Lyoness America Responds To Accusations Of Violations To Ponzi, Pyramid, Business Opportunity and Security Regulations: Pt. 3

This is the third and last installment of the Lyoness America response to the allegations we first published July 22nd, 2013, and the second installment dated September 25th, 2013. In the first two Lyoness America went into detail to show where the writer of the allegations used deceptive tactics to deceive those who might have read his allegations. In today’s response they continue to share facts that seem to dispute all the Ponzi, Pyramid and Securities violation allegations.

6. Lyoness has a Volume Bonus that is paid based on rank achieved by have various quantities of profit centers sold. This should be a blatant pyramid law violation.

Lyoness Cashback - Money Back With Every Purchase - Lyoness US

No Profit Centers exist and therefore cannot be “sold.” No Units are “sold.” The writer either misunderstands or intentionally misrepresents these and many, many other aspects of the Lyoness Compensation Plan and is so careless with terms, amounts, accounting practices, regulatory law, and the well-established, long-understood differences between legitimate direct selling and illegitimate schemes, one wonders whether his/her motive was to investigate or to persecute. As we have previously and repeatedly stated, Units are generated only by shopping. At Lyoness, Members are not selling, but rather shopping. Members are not authorized to sell anything. Members do not even sell Memberships; rather they refer individuals to Lyoness to join as Members for free! If that referred individual joins, then he becomes a Member within the shopping community of the referring Member. But, the activity that generates compensation for Members is not selling, but rather consumers shopping at Loyalty Merchants (retailers that belong to the Lyoness network).

If Members shop, they earn rebates and other benefits. If no shopping occurs, then no compensation is earned. Units are generated in direct ratio to retail shopping. Units are not an abstract accounting practice (like a “profit center” may be) but represent a dollar amount of retail sales. Profit Centers may be likened to a column in an Excel spread sheet, whereas Units represent the dollars accounted for by those columns. So, to refer to “Units” as “Profit Centers” is not only confusing (and it certainly has confused the author) but it is also grossly inaccurate and misleading. Units are generated by retail shopping—online, onsite at SMEs, through Gift Card Orders, etc.

7. Commissions are paid in the binary matrixes based on the balanced sales volumes in the matrix. The company told me these sales were based on retail gift cards and on-line sales. After a couple months of review it became apparent that this is not so in the United States region. A review of Lyoness accounting records will review that the binary commissions are primarily generated by the sale of the profit centers. The required gift card purchases also generate some of these commissions, but less so. A third source of commissions come from the fact that Lyoness pays a portion of commissions earned into a purchase account, which forces distributors to use those funds for purchasing more profit centers, gift card or online shopping. A review of Lyoness America records will demonstrate the vast majority of all purchases are done by distributors to generate commissions. There are very little retail sales outside of the Sales Force. This should be a blatant pyramid law violation.

This is entirely untrue. This person is using words and terminology that do not exist in the Lyoness literature or other communications. We do not use or refer to such terms as “matrix” or “binary commissions” or “profit centers.” Again and again our accuser fabricates information he is unable to put into evidence, pretending to know the outcome of “A review of Lyoness accounting records” he has not made so as not to accept the real responsibility of supporting unsupportable charges. Whereas any accounting program may be accused of being “complex,” the fundamentals on which the Lyoness economy is based is quite simple: If a Member shops for items he regularly needs through the Lyoness network of third-party retailers, and that Member refers other Members to join Lyoness who, in turn, shop for their everyday needs within the Lyoness network of third-party retailers, then both Members will earn compensation that derives from their retail shopping activities, namely shopping rebates. Lyoness is basically about the power of shopping in an organized community and solidarity through shopping. Member shopping includes, among other things, paying for manicures, haircuts, and meals at a sushi restaurant at participating Lyoness retailers.

8. Distributors must sponsor a minimum of four (4) distributors to earn their uni-level, matching, Volume Bonuses and the cycle commissions in the binary structures. The rest of their sales force may be built by those they sponsor. This is common and traditional in direct sales. However, distributors are encouraged to purchase $3,000 of profit centers in their home region of USA in order to entitle them to purchase profit centers in the Brazil and Asian markets.

a. As Premium distributors in USA, distributors can purchase up to another $3,000 of profit centers in Brazil, but is also required to purchase another $600 of cards. They are told that the company, Brazilians and the rest of the world will fill the Brazilian binary matrix for them and create a passive income return for their investment. This should be a blatant pyramid law and FTC and state business opportunity violation, as well as a passive income violates the SEC regulations.

b. In USA Premium distributors can purchase up to another $10,800 of profit center in the Asian market, but is also required to purchased another (25%) of cards. That is up to $2,700 for gift cards required. They are told that the company, Asians and the rest of the world will fill the Asian binary matrix for them and create a passive income return for their investment. This should be a blatant pyramid law and FTC and state business opportunity violation, as well as a passive income violates SEC regulations.

c. In addition, USA premium distributors are allowed to make up to $10,800 of profit center purchases (which company claims to be down payments of future shopping that the distributors never do) three (3) times for a total of $32,400 with a total of $8,100 of required gift card purchases. The distributors have been told they will earn a passive income of almost $1,200,000 from doing this from the original profit centers they receive plus more from free future bonus profit cycles. They have been told it will take two to seven years and the faster they invest the faster the return will occur. This will require a large number of participate to accomplish and thus raise the question of a Ponzi scheme in addition to the pyramid, business opportunity and SEC violation.

Lyoness does offer its US Members the opportunity to expand into other international markets in which Lyoness operates. However, as we have evidenced repeatedly in our previous responses to the writer’s inaccurate and mistaken accusations and conclusions the details in (a), (b), and (c) are grossly inaccurate and provide an incomplete and profoundly misleading description of the National and Continental program.

One of the ways Loyalty Benefits may be exercised is to transfer them to programs in other countries. This is akin to “international expansion” permitted by other direct selling companies. Money is earned through retail sales generated through referrals, sponsoring, and supervision of Member networks making retail purchases through the Lyoness Loyalty Merchant Network. Lyoness securities counsel advises that neither our National nor Continental accounting programs violate securities laws because, among other reasons, “to be successful Members must be pro-active and rely substantially on their own efforts by enrolling new members who shop and generate shopping volumes through the Lyoness Loyalty Merchant network, but also by shopping and generating shopping volumes themselves within the Lyoness Loyalty Merchant network.” In fact, if a Member does not first achieve Career Level 1 through the accumulation of sales volume, then he/she is not even eligible to participate in a national or continental accounting program.

9. There are a total of 5 binary matrixes in each market called AC1 through AC5. In each consecutive matrix you earn higher and higher commissions based on a cycle volume requirement. There is a cap on the number of cycles each profit center can earn in each matrix. Once all the cycle commissions are paid;

a. A large buy out bonus is made.

b. You receive a free bonus profit center in the next higher matrix (AC).

c. You receive four (4) more free bonus profit centers (AU’s) in the current matrix (AC) that was paid out. This means that all of your AC1 profit centers will generate 24 more free profit centers. Premium members start with 13 profit centers. That means those will generate hundreds of new profit centers and when those are completed, they will generate thousands of more free profit centers. In addition, distributors are able to purchase two more profit centers for each free bonus center plus can earn even more free profit centers with the 2% cash back program. With tens of thousands of distributors active already, there are probably 100,000’s if not millions of profit centers that will generate in theory billions of more. Of course the growth in the number of distributors joining and purchasing profit centers accelerate this further. This exponential growth In the number of profit centers creates a definite Ponzi scheme scenario.

First the author alleges the Lyoness compensation plan is a “binary.” Then the author describes it as a “uni-level.” Now the author claims it is a “matrix.” Regardless of how the author chooses to mischaracterize the Lyoness plan, our compensation model does not include “buy-outs.” All commissions, bonuses, cash-back, loyalty awards, and units are awarded as a result of retail purchase volume generated by shopping. Therefore, what the author calls a “free bonus center” is in fact a Unit awarded as a result of cumulative retail shopping. This is also true of ALL the Units (what he calls “profit centers”) to which the author refers.

The way the author describes the growth potential of the Lyoness program does not reflect anything we are aware of actually being presented and has no basis in truth or fact.

In reality, there are five (5) different Accounting Categories, which the writer consistently and erroneously calls “profit centers” or “binary matrixes.” At some point an objective reviewer wonders: how is it possible to get so many things wrong and still to be taken seriously.

It is true that the higher Accounting Categories provide higher levels of compensation, because higher sales volumes are required to produce higher Accounting Categories!

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 shopping activity and the Lyoness benefits that the shopping generates. The Lyoness Program calculates Loyalty Cash, Loyalty Credits, Loyalty Commissions, Loyalty Commission Bonuses, Bonus Units, Category Rebooking, Volume Commission and Volume Bonuses, all of which are forms of benefit or compensation available through the Lyoness Compensation Plan. Each Accounting Unit in the Accounting Program may have no more than two (2) other Accounting Units linked to it directly, which is perhaps why the author characterizes it as “binary.” An Accounting Program is organized 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 referring Members and the resulting shopping at Lyoness retailers.

The author charges that a “large buy out bonus is made,” and then claims that someone can “receive a free bonus profit center in the next higher matrix (AC).” This concludes with: “[Y]ou receive four (4) more free bonus profit centers (AU’s) in the current matrix (AC) that was paid out.” This is an inaccurate description on how our program operates. The “Lyoness Benefits” Members can earn are listed and described below:

Summary of Key Lyoness Benefits:

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

2. Friendship Bonus (Cash): Cash money paid to Members earned from the shopping activity of direct or indirect Members that the Member introduced and enrolled in Lyoness. For example, a Member earns a friendship bonus of .5% if any direct or indirect (second level) Member places an order for fully paid Gift Cards or makes any purchase using any other Lyoness shopping method. Members can receive a “Friendship Bonus” of 0.5% when any of the individuals they refer to Lyoness shop within the Lyoness Loyalty Merchant network, or the people they refer to Lyoness shop within the Lyoness Loyalty Merchant network.

3. Loyalty Cash: When a Member’s Loyalty Account accumulates $75 from shopping rebates the member earns an Accounting Unit. The Accounting Unit is booked in the Lyoness Accounting Program. After a Member meets certain milestones and has 70

Accounting Units in the first Accounting Category (35 above and 35 below) following an Accounting Unit created from shopping, then the Lyoness program pays the Member Loyalty Cash. There are five (5) Accounting Categories as described below. Only Accounting Units from shopping can generate Loyalty Cash, and Accounting Units that are generated from down payments once matured cannot generate Loyalty Cash for a Member. The term “mature” or “maturity” means, in the Lyoness terminology, that an Accounting Unit has additional Accounting Units following it down stream, specifically 35 above and 35 below in the first category of the Accounting Program. Loyalty Cash is hard money first deposited into a Member’s Lyoness cash account and then paid or transferred via ACH to a Member’s bank account.

4. Loyalt y Cre d it (“Sh opping Cre d it”): 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 Member’s lifelines (including 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 within the Lyoness network of retailers. It is never a cash payment and can only be enjoyed or used as a shopping credit. Each of the five Lyoness Accounting categories has its own corresponding Loyalty Credit amount that a Member can earn through shopping and enrolling new Members.

Only Independent Business Representatives (“IBR”) are eligible to receive the next six (6) benefits (5 through 10) of the compensation plan:

5. Loyalty Commission (Cash): Earned by an IBR who enrolled four Members in Lyoness who in turn each created an Accounting Unit, which tracks those Members’ shopping volume and rebates accumulated. Once $75 worth of Lyoness Benefits are earned, an Accounting Unit is created. An Accounting Unit is a device that tracks and plots shopping activity. Members qualify to earn Loyalty Commissions once a Member has become an IBR by having enrolled four (4) direct Members in their lifeline and each such Member has accumulated at least one Accounting Unit. Loyalty Commission is paid out to an IBR on a gradual basis based on five (5) Accounting Categories. The amount of Loyalty Commission to be paid to the IBR is determined by the accumulation of Accounting Units (shopping volume). In sum, as Members in a lifeline spend money within the Lyoness network through shopping, the IBR earns a commission. Loyalty Commissions are actual hard currency cash payments that are first deposited into an IBR’s cash account and then paid via ACH into an IBR’s bank account after a certain period of time. An IBR must enroll a minimum of four (4) Members who in turn each created an Accounting Unit by shopping in order to participate in the Loyalty Commission Cash component of the Compensation Plan.

6. Loyalty Commission Bonus (Cash): An IBR earns an 18.75% bonus on a direct IBR’s loyalty commission and earns a 6.25% bonus from an indirect IBR’s loyalty commissions. A requirement to earning this benefit is that a Member must be an IBR who has at least four (4) direct Members (a “lifeline”) who in turn each have one (1) Accounting Unit. An IBR can only earn a Loyalty Commission Bonus if their lifeline Members earns Loyalty Commissions. Loyalty Commission Bonus payments are actual hard currency cash payments that are first deposited into an IBR’s Lyoness cash account and then paid via ACH to an IBR’s bank account after a certain period of time.

7. Bonus Units (Non-Cash): As Accounting Units follow above and below any of the Accounting Units created by an IBR or any of the direct, indirect or “in-in direct” Members in their entire lifeline, Bonus Units are created within the program at certain steps and are booked into a Member’s Accounting Program. Bonus Units do not pay Loyalty Cash or Loyalty Credit. Instead, Bonus Units pay Loyalty Commissions and Loyalty Commission Bonuses on Loyalty Commissions. In addition, Bonus Units are rebooked into the next Accounting Category and, in turn, create more Bonus Units. Bonus units are free or courtesy Accounting Units that Lyoness gives an IBR who has generated a certain number of Accounting Units in his Accounting Program. Bonus Units also help an IBR add up to 70 Accounting Units, but Bonus Units themselves will never pay Loyalty Cash or Loyalty Credit.

8. Category Rebooking (Non-Cash): Upon completion of an Accounting Unit in an accounting category (payment of either Loyalty Cash or Loyalty Credit), an Accounting Unit will be rebooked as an Accounting Unit within the next higher Accounting Category and will become eligible for Loyalty Commission, Loyalty Commission Bonus, Bonus Units, and further Category Rebooking. This is what allows a Member to advance within the five Lyoness Accounting Categories.

9. Volume Commission (Cash): Cash money that Lyoness pays out to an IBR under certain milestones that are met. Volume Commissions are earned by an IBR and is a volume-based program having eight (8) different Career Levels. Each Career Level requires a minimum amount of new shopping volume per month. Once the requirement is fulfilled by the IBR, the IBR is paid a Volume Commission. Failure to reach a Career Level once within six (6) months will result in being dropped down to the lower level that has been reached. A Member can “perfect” a Career Level by locking in a Career Level whereby if he does not meet production requirements he will not drop down to lower levels. Volume Commissions are actual hard currency cash payments that are also first deposited into an IBR’s Lyoness cash account and then paid on a monthly basis via ACH to an IBR Member’s bank account.

10. Volume Bonus (Cash): Hard cash paid at the confirmation of each Career Level once the IBR accumulates the required Career Points required for each Career Level, but only applies to Career Levels 2 and above. Lyoness will pay a Volume Bonus every month that an IBR confirms a Career Level with the required career points.

Lyoness also has non-income producing benefits, which are referred to as Lyoness “Loyalty Benefits.” 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 can only be used to generate Accounting Units in an Accounting Program. Lyoness Members can acquire Accounting Units by using Loyalty Benefits that 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 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%.

Lastly, with regard to the accusation below:

The company has been making every attempt to suppress this information. They have threatened me with law suits and TRO’s. The company is based in Austria. Mario Hoffman, Oria, Mario’s wife and assistant, Dr. Silvio, the company top distributor who launch the USA operations are all believed to be from Austria and could be flight risks.

Lyoness encourages open and frank discussions about its program and overall business. Lyoness welcomes questions and scrutiny, which ultimately help to improve and strengthen the company. But, the anonymous author makes unsupportable accusations designed to mischaracterize our business, our Members. Lyoness has been in business for 10 years and currently operates in over 40 countries. Mario Hoffmann, our CEO, openly works in the Miami office, and is an important part of Lyoness’ leadership and its growth plans in the U.S. Who suspects him of being a “flight risk”? No one but, allegedly, the author, who makes this and many other false charges without evidence or reasonable argument. Over and over the author attempts to incite rather than inform, to vilify rather than describe, and finally enlists one of the last false arguments: Cultural intolerance. He would have us believe it is suspicious just to be Austrian! Naming the wife of an officer (or of any family member) is typical of this kind of hate speech and is contemptible.

Because the accuser has not identified himself, we do not have the opportunity to face him openly in the court of public opinion. Nevertheless, we are happy for public opinion to review our explanations and for fair-minded persons to decide for themselves.

 

Editor’s Note: After the first article was published, the parent company of this website Deep South Companies, Inc. was engaged to work with Lyoness USA on some compliance strategies. http://mlmhelpdesk.com/disclosures-surrender-the-booty/

Safe Harbor Statement

This article includes forward-looking statements on our current expectations and projections about future events. In some cases forward-looking statements can be identified by terminology such as “may,” “should,” “potential,” “continue,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” and similar expressions. These statements are based upon current beliefs, expectations and assumptions and are subject to a number of risks and uncertainties, many of which are difficult to predict. The information in this article is provided only as of the date of this article, and we undertake no obligation to update any forward-looking statements contained in this article based on new information, future events, or otherwise, except as required by law.

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

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.

Well, I visited the Lyoness offices in Miami in August and I would have to say, I don’t think anyone is going to be a huge flight risk. As a matter of fact the executives of Lyoness America are fully planted inside the local community. Between their social connections at a corporate level, each has local ties with family and friends.

Lyoness Cashback - Money Back With Every Purchase - Lyoness US

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.