Lyoness America Responds To Accusations Of Violations To Ponzi, Pyramid, Business Opportunity and Security Regulations: Pt. 2

DS Edge Feb 2015

Well so far we have done two posts on Lyoness America and without a doubt the community has added massive value to the conversation. In the first post the question was raised “Lyoness America Violating Pyramid, Ponzi, Business Opportunity & Security Regulations?” This brought not only conversation from critics, and fans alike from across the network marketing community, it also brought with it a phone call from Lyoness America attorneys, asking if I would be willing to fly yo Miami and talk with the executives.

During our meeting I asked if Lyoness executives would like to officially respond to the alligations made in the first article. After several weeks I did receive a very detailed response. The first part of this response can be viewed here “Lyoness America Responds To Accusations of Violations To Ponzi, Pyramid, Business Opportunity and Security Regulations: Pt. 1″

Lyoness Cashback - Money Back With Every Purchase - Lyoness US

Now let’s look at the 3rd, 4th, and 5th allegations made in the original post. Number three may be the most serious of all the alligations, and the Lyoness America attorneys and executives do a great job of refuting the allegations and show where the MLM expert may have their own agenda in making these alligations.

3.   Before a distributor can place a down payment, they are required to make a purchase of at least $300 in gift cards.  This is a total of $525 minimum required to start in Lyoness America and may be in violation of many state and federal Business Opportunity laws.

There is no minimum requirement to start in Lyoness and membership is free of charge. Again, the writer either misunderstands the Lyoness opportunity or is intentionally misrepresenting it.

All business opportunity laws require multiple elements to be met in order for a program to be a “business opportunity.”  One element that is common to all business opportunity laws or regulations is that a participant is required to make a purchase from the company or a related third party that exceeds the threshold set forth in the applicable business opportunity statute or regulation.  Optional purchases are not included in the calculation of “required purchases.”  Since Lyoness does not require any purchases or expenditures of any Member to be eligible to participate in the compensation plan, it is not possible to violate state or federal business opportunity laws.

Lyoness has developed limits on the purchase of partially-paid gift card orders to protect Members.   Lyoness does not permit a Member to place a partially paid Gift Card order unless the Member has evidenced they are actually using their Lyoness Membership by shopping within the Loyalty Merchant Network. Lyoness keeps track of the types and quantity of Gift Cards our Members purchase from us. There is no possible way of keeping track of when the actual use of those Gift Cards takes place.   That said, Merchants have reported that virtually 100% of the Gift Cards purchased from them by Lyoness are redeemed. The reason for the limits requirement is to ensure that all Members who join the Lyoness  network are  actually  committed  to  real  shopping.    The  paramount  activity  of Members is shopping and purchasing real products that they need and use.

The essence of our entire program is shopping within a global Lyoness community wherein Members can benefit from shopping rebates and retailers benefit from increased exposure and sales.  We do not allow Members to simply place partially paid orders because we do not want to mislead Members into thinking that they can earn money passively.   Unless there is shopping, Merchants do not sell product, Members do not save money, and IBRs do not earn commissions. All shopping is voluntary and done at third-party retailers who have elected to participate.

4.   Many distributors are encouraged to start as premium members for a $3,000 and also are required to do a $600 purchase of gift cards.  Distributors are given seven (7) stacked profit centers in Lyoness’s first binary matrix, called Accounting Center a (AC1)., three (3) stacked profit centers in a more expensive second binary matrix (AC2) and three profit centers in an even more expensive third binary matrix (AC3).  This is a total of thirteen (13) profit center purchased.  By making these purchases, a distributor is qualified to additional commissions and benefits including the right to purchase profit centers in different markets.  They are told that as the profit centers earn all of their cycles and are paid off, the $3,000 investment in profit returns will pay a $383,000 returned of investment.  This does not count additional free profit centers given as discussed in point 9.  This may be in violation of both pyramid and business opportunities laws.

Prospective members may become Premium Members by making a $3,000 partially paid gift card order along with a $600 fully paid Gift Card Order.  But, again, this is not a required purchase, either to become a Member or an IBR.  No obligation exists that a prospective Member must purchase the $3,000 partially paid/$600 fully paid Gift Card Order combination.

As importantly, these amounts represent orders for gift cards that will be used by the Member to shop at local, regional, and national retailers that are called Lyoness Loyalty Merchants.  A Member receives cash back when shopping at a local, regional, and national retailers (Lyoness Loyalty Merchants) and receives a friendship bonus when other Members referred to Lyoness by that Member also shop at such retailers.  The $383,000.00 amount is not used in any Lyoness or Lyoness-approved presentation, nor are we aware of any such number being used by any Independent Business Representatives (“IBRs”), nor do we know of how it was arrived at by the accuser. If such presentation exists, we would like to be made  aware  of  it  immediately  so  Lyoness  can  investigate  and  issue  an  appropriate response.

Absolutely nowhere in any Lyoness approved literature, webinars, internet promotional presentations or elsewhere does Lyoness make any assertion, claim, promise or other statement of “profit returns” that a Member may enjoy.  No return of money or profits is guaranteed by Lyoness.  For Members to save money through Lyoness, they must be pro- active in shopping. For Members and IBRs to earn money in Lyoness, they must be pro- active in referring Members who also shop.  The money derives from shopping rebates that are paid by retailers and not by Lyoness directly or from Lyoness’ business.

In describing Gift Card orders as “investments” and alleging a “$383,000 returned [sic] of investment, the writer is attempting to paint the Lyoness opportunity as a security, and in particular as an “investment contract.”  As the writer has consistently done throughout the letter, he or she makes sweeping legal conclusions without any legitimate legal analysis. When an analysis of securities law is made and the Lyoness program is viewed within such a context, it becomes evident that Lyoness is a legitimate cash back shopping community.

As defined in the Securities Act of 1933, the term “security” means:

any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security,” or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.

The most common instrument with which problematic MLM programs have been prosecuted under securities laws is that of an “investment contract.”   An investment contract has been defined by federal case law as:   (1) an investment of money; (2) in a common enterprise; and (3) with an expectation of profits derived substantially from the efforts  made  by  those  other  than  the  investor  [Member]  which  are  the  undeniably significant ones — those essentially managerial efforts which affect the failure or success of the enterprise. The U.S. Supreme Court has defined a “common enterprise” as:

[an enterprise] in which the fortunes of the investor are interwoven with and dependent upon the efforts and success of those seeking the investment or of third parties.

Fundamentally, for an investment contract or security to exist, there must be a payment of money to a third party with the expectation that the third-party will turn that money into a profit for the payor.   The purchasing of goods is not an investment contract because the individual is acquiring a fungible, consumable good for which the market has established a price.   The Gift Cards Lyoness Members may purchase through Lyoness are fungible, consumable goods and not an investment Lyoness sells with the expectation of turning that money into more profits for the Members.  An investment of money carries with it the possibility of a gain or loss, whereas, the purchase of a product or service is simply a sales transaction with no expectation of gain and no possibility of loss.

The  Lyoness  Compensation  Plan  allows  Members  to  receive  a  1%  or  2%  cash  rebate credited to their Lyoness cash account on all personal purchases made within the Lyoness Loyalty Merchant network.  Upon earning $10 in Cashback rebates, the money is then transferred via ACH to the Member’s personal bank account.

A Lyoness Member is an individual who is referred by an existing Lyoness IBR or Member and registers for free with the Lyoness program with no minimum purchase requirement.

By purchasing consumer goods at participating Lyoness Loyalty Merchants/retailers, a Member can earn supplemental income by receiving cash back on personal purchases made within  the  Lyoness  Loyalty  Merchant  network.    A  Member  is  not  required  to  make purchases, but if a Member makes purchases within the Lyoness network he earns cash back on purchases made.

A Member does not have to pay any money to Lyoness to be eligible to receive cash back. The cash back is earned by shopping at participating Lyoness Merchant stores or on the Lyoness  online  shopping  forum.    The  origin  of  the  cash  back comes directly from the Lyoness retailer who pays a percentage rebate back to Lyoness from the money the Merchant earned from the Member’s shopping.

The ability of a Member to earn cash through the Cashback Program is completely independent of the success of the Lyoness business as a whole.   The individual Member only  earns  cash  back  if  the  Member makes  purchases  within  the  Lyoness  network  at Lyoness Loyalty Merchants.

In order for a Member to earn supplemental income from the shopping activity of direct or indirect Members, no investment of money or any payment occurs on the part of the Member.   A Member’s direct and indirect Members who make personal purchases at Lyoness Loyalty Merchants or place Fully Paid Gift Card orders also earn Cashback.

Similarly, the Lyoness Friendship Bonus Program is not an “investment of money” because it does not carry with it a possibility of gain or loss.  The Member’s direct or indirect Members make purchases and take immediate possession of goods.  When a Member’s direct or indirect Members make these purchases, a Member earns a Friendship Bonus of .05%.

Once a Member begins to participate in the Lyoness program by purchasing goods at participating Lyoness Loyalty Merchants, the Member begins to accumulate Accounting Units.    One Accounting Unit is earned each time a Member earns $75 of Loyalty Credit, “remaining rebates” from shopping.

When an Accounting Unit is created, it is booked in the Lyoness Accounting Program.  Once a Member meets a threshold requirement of 70 Accounting Units in the first Accounting Category following achieving their first Accounting Unit by shopping, the Lyoness program pays the Member Loyalty Cash.

An “Accounting Unit” does not represent an ownership interest in Lyoness or an investment return  that  measures  profits  of  some  kind.    Rather,  an  “Accounting  Unit”  is  merely  a tracking device that allows both Lyoness and a Member to track and plot the volume of shopping done by a Member and a Member’s enrollees or lifeline. The act of shopping by a Member or a Member’s enrollee generates a certain amount of rebates paid by Lyoness retailers, which in turn generate other Lyoness benefits like Loyalty Cash and Loyalty Credit. An Accounting Unit is, therefore, simply a way to track a Member’s shopping activity, which in turn establishes the basis for the benefits that a Member receives.

 Individual “Accounting Units” are not something that a Member can sell in a public or private market.  Similarly, a Member cannot trade individual Accounting Units to other Members as the individual Accounting Units are non-transferrable.  A Member who wishes to leave the Lyoness Program can, however, find another Member in such Member’s upline to reimburse the departing Member’s partial payment on a gift card order and receive the departing Member’s Partially Paid Gift Card Order in exchange for having received his original payment back.  This return of the Accounting Units is not based on any appreciable increase in value of the Units but is simply a dollar-for-dollar reimbursement of what the departing Member had originally paid for such gift card order.

Once an Accounting Unit is created, it is booked into the Lyoness Accounting Program.  The Accounting Program tabulates and tracks a Member’s Accounting Units, which, in turn, is a way to tabulate and track a Member’s shopping activity and the Lyoness benefits that the shopping activities generate.  The Program calculates Loyalty Cash, Loyalty Credits, Loyalty Commissions, Loyalty Commission Bonuses, Bonus Units, Category Rebooking, Volume Commission and Volume Bonuses. Each Accounting Unit in the Accounting Program may have no more than two (2) other Accounting Units linked to it directly. An Accounting Program is broken down into five (5) categories. Once a Member completes a category, Accounting Units automatically move up the program to the next Accounting Category. Advancement is based on the shopping volume generated at Lyoness retailers, including the volume generated by the Member and his team.

The Loyalty Cash component of the Lyoness Compensation Plan is also neither a “payment of money” nor an “investment of money” because the Accounting Units are created from the rebates the Member earns while shopping within the Lyoness Loyalty Network.  In fact, no Loyalty Cash can be earned from a Member’s Accounting Unit that was created through the paying of money to Lyoness (in the form of a partially paid Gift Card order). The creation of Accounting Units is done through the purchase of products and is simply a sales transaction with no expectation of gain and no possibility of loss.  The Member controls his or her fate as it relates to earning Loyalty Cash because it is simply a function of how often and how much shopping that Member does.  Lastly, no goods are being sold by Lyoness. The shopping relationship is between the Member and the Lyoness Merchants/retailers.

Another Lyoness compensation benefit is a “Loyalty Credit,” which cannot be considered a return of a profit or investment for Members.   Loyalty Credit is a shopping credit that a Member earns once an Accounting Unit is generated from a partially paid Gift Card order and followed by a certain number of additional Accounting Units. Accounting Units are generated by both the Member and the Member’s lifeline of other Members enrolled directly or indirectly by that Member.

The Loyalty Credit component of the Lyoness Compensation Plan permits a Member to create more “Accounting Units” within his/her Lyoness program in anticipation of future shopping without first having to wait for actual shopping volume that then creates the Accounting Unit.  A Member can pre-order Gift Cards from participating Lyoness Loyalty Merchants by making a down payment to Lyoness.  This pre-order of a Gift Card functions as a Partially Paid Gift Card Order to Lyoness.

The amount of the down payment for the Gift Card order that a Member must pay is determined by the amount of the shopping rebate that Lyoness and the Member earn from the Lyoness retailer, which is a pre-established and negotiated rate agreed upon between Lyoness and the retailer.  The partial payment on a Gift Card is treated by Lyoness as the rebate that it has earned from the retailer from whom the Member went shopping and bought its goods.   As such, the partial payment on a Gift Card is an outright sale of a fungible product – a Gift Card – rather than an investment to Lyoness paid by a Member(s).

Depending on the amount of the partially paid Gift Card order, a certain number of Accounting Units are created.  By making partially paid Gift Card orders a Member can accumulate Accounting Units at a faster rate than if no partially paid Gift Card orders were made, which, in turn, allows a Member to have the potential to earn more Lyoness benefits once those Accounting Units fully mature from the Member’s shopping and from the shopping of referred Members – the more Accounting Units a Member possesses, the more Lyoness benefits such Member is eligible to receive, but the Accounting Units in and of themselves have no value.

To earn Loyalty Credit, the unit must be created by a Member making a partially paid Gift Card Order. The Member can redeem the full value of the Gift Card at any time by paying the Remaining Balance of the Gift Card order or by redeeming sufficient credits within the Loyalty Program to pay off the remainder due on the Gift Cards.

If a Lyoness Member does not shop within the Lyoness Merchant Network, does not enroll other Members who shop, the Member earns no benefits – irrespective of how many Accounting Units that Member has booked.   By making purchases within the Lyoness Merchant Network, a Lyoness Member promotes the growth of a communal shopping community in which all Members benefit.

The bottom line with Lyoness or any other legitimate MLM business is that in order to make money, Members cannot be passive.  To make a small amount of money, a modest amount of effort is required.  To make a substantial amount of money, a Member must work hard. There are no short cuts to success in Lyoness – It takes hard work.

A Member cannot earn cash back unless the Member actively makes purchases within the Lyoness Merchant Network. For Members to earn cash back, they must rely solely on their own efforts of shopping within the Lyoness network and not on the efforts of other Members within the program.

Lyoness Members do not simply find ‘warm bodies that [are] willing to attend’ meetings. Lyoness Members actually have to work to convince others to join the Lyoness program, make purchases and make down payments on partially paid Gift Card orders.    A Lyoness Member has more autonomy in recruiting new Members and his or her efforts are the significant ones to recruit new Members, rather than the efforts of Lyoness corporate.  The recruitment requirements of a Lyoness Member are not merely perfunctory or administrative so as to render it only symbolic and of little consequence.  To the contrary, Lyoness corporate does not recruit but only provides training, educational support, and marketing  materials  to  Members  to  help  Members  with  their  recruitment  efforts. Members decide where, when and how to recruit provided they follow Lyoness guidelines and protocol.

For the reasons stated above, no “profit centers” exist in the Lyoness program and this is a term entirely concocted by the writer.  Based on our description above, Lyoness illustrates how Members are not receiving any “return on investment” or “profit returns” paid from Lyoness.   The benefits to be gained are derived from shopping and recruiting of new Members who in turn actively shop within the Lyoness network.

5. Lyoness has a uni-level structure.   In the uni-level distributors are a paid an amount based on the number of new profit centers are sold. This should be a blatant pyramid law violation.

The author first alleges Lyoness is a binary. Now he alleges it is a uni-level. As stated before, there are no “Profit Centers” in the Lyoness compensation strategy. Units are not sold but generated through shopping including, among other ways, sales of Gift Cards. Gift Cards are sold only to Lyoness Members (retail customers), some of whom are IBRs.  By shopping at participating Lyoness Loyalty merchants, a Member generates rebates and other benefits that can be used to generate Loyalty Credit or Loyalty Cash.   A Member also benefits by introducing new Members who in turn sign up and join Lyoness and also shop actively through the Lyoness shopping community.

For our explanation of why Lyoness complies with regulatory law and does not satisfy the definition of a pyramid, see Number 2, above. (Click Here)

 

Editor’s disclosure… 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 read our full disclosure report by clicking here. 

Troy Dooly

Troy Dooly is recognized internationally as an influencer in the areas of personal branding, leadership development, marketing campaigns, organizational expansion, and corporate launch strategies. Dooly is a speaker, results coach, and radio host. He is a founding member, show host (Beachside CEO) and News Director of the Home Business Radio Network. He is a founding member, and currently serves on the Board of the Association of Network Marketing Professionals

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Troy Dooly is recognized internationally as an influencer in the areas of personal branding, leadership development, marketing campaigns, organizational expansion, and corporate launch strategies. Dooly is a speaker, results coach, and radio host. He is a founding member, show host (Beachside CEO) and News Director of the Home Business Radio Network. He is a founding member, and currently serves on the Board of the Association of Network Marketing Professionals

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6 thoughts on “Lyoness America Responds To Accusations Of Violations To Ponzi, Pyramid, Business Opportunity and Security Regulations: Pt. 2

  1. More obfuscation….I don’t expect this to be posted as none of my previous comments have been…”Units are not sold”…huh, that’s the reason Lyoness is guilty of operating a Ponzi style scheme. The 3000 investment to become a premium is just that….Lyoness is selling positions. Those purchased accounting units have nothing, nothing, nothing to do with Shopping

  2. Troy,
    You seem to have gone from “very concerned” about Lyoness’ America’s compensation plan to, what appears to be from this video, a concilatory tone regarding their practices. Did you learn something from your Miami visit that turned you around? If so, you certainly have not presented any compelling evidence here that would pacify their critics. Did I miss something?

    • Not at all. The down payment part of the comp plan is a huge red flag. And you may have missed the point that I am also flying to Calf to talk with more of their attorneys.

      These last two articles have been them responding and me reading more than anything.

      I am still searching for all the answers.

  3. It’s been a week since you publicly apologized to the Lyoness America membership at our International event in Orange County, CA that we are not a scam, you jumped to conclusions and were going to make a public statement? When will you publically announce on your blog that were quick to make your false accusations known to the public?

    • Interesting comment. I never apologized about anything. First of all I have never called Loyoness a scam. I have questioned how some folks have marketed the program, and about some parts of the comp plan.

      And I never stated I had jumped to conclusions at all. As a matter of fact, the issues I have held are still held by me. But thankfully the Lyoness USA executives and legal team are willing to address each question I have. :)

      So, I doubt you will ever see me make any kind of public announcement on anything.

      Now, as for the alligations… Well I did not make those alligations. Those were made by a well known consultant in the network marketing world, and we published them.

      I then did a three part followup where the company answered each of those alligations.

      Hope this helps to clear up who made the alligations, and that I have nothing to apologize for.