Myth: Network marketing companies can require new distributors to buy the company’s product to become a distributor and/or to become commissionable as a distributor.
Truth: A required product purchase is no different than a required fee or required sales kit purchase. It’s illegal under most states’ anti-pyramid laws and also results in the offer and sales of an unregistered investment security. There is one exception, however, carved out in the 1978 case of FTC v. Amway. Periodic consumer product purchases at a bona fide wholesale price may be required of distributors on a periodic basis as a commission qualification provided a number of other conditions are met.
