Missouri v. Membership Marketing Inc., 766 S.W.2d 654 (1989)

When does the sale of memberships in a discount club cross the line into being an illegal pyramid scheme?

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The Missouri Court of Appeals held that the Membership Marketing did appear to be a pyramid-marketing program because the members were compensated based on the volume of additional membership sold, not on the amount of products or services consumed. Membership Marketing offered discounts on health insurance, auto club memberships, vacation and travel packages and other benefits in exchange for $100 in monthly dues. Sales representatives were encouraged to become members themselves, and were compensated based on a percentage of the revenue generated by the membership dues of the sales persons downline. The state pyramid statute makes illegal any sales scheme where the primary compensation is based on sales of the right to sell the same program to others. The court held that because the compensation of sales persons is contingent upon their ability to recruit others who are able to recruit additional sales reps, the program violated the state statute and was an illegal pyramid scheme.

Full case and case summary also available at: http://www.mlmlegal.com/legal-cases/Missouri_v_MembershipMarketingInc.php

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Reference Info:State, 8th Circuit, Missouri | United States

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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