Cagey Consumer

IHI Abusive Practices

It seems that our legal system has difficulty figuring out what constitutes a pyramid scheme, in cases ranging from Amway in 1979 to International Heritage in 1998. Regardless of this difficulty, the following are some of the abusive practices that seem apparent in International Heritage:
  1. paying off old investors with money from new investors
    New IHI distributors are encouraged to purchase one or more "business centers" at $250 each. These payments are characterized as down payments on IHI product. Thus IHI has the money in hand without having to deliver the goods for some period of time, or perhaps without ever having to deliver the goods. At the same time, each purchaser of a business center is trying to find new purchasers of more business centers.
  2. paying for recruiting
    Although IHI claims that it pays only for retail sales volume, here's an excerpt from the IHI web site:
    Once you have achieved a level 3 commission, you can earn a $750 development bonus when a representative on your left side and a representative on your right side earns a level 3 within a 1-week pay period.
    Equivalent earnings cannot be obtained by retailing the same volume of product. These payments are earned by recruiting.
  3. allowing people to "buy position"
    One of the rules that the FTC established was that multi-level marketing companies could not allow people to "buy" a position that entitled them to greater earnings. This is similar to the rule against front-loading, in which distributors are encouraged to buy a large amount of product to become eligible for a higher level of earnings. In both cases, the higher the payment, the higher the earnings on the same volume of sales.

    IHI distributors are offered the opportunity to purchase 1, 3, or 7 business centers (at $250 each). The increased compensation occurs becuase the distributor will have a "mini-matrix" of his own, entitling him to receive compensation at two or three levels of the matrix payout on each sale.

  4. lottery-like payouts
    IHI distributors are entitled to earnings from their downlines only if the two "legs" below them are relatively balanced. Yet, the distributor has very little control over the balance. Thus, if it works out that in one 1-week pay period the two legs are balanced as required, the distributor receives a payout, and if they're not balanced, the distributor forfeits the payout.

    Similarly, distributors will forfeit the right to receive payouts because sales occur in different pay periods. In other words, sales occuring over two different weeks will not entitle the distributor to the same compensation that would occur if they happened in the same week.

    These restrictions might be acceptable if they were based on a bona fide business justification. But increasing "breakage" (earnings forfeited for failure to meet non-sales volume criteria) is not a bona fide justification.

  5. confusing compensation
    Descriptions of compensation fail to make it clear when the compensation earned is real money, credit towards IHI products, or is Retail Sales Bonus Volume. Credit towards IHI product must certainly be discounted heavily, and the value of Retail Sales Bonus Volume is virtually impossible to calculate.
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