Multi-level marketing business to pay $20,000, change operations

PR Newswire Association, Inc./November 12, 1992

Consumers' Buyline Inc., a multi-level marketing business based in New York state [(Keith Raniere, President and founder)] with more than 9,000 Pennsylvania participants, will pay $20,000 to settle allegations that it operated as an illegal pyramid scheme under Pennsylvania law.

Attorney General Ernie Preate Jr. said an agreement filed today in Commonwealth Court by his Bureau of Consumer Protection also requires CBI to make changes in its marketing plan.

Preate said consumers who join CBI as members pay about $200 a year in fees for the opportunity to buy goods and services at purportedly reduced prices through various CBI buying clubs. But the bureau found that the CBI marketing plan allegedly gave its salespersons, known as affiliates, financial incentives to recruit as affiliates only those persons who would buy a membership and to sell memberships only to those persons who wanted to be salespersons, the attorney general said.

"Under this type of marketing plan, we allege, consumers were paying money solely for the potential opportunity of making money by recruiting other consumers into the program," Preate said.

"Such an arrangement violates the pyramid scheme prohibition of the state's Unfair Trade Practices and Consumer Protection Law."

CBI, which claims over 200,000 participants nationwide, did not admit wrongdoing under terms of the agreement. But it did agree to pay the state $20,000 in costs of investigation and to refund fees to consumers who were recruited as both members and affiliates through deceptive means. Those consumers are being located through a mail survey, Preate said.

Under terms of the settlement, known as an "assurance of voluntary compliance," CBI also has agreed to:

• Amend its marketing plan to separate its marketing of memberships from recruitment of affiliates and eliminate the requirement that the number of memberships must equal the number of affiliates.
• Make clear to affiliates that there is no requirement that a consumer become a member of CBI in order to participate as an affiliate.
• Hold at least one training session in Pennsylvania to explain the agreement, and their obligations, to affiliates.
• Disclose to consumers the concept of market saturation and the actual likelihood of achieving significant income from participation.
• Set up a telephone line to answer consumer complaints.

The assurance was negotiated by Deputy Attorney General Rob Bleecher, attorney-in-charge of the Bureau of Consumer Protection's Harrisburg regional office.

Bleecher said the bureau's investigation was prompted by consumer inquiries about the legality of the CBI program. He added that consumers should be wary of any marketing program that stresses recruitment rather than sales of products to individuals.

He said the assurance was signed by Keith Raniere, president of CBI, which has a principal office at 100 Sitterly Road, Clifton Park, N.Y.