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CSI begins amnesty program for multi-level marketing companies to register

Office of Montana State Auditor, Commissioner of Securities
Posted at 6:52 PM, Nov 09, 2021
and last updated 2021-11-09 23:22:03-05

HELENA — The Office of Montana State Auditor, Commissioner of Securities & Insurance has announced that multi-level marketing companies operating in Montana have until December 15 to report their failure of registering for a reduced fine of $1,000.

Multi-level marketing (MLM) companies often appeal to those looking for extra cash or hoping to become financially independent, but MLM’ operating in Montana must register, and failure to register can cost up to $5,000.

An MLM sells or distributes goods through agents or distributors. They can also compensate participants based on sales or purchases, or even recruitment of new participants and sellers.

“What we do through this process is we look at the plan when an MLM registers with this agency to make sure that it doesn't cross that boundary of acting like a pyramid scheme, “ said Troy Downing, the Montana State Auditor.

Troy Downing

Downing says that pyramid schemes are illegal in the Treasure State, and since 2013 the state has worked to take down such schemes.

“Our role in consumer protection is to find those that are crossing the line and figure out what we need to do to either have them cease and desist, or modify to the point where they are in compliance with state regulation,” said Downing

There are more than 1,000 MLMs operating in the U.S., and only around 15 MLMs are registered with CSI, Downing is hoping to have MLMs come forward to register and pay the $1,000 fine.

"We have until December 15th, and once we get through that amnesty period we're going to continue prosecuting, and the prosecution is going to be a lot worse than just, you know, coming forth and getting registered,” said Downing.

The filing requirement is for the company itself. Participants and people selling on behalf of the MLM do not have to file.

Downing also says this program is designed to protect consumers.

“Montana law is designed not to make it difficult to do business, it's designed to protect consumers and we can't look into these if we don't know about them,” said Downing.

CSI will also publish a full list of registered MLM on its website once the program has ended.

Here is the full text of the CSI news release:

The office of the Montana State Auditor, Commissioner of Securities and Insurance (CSI) announces an Amnesty Program for multi-level marketing companies currently transacting business in Montana in violation of the Montana Securities Act.

“Six months ago, our agency put multi-level marketing companies (MLMs) on notice that we will be taking enforcement action against those not following Montana law. Under our law, MLMs are required to be registered. This allows us to ensure these companies are not acting as illegal pyramid schemes and defrauding Montanans.” Commissioner Troy Downing continues, “A pyramid scheme is one that requires you to bring in friends who pay fees to participate. They, in turn, bring in others and these fees trickle up to the founders. The problem is, as many as 98% of the participants lose 100% of their money invested into these schemes. To be clear, pyramid schemes are illegal in Montana.”

A multi-level marketing company (MLM) is one that sells, distributes, or supplies goods or services through agents, contractors, or distributors at different levels of distribution. MLMs also include companies that compensate participants, in part, based on purchases, sales, or the recruitment of other participants in the MLM. There are more than 1,000 MLMs operating in the US.

MLMs are required pursuant to Montana Code Annotated § 30-10-327 to maintain an annual registration with the CSI. MLMs that fail to register can be fined up to $5,000 per violation. Currently, only 14 MLMs are properly registered with the CSI. Companies that are a member of the Direct Selling Association are not required to register with the CSI. The CSI estimates there are hundreds of MLMs currently operating in Montana in violation of the law.

Recently the CSI initiated legal action against six MLMs illegally operating in Montana. These companies’ products included cryptocurrency, cleaning supplies, magnetic jewelry, clothing and accessories, home decor, and adult products. One of these companies reported having nearly 3500 Montana participants. The CSI has already settled five of the cases for a total of over $20,000 in fines and almost $10,000 in restitution.

Under the Amnesty Program, MLMs that come forward and self-report their failure to register by December 15, 2021 will receive a reduced fine of $1,000 and the CSI will assist the company in becoming compliant with the law. Once the Amnesty Program expires, the CSI will actively investigate and hold MLMs fully accountable for violating the law, including the imposition of the full fine amount and restitution.

More than 20 million adults across the country are current or former participants in MLMs. Most people who join do so with the hopes of earning extra money or achieving financial freedom. Many Montana residents are currently participating in a MLM that is operating illegally in this state. Once the Amnesty Program expires, the CSI will publish and keep current on its website, www.csimt.gov, the list of companies that are properly filed in Montana or are a member of the Direct Selling Association.