888-UPLINE-1, http://www.upline.com