ANOTHER LEGAL DISCLAIMER: I'm no attorney.
The information provided below is based on my opinions and
does not constitute legal advice but may aid you
in finding an attorney or getting help fighting back without
the aid of one (though that isn't recommended). I take no
responsibility for decisions that are yours to make, so do
your own research, and good luck.
laws right now are stacked against you. It's next to impossible
to close down a firm behaving as an illegal MLM because illegal
MLM-related laws are weak. Those firms will likely continue as they
are for years to come. If you're going to sue, consult an attorney
about your best course of action. I think it's better to make sure
the case is on the books for the next potential victim who researches
the firm. Complain using the appropriate channels, and make your
voice heard to your legislators.
Prosecution. If you've already been burned, here are your
recourses as I understand them:
Recourse #1: Mediation or Arbitration. If you signed
an employment contract with a mediation or arbitration clause,
be sure you understand what those terms mean. Mediation is meant
to facilitate the parties simply coming to an agreement and implies
no award or judgment. Arbitration implies an award (decision)
and is meant to be speedy and less costly than a court hearing
or trial but may limit your ability to appeal the decision.
By arbitrating, you may be giving up the right to pursue the matter
through the courts. While an attorney is not required,
you can assume the broker/dealer will be represented, and there's
a chance they've done it all before. Consider legal representation
for yourself. Arbitrators are not required to write opinions or
provide reasons for their decision. Request an opinion in writing
before the hearing date.
information is on FINRA's site here.
Do note that judges have increasingly been leaning towards
permitting disputes that cannot be resolved in arbitration/mediation
to proceed to civil court, since arbitration/mediation
is such an unfair route for the rep! For instance the company
may cherry-pick an arbitrator "knowledgable in financial
services employment disputes" who tends to decide overwhelmingly
in their favor. Also, the
costs to institute an arbitration case are often even more expensive
than for instituting court litigation
— in some cases up to 5,000% higher
— a natural deterrent for potential claimants
you didn't sign an employment contract with such a clause, consider
#2 or #3 below.
Recourse #2: Small Claims. If it's $7500 or less (that's
California, check your
state's limit), small claims is a low-cost solution with no
need of an attorney. However, you MUST file your claim properly!
If you have been classified as an independent contractor and want
to take the easier route, you may need to file the suit against
your individual district or general manager to avoid
the court's being forced to dismiss your case. If you
list the firm as your employer, the firm may
claim it owes you nothing since you were never its employee. The
trick here appears to involve claiming that the manager
is your "employer" and you're suing him for
fraud, particularly if he has stolen commissions that should have
gone to you. (Remember, he's an independent contractor,
which lessens the firm's legal liability.) If you filed Form SS-8
with the IRS and the IRS has determined you to be an employee
(though this could a year or more), haggling over your status
may be diverted. If you can't wait and still want a judgment against
the firm and not just the individual manager (and
you should persist against the firm itself if you want
other unfortunate souls to have that firm's name available in
court records for future reference), you may need to
prove to the judge that you were an employee. Try to utilize the
criteria listed in the "Independent
Contractor" section of this site and file IRS Form SS-8.
Recourse #3: Civil Court. For amounts that do not exceed
$25,000, usually filed as a "limited jurisdiction civil case";
or for amounts over $25,000, usually filed as an "unlimited
jurisdiction civil case" (figures are for California, check
your state's limits). You will likely need to pay for the services
of an attorney at this point, and few if any that I know of will
accept your case on retainer or pro bono (free, for the public
good). You will usually need to
come up with a hefty sum ($15-20,000 in my state) just to get
a case started, and if the firm refuses to settle,
you could be in for a long and costly trial. However, your attorneys'
fees can be reimbursed upon your winning your case. You'd better
have good documentation for this route.
you can afford to sue, do it, and if you suspect others have been
victimized, file the suit as a class
action lawsuit so your attorney can publicly solicit
others similarly wronged. If other plaintiffs come forward, you
can split the costs of prosecution and recover those costs if
your case is won.
you cannot afford to bear the costs of filing a class action suit
alone, you're stuck soliciting others up front by yourself. This
is extremely tricky -- refer to the section ahead on the anti-SLAPP
personally like to see more former employees refuse to settle,
and pursue a trial and ultimate judgment against the firm, since
a judgment is more damaging because it becomes public record and
may help set new precedent. Scammer
firms know that few of the young, impressionable people they recruit
will have the guts to sue and will likely just "chalk it
up the experience," but you may feel a duty to future recruits
to make sure a judgment is on record so they will have their chance
to avoid your mistake.
to use the American Bar Association's "Lawyer Locator."
Recourse #4: REGULATORY AGENCIES. If
you feel you've been defrauded or scammed, complain! You may not
be the only one, and you may be aiding in shutting down a scammer
firm by letting your voice be heard. See the Links
and Resources page for more information.
Legislation. Here are some of the laws I'm aware
of which may be used to protect you in fighting back, but be aware
that they need work.
Federal and State Anti-Pyramid Laws.
scammer firms operate similar to pyramid schemes, and pro-MLM
lobbyists (most notably the Direct Sellers Association, or DSA)
have tried to push legislation that purports to be anti-pyramid
but really just legalizes them. For instance, The
"Anti-Pyramid Promotional Scheme Act of 2003" (HR
1220 IH), sponsored by the DSA, attempted to legalize pyramid
schemes nationwide. Since the federal version has repeatedly
been shot down, they've resorted to trying to get states to pass
versions of the same legislation. As of 2009 duped states included
Texas, Montana, Louisiana, Oklahoma, New Mexico. Kentucky,
Idaho [SB 1237], South Dakota [HB 1183],
Georgia [SB 141], North Dakota, Maryland, Utah
[SB-182] and Illinois.
1220 IH defined the following characteristics. Pyramid
finance returns to participants through sums taken from newly
(B) promise new participants large returns for their investments;
(C) use unfair and deceptive sales tactics, and lead to the
victimization of unwitting individuals.
from the sleazy language that actually would have legalized pyramid
schemes, I think HR 1220 had a pretty fair definition of them.
If your state has passed some version of this law with the above
definitions, then you might be able to make the following cases:
A scammer firm finances returns
to participants through sums taken from newly attracted participants.
The manager's income is dependent on attracting a constant stream
of new reps who will pay for "training" and whose
contacts may be mined. Product sales are arguably incidental
to the continued viability of the business. A rep's goal is
management so he can perpetuate the scheme.
A scammer firm promises new participants
large returns for their investments. The target
market sought by scammers consists largely of people who would
otherwise stand a pretty fat chance of making the income that
is represented to them. Their "investment" is their
education and career track, and even a "business"
if they are classified as an independent contractor.
(C) A scammer firm uses
unfair and deceptive sales tactics, and leads to the victimization
of unwitting individuals. The income
represented by the firm is unattainable for the vast majority
of participants, though promoted otherwise.
you feel like helping others, you might check your state's law
to see if current or pending legislation attempts to redefine
retail customers as including participants in the scheme (personal
use). If you see that characteristic, fight for its defeat or
law needs work too.
you have left the business broke and need to sue, you may need
to seek other similarly wronged reps to pool finances towards
the hiring of an attorney in a class action lawsuit.
If you kept in touch with former workmates, call and ask them
privately about their experiences there and see if they match
yours. If you didn't keep in touch with everyone who worked with
you at the firm, you can attempt to locate those people. Switchboard.com
is one place to start.
you didn't keep in touch with everyone and can't locate them,
you may be forced to publicly solicit other similarly situated
individuals who can agree to pool legal resources. This
is why you need to know about SLAPP/anti-SLAPP laws. SLAPP
lawsuits ("Strategic Lawsuits Against Public
Participation") are lawsuits instigated by a firm against
critics in which it will attempt to silence possible
critics by crying "libel!" or "slander!"
Just posting a message
to a public forum telling your story and inquiring if others have
experienced the same with the firm can get you sued.
The firm can cite your post as a "conspiracy" to solicit
others to defame them! The truth doesn't matter; you'll be forced
to legally defend yourself before you ever get your own
suit mounted. (Although the Communications Decency Act has been
consistently interpreted as holding operators of print media such
as newspapers, websites, message boards, and the like not
liable for the comments and opinions of third parties, many
of those operators will simply remove your post and give up your
identity rather than pay, or continue paying, to defend themselves.
Your name might just replace "John
Doe #1" in the SLAPP suit.) Since many victims cannot
afford attorneys' fees to defend themselves, a common
outcome is that they settle out of court on the "defamation"
case with the agreement that they will never again speak of the
firm (permanent injunction). You don't want that happening
to you when your goal is to talk to others about the firm in order
to mount a class action suit. Stick
to soliciting information only, and discuss that information
privately. Far better, of course, is finding an
attorney who will initiate the case on contingency as a class
action lawsuit and let him solicit others publicly.
an interesting case explaining how one company attempted to
silence critics in an alleged "SLAPP" case, read "Free
Speech and the Internet: a Fish Story" at Salon.com.
Article on "SLAPPs" has an interesting examination
of Amway's attempts to protect its image. It
supports the argument that a company need only name or continue
to name critical website operators as defendants in unrelated
cases to drain their finances and force closure of their sites.
All cases were dismissed, but most sites closed.)
is no guarantee that you will never be the target of a SLAPP.
However, according to the California
Anti-SLAPP Project's website, certain types of homeowner and
business insurance may protect you if you're SLAPPed.
Anonymous Internet Foundation, Inc.
may be able to help SLAPP victims obtain legal representation,
even on a pro bono (for the public good) or reduced fee basis.
Update 2009: Site does not appear to be maintained but is
laws above could protect you, but cases of this nature
are still cutting edge, and the past rulings I know of have been
inconsistent at best. Your case could set the first precedent in
applying existing laws successfully once and for all, but new legislation
altogether may ultimately be warranted. Start here
to contact your local legislator about these laws and lobby for
better consumer protection.
next section, "Networking," provides information on getting
in touch with others so you can avoid the scam to start with or
pool resources to prosecute if you've been a victim.