CHAPTER SIX

THE LEGAL ENVIRONMENT

By Jeffrey Babener©

Key Points of the Chapter

• The legal history of direct selling and the Direct Sales Industry has been characterized by cycles in which the legal climate has vacillated between challenge and support.   In 1998 the legal climate is generally positive.
• The Federal Trade Commission (FTC) established the earliest guidelines regarding illegal Pyramid Schemes and other unlawful entrepreneurial chains.
• The Securities and Exchange Commission (SEC) demonstrated that securities statutes also apply to the Industry.
• The FTC's prosecution of Amway in the mid-1970s resulted in the 1979 landmark ruling referred to as the "Amway Safeguards Rule," one of the most significant sets of legal standards by which courts and regulatory agencies determine the legitimacy of a Direct Sales company.
• The basic thrust of existing statutes regulating the Industry is that Direct Sales companies must be bona fide sales organizations which market bona fide Product to consumers.
• In addition to legal regulation, Industry association Codes of Ethics provide a framework for Industry self-regulation.
• Legislation and the legal environment are ultimately strengthening the Industry and helping create greater acceptance by legal authorities, the media, the public, and other business communities.