Back on July 22nd, 2013, I published an article titled “Lyoness America Violating Pyramid, Ponzi, Business Opportunity & Security Regulations?” where I included a document I had received from a well-known MLM Consultant. This consultant asserts that they have inside info to prove Lyoness America violating North American rules and regulations, and that the corporate officers of Lyoness America are possible flight risks.
I invested a little over a day with the team at Lyoness along with their MLM and SEC attorneys to get a deeper understanding of their business model, and to get full opinions from the attorneys to the issues raised and to my personal concerns.
Below is the first of three parts where Lyoness Managemant America took the time to respond to each allegation made in the original article.
Below please find our responses to the assertions, inaccuracies, and misrepresentations that have been put forth against Lyoness as posted on your website. Please note that we copied and pasted the actual nine (9) numbered claims written in italic font made and posted on your website in their “as is” form without making any corrections. Lyoness is a global shopping community that operates in 40 plus countries with over 3 million Members. Lyoness offers a free Membership with a Cashback card attached to a loyalty program.
1. Lyoness does allow someone to register for free through referrals to earn a profit center. This takes approximately $1,500 of purchases. A review of Lyoness’s actual records will demonstratt less than one percent of the qualified distributors started this way. In fact, there may have never been one.
It is true that Lyoness does allow a prospective Member to register for free to enjoy the Lyoness benefits and earn units. Profit centers do not exist in Lyoness, and therefore, cannot be created. The author’s claim regarding “reviews of Lyoness’s actual records will demonstratt less than one percent of the qualified distributors started this way. In fact, there may have never been one,” is simply false. This is a deliberate misrepresentation of the Lyoness program. Commencing for the period of January 1, 2013 through July 31, 2013, ninety three percent (93%) of the Members who enrolled started without making any kind of payment or purchase at the time of enrollment.
While Membership is free, sales must occur for a Member to acquire and accumulate units. “Units” can best be understood as the universal currency of Lyoness. A “Loyalty Benefit” is a non-income producing benefit. Loyalty Benefits cannot be considered income, because they cannot be used as cash or as shopping credits. Lyoness does not pay out Loyalty Benefits to Members. Rather, the Loyalty Benefits are used to generate Accounting Units in the Accounting Program. Lyoness Members can acquire Accounting Units by using Loyalty Benefits they have earned by shopping in the Lyoness shopping community. A Lyoness Member always earns Loyalty Benefits each time he shops at a Lyoness retailer. For example, in addition to earning a 1% to 2% cash rebate and the Friendship Bonus on two levels, shopping will also provide a Member with Loyalty Benefits, the percentage amount of which depends on the rebate amount contracted between Lyoness and the respective Lyoness retailer. In case of a 10% rebate, 2% is paid out as cash back; 1% is paid as the Friendship Bonus, and 7% (the Loyalty Benefit) will go towards creation of the next unit. The amount of a Loyalty Benefit changes depending on the total rebate, which can be as little as 1%, or as high as 25%.
It is important to understand that unlike other direct selling companies, Lyoness does not require its Members to purchase and/or inventory products. Instead, Lyoness has negotiated relationships with local, regional, and national retailers that are called Lyoness Loyalty Merchants so that Lyoness Members can receive cash back from normal, everyday purchases. As most people know, “cash back” programs are very popular today. The problem with many programs is that you must join a separate program for each retailer at which you shop. In addition to convenience, Lyoness affords its Members the ability to benefit from the purchases of other Members referred by them.
Lyoness also does not require Members to pay a Membership renewal fee, does not require Members to purchase start-up packages, and does not require Members to commit to an auto-ship. Gift Cards purchased from Lyoness are sold and redeemed at full face value. In addition, we help Members get rebates and other benefits on everyday purchases made within the Lyoness shopping network.
The extraordinary benefits of Lyoness are that it offers every Member the ability to: (1) earn rebates on their own everyday purchases from thousands of merchants; (2) earn money from the everyday purchases of the individuals they refer. And the benefits Lyoness provides Members with the rebates Lyoness negotiates with Loyalty Merchants are significantly larger than those offered by other cash back programs. It is also important to note that the Lyoness program does not motivate individuals to purchase products they do not want or will not use. Lyoness Members purchase goods they normally use from merchants they normally shop at!
A Member may acquire units through one of four shopping methods: (1) using his or her Lyoness Cashback Card at Lyoness Loyalty Merchants; (2) Online Shopping with Loyalty Merchants via the Lyoness website; (3) fully and partially paid Loyalty Merchant Gift Card orders; or (4) shopping with a proprietary and free Lyoness smartphone application that can be downloaded by Members on the iPhone or other smartphone.
The following is an example of how a Member can generate a unit by making purchases at a
Lord and Taylor department store using $1,500.00 worth of Gift Cards purchased through Lyoness. If a Member purchased $1,500.00 worth of merchandise from Lord and Taylor using six (6) $250.00 Gift Cards purchased from Lyoness, the Member will receive 2% Cashback ($30.00) and the remaining rebate of 5% ($75.00) is the Loyalty Benefit deposited in the Member’s Loyalty account. That $75.00 creates a Unit and either starts the Member’s personal Accounting Program for Accounting Category I, or is placed in the Member’s existing Accounting Program for Accounting Category I. As you can see by the above example, one way a Member may earn a unit is by accumulating $75 in a Loyalty Account from shopping rebates received by making fully paid Gift card Orders. Members generate units in this fashion and by shopping for everyday household goods at participating local merchants or even by purchasing large ticket items such as automobiles through the Lyoness Loyalty Network.
We encourage anyone interested in learning more about the Lyoness program to review our website www.lyoness.com and read our Income Disclosure Statement that can be accessed at www.lyoness.us by scrolling to the bottom of that page and clicking on the “GTC” link.
2. Distributors start by buying in with a minimum of $225. Lyoness calls this a down payment on future shopping. In fact, no shopping is done with that money. No product or service is delivered for that money. All the distributors do get re three (3) stacked profit centers, which Lyoness calls accounting units in a compensation structure very similar to a binary compensation structure. This is buying into an opportunity and I believe is in violation to the pyramid laws.
The above paragraph is full of misstatements and erroneous conclusions. The first sentence is untrue. No “buy-in” is required of any Member. No “down payment” is required of any Member. Perhaps the writer is referring to an order for fully-paid or partially-paid gift cards a Member may choose to purchase. As mentioned before, no Member is required to purchase any gift cards in order to be eligible to participate in any aspect of the Lyoness compensation plan. Such purchases, if made, are completely optional and made at the Member’s sole discretion.
Moreover, Members do not receive “three (3) stacked profit centers, which Lyoness calls accounting units.” As previously mentioned, there are no “profit centers” in Lyoness. It is true that the purchase of fully-paid or partially-paid gift card orders may generate one or more units, depending upon the amount of such purchases.
Partially paid Gift Card Orders (referred to by the author as down payments on future shopping) are merely a way for Lyoness to spearhead and incentivize shopping by having Members order one or more gift cards that, in turn, can be used for shopping when fully paid. Members may pay the balance of a Gift Card Order using shopping rebate dollars a Member earns through shopping. For example, if the balance due on a $2,250 partially paid gift card order is $2,025, the Member can pay off the $2,025 balance by using cash benefits a Member earns through participation in the Lyoness program. Members may also purchase fully-paid Loyalty Merchant Gift Cards from Lyoness and receive CashBack when purchased. Those cards are used to make retail purchases at the corresponding stores. Members can also shop online through the Lyoness Portal or shop with their smartphone using the Lyoness Mobile App (free from the Apple Store or elsewhere online). Members also use the Lyoness CashBack Card to shop at Lyoness SMEs (more than 2,000 “Small and Medium size Enterprises” throughout the US and Canada that honor the card at checkout, and more than 150,000 points of acceptance throughout the world). SMEs include restaurants, dry cleaners, and other (usually local) storefront merchants recruited to the Lyoness network at an average of one hundred a month in North America.
The writer does not realize that Lyoness pre-purchases gift cards that may be used to shop at national retailers and chain stores in local communities. Lyoness then sells these Gift Cards to its Members for face value. By buying a Gift Card together with placing a partially paid gift card order, the Member receives units, which in turn generates Loyalty Credit. A Loyalty Credit is earned once a unit generated from a partially paid Gift Card order has a certain number of units following it downstream, which are generated by the Member and/or Member’s lifelines (including fully and/or partially paid Gift Card orders). Specifically, once a total of 70 Accounting Units are created in the first category of the Accounting Program and follow from an initial Accounting Unit generated from a partially paid Gift Card order, then the Member earns Loyalty Credit in the sum of $675.00. This Loyalty Credit is issued to the Member and can be spent by shopping at gift card merchants and SMEs using the Lyoness mobile app within the Lyoness retail network. It is never a cash payment and can only be enjoyed or used as a shopping credit. But there is such a wide variety of Loyalty Merchants in the Lyoness Network that all Members can easily find merchants at which to shop at where they can buy products they regularly use. This credit system of compensation encourages Members to continue shopping at Loyalty Merchants.
Lastly, the writer claims that the purchase of gift cards constitutes “buying into an opportunity,” which he or she contends violates anti-pyramid laws. This misrepresents the voluntary purchase of Lyoness Gift Cards as well as the statutory and case law definitions of a pyramid and is typical of the non-specific, inflammatory accusations often made against legitimate direct sellers by critics who do not understand either direct selling or the law.
At the federal level, a pyramid is characterized by the payment by participants of money to the company in return for which they receive (1) the right to sell a product and (2) the right to receive in return for recruiting other participants into the program rewards which are unrelated to the sale of product to ultimate users. As the federal courts have recognized, the satisfaction of the second element is the essential ingredient of a pyramid scheme – distributor recruitment with rewards unrelated to product sales.
The purchase of a reasonable amount of product by a new distributor in an MLM is not a violation of anti-pyramid laws. However, we are aware that some other MLM companies allow distributors to engage in a practice called “inventory loading.” A recent federal court decision defines “inventory loading” as a practice in which distributors make the minimum required purchases to receive recruitment-based bonuses without products being sold to consumers. An example of this would be Mr. Smith enrolls Ms. Jones as a distributor. In addition, he persuades her to purchase $5,000 of product inventory. Rather than helping her to sell her inventory to consumers, Mr. Smith tells Ms. Jones that the way to make money with the company’s program is by recruiting other distributors, persuading them to purchase similarly large product inventories, and thereafter, repeat the same process.
At the state level, a pyramid is essentially defined as a program in which participants pay money for the right to receive compensation that is based primarily (but not exclusively), whether directly or indirectly, upon the introduction of additional participants into the program. When distilled, the issue is – Does a participant’s compensation come primarily from activities that are related to: (1) participant-recruitment; or (2) sales. If the primary source is participant-recruitment, such a program will likely be a pyramid. If the primary source is sales, such a program will be a legal MLM. In establishing a legal MLM, legislators and courts around the country have recognized that the development of a sales organization (that is to say, participant recruitment) to sell legitimate products is an essential and integral part of any MLM.
The incredible irony of the writer’s accusation is that Lyoness is all about the sale and purchase of legitimate products from legitimate retailers. The majority of Lyoness Members do not recruit other Members. In fact, had this person just taken the trouble to review the Income Disclosure Statement on the Lyoness website he would have discovered that 86% of our Members are not Independent Business Representatives, one of the healthiest customer/distributor ratios in Direct Selling! Moreover, the rewards in Lyoness are directly related to the sales of products to ultimate users. Therefore, they are related to Members’ shopping, which includes the use of the Cashback Card when shopping at Loyalty Merchants, Loyalty Merchant online shopping, and the purchase of Loyalty Merchant gift cards.
Editor’s disclosure September 24th, 2013… After I published my first report, the parent company of this website “Deep South Companies Inc. was contracted by Lyoness to consult on compliance issues, and how to control the misrepresentation of the Lyoness business model on the internet. You can review our full disclosure statement by clicking here.