1. The Legal Landscape of Direct Selling Presented by: Presented by Spencer M. Reese R&R Law Group, PLLC

2. Navigating the Legal Landscape of Direct Sales  The Fundamentals Setting Up Before You Launch Who is Watching Running a Clean Ship Managing Your Sales Force

3. Navigating the Legal Landscape of Direct Sales  Setting Up Before You Launch Where to Locate Capitalization Operating Agreement / Bylaws Owners Positions in the Genealogy

4. Navigating the Legal Landscape of Direct Sales  Federal FTC SEC USPS FDA  State & Local AG Securities Department Local Law Enforcement Dept. of Health / Bd. of Pharmacy  Private Parties Competitors Private Plaintiffs Bloggers, Tweeters & Naysayers Stock Manipulators

5. Navigating the Legal Landscape of Direct Sales Go Directly to Jail. Do Not Pass Go, Do Not Collect $200.00 … The Legal Fallout Ex Parte Restraining Order Asset Freeze Appointment of a Receiver The Functional Fallout No Commission Payments Employees leave Downline Bails Out And Distributors Too! SeaSilver #1 Distributor: $1,000,000.00 #2 Distributor - $500,000.00

6. Navigating the Legal Landscape of Direct Sales Run A Clean Ship Sell Viable Products (and Services) Properly Structure Your Compensation Plan Engage in Proper Practices Police Your Sales Force

7. Navigating the Legal Landscape of Direct Sales WHY DO THEY BUY? Product Income Benefits Opportunity

8. Navigating the Legal Landscape of Direct Sales Viable Products: Marketable outside the distribution network Consumer Demand Price & Value Substantiated Efficacious Actual Usage Products Services Sold outside of the distribution network AN INCOME OPPORTUNITY (Selling the Dream) IS NOT A PRODUCT!

9. Navigating the Legal Landscape of Direct Sales Your Plan Should … Deter Inventory & Recruiting Payments How to Identify Inventory Loading Definition 1- (FTC v. Amway) – Requiring purchase of a large quantity of non-returnable merchandise. Definition 2 – (Webster v. Omnitrition) Making min. purchases necessary to earn recruitment based bonuses w/o reselling to consumers. Exclude/Cap PV Contribution to GV 90% Repurchase Policy Limit Financial Incentives for Large Package Orders Identify all Sources of Excess Volume Quotas

10. Navigating the Legal Landscape of Direct Sales Your Plan Should … Deter Inventory & Recruiting Payments (Front Loading) How to Identify Inventory Loading Definition 1- (FTC v. Amway) – Requiring purchase of a large quantity of non- returnable merchandise. Definition 2 – (Webster v. Omnitrition) Making min. purchases necessary to earn recruitment based bonuses w/o reselling to consumers. Exclude/Cap PV Contribution to GV 90% Repurchase Policy Limit Financial Incentives for Large Package Orders Identify all Sources of Excess Volume Quotas

11. Navigating the Legal Landscape of Direct Sales Your Plan Should … Drive Sales to Customers Outside of the Distribution Network

12. Navigating the Legal Landscape of Direct Sales Comp Plan Design Problems Promote Inventory Loading Allow reps to hold multiple positions & incentivize qualification through personal purchases. Encourage excessive recurring purchases w/o proof of resale. Primarily Reward Recruiting Reliance on Front End Compensation Fast Start Bonuses The “Front End” of a Hybrid Plan Plans that incentivize “buying up” in rank Failure to include non-rep sales quotas throughout the plan Commissionable enrollment kits Bundled Sales Tools and Products Pay Fees Incidental to Participation Is the product purchase the price of admission to compensation? Mandatory product purchases Required in fact product purchases Excessive PV Quotas Low Product Usage Product Giveaways (abusive product sampling) Training Fees

13. Navigating the Legal Landscape of Direct Sales Practices The Independent Contractor Fallacy Common Problematic Direct Selling Practices Unsubstantiated Claims (including testimonials) Deceptive Practices Material representation likely to mislead a consumer acting reasonably under the circumstances to their detriment Income Claims Abusive Return & Refund Practices

14. Navigating the Legal Landscape of Direct Sales Managing your Sales Force The Compliance Program Policies Personnel Field Investigation Action Data Management

15. Spencer Reese www.mlmlaw.com sreese@mlmlaw.com (208) 522-2600 @mlmstartups.com