The “meatball sundae” analogy comes from my favorite Seth Godin book.  The premise: simply because someone likes ice cream and meatballs does not mean it’s a good idea to mix the two.  Is it a good idea to mix energy drinks and alcohol, steak and donuts, diamond rings and young wives?  Maybe, but not always.  It’s safe to say, through the forge of experience, through incalculable consumer losses, after dozens of SEC investigations and lawsuits, we now know that crypto and MLM do NOT mix.  The same can be said of advertising credits or penny auction bids and MLM...bad mixes.  What about CBD and MLM?  CBD exploded onto the scene, seemingly out of nowhere, around 2014.  And here we are, several years later, it’s a prominent fixture in the industry.  It turns out it’s been good for the industry.  The two can work well together provided the proper precautions are put into place.    The hot new(ish) thing seems to be forex + MLM.  There’s a new program launching (or closing down) each week.  This article explores the topic to help the readers understand the risks and benefits of this relatively hot category in the industry.  

What is FOREX?

 As per Wikipedia: The foreign exchange market (Forex, FX, or currency market) is a global market for the trading of currency pairs. This market determines foreign exchange rates for every currency. It includes all aspects of buying, selling and exchanging currencies at current or determined prices. In terms of trading volume, it is by far the largest market in the world.Confused?  You’re not alone.  Forex trading is unlike trading equities where there are reported earnings driving valuation schemes.  The forex markets require trained eyes to profit from fluctuations.  Do you believe the dollar will lose value over time relative to the Chines RMB due to quantitative easing?  The forex market allows you to take a position.  This confusion creates the opportunity for people to sell education.  

The Challenge

When it comes to advising people on what to do with their money, it’s sacred territory that’s reserved for people with credentials and licenses.  These are people that, when they screw up, get their licenses pulled.  The American regulatory system places a high value on a consumer’s right to access quality information relative to wealth building and preservation.  In other words: there are rules when providing financial ADVICE.  But what about providing financial EDUCATION?  Does that encroach into regulated activity; thus, subject to a litany of registration requirements?  As discussed below, there’s a fine line that separates the practice of giving advice versus education.  Certified Financial Planners can give advice.  They can learn about your long-term goals, get an understanding of your tolerance for risk, and suggest an asset allocation that’s optimized based on your profile.  Me, while I have opinions about the market, I’m not able to advise YOU on what to do with your money because I lack a license.  The same is true with Commodity Trading Advisors (CTA).  Properly licensed CTAs are professionals who are permitted to give you personal advice about how to invest your money in the forex markets (and other commodity markets) based on your personal objectives.    The distinction between providing ADVICE vs. EDUCATION is a fine line that’s tripped up a couple of network marketing companies already.  In 2018, the CFTC settled charges against two network marketing companies: iMarketsLive  and Wealth Generators (now doing business as iGenius Global).  These cases involved the practice of allowing customers to set their trading accounts on “auto-pilot” and having their assets managed by either a bot or an “experienced” trader.  The moment those entities had influence over a customer’s money, also referred to as “exercising discretionary trading authority,” it triggered the need for the entity to register with the CFTC as a CTA.  IML and iGenius promptly settled with the CFTC, agreeing (a) to paying a fine; and (b) to refrain from managing assets directly and indirectly.

Where’s the line?

Again, there’s a fine line that separates providing specific advice versus education.  The line can be found in a pile of regulations, specifically CFR 4.14.  It states that people are EXEMPT from registering as CTAs when the person does NOT engage in any of the following activities:

(1) Directing client accounts; or (2) Providing commodity trading advice based on, or tailored to, the commodity interest or cash market positions or other circumstances or characteristics of clients.

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 Basically, companies must never (1) touch or direct the money; or (2) provide specific advice.  If companies are going to engage in this space, it’s imperative that they teach customers HOW to trade, never specifically WHAT/WHEN to trade.  I’ve spent all of this time discussing the CFTC’s interest in this space.  The FTC has a dog in the fight too.  In February of 2020, the FTC sued Online Trading Academy alleging that the company misrepresented the skill of the “educators.”  In a nutshell, the FTC accused OTA of selling education about trading strategies that they themselves rarely used.  If you’re going to provide education about markets, the company’s educators need to be eating their own dog food.  Stated another way, the educators need to be successful traders for real, not just in theory.    

Regulatory Warnings

The FTC announced a nationwide crackdown on scams that promise easy money.  They called it "Operation Income Illusion."  Out of all of the companies targeted, several of them were providing forex-related services (education/trading).  If a company is in the business of providing a financial opportunity (network marketing) by selling a service that trains people on how to make money...I call this a financial opportunity squared.  The FTC is clearly suspicious of these programs.  Is it possible to do properly in a network marketing context?  Sure, it just requires a higher level of sophistication and consumer safeguards. It’s not just network marketing companies capitalizing on the growing trend of retail investors investing in forex.  There are countless other enterprises that triggered the CFTC’s recent warning.    The CFTC stated, “We have seen an increase in websites that fraudulently promote commodity trading systems and advisory services.  . . . The CFTC urges you to be skeptical when promoters of trading systems and advisory services claim that their products and services will earn high profits with minimal risks."    

Forex and…Cryptocurrency?

I’ll take risk with a side of risk please.  And a Dr. Pepper.    “I’ve got a fever and the only prescription is more cowbell!”    Risk is the ultimate cowbell.  And when you add crypto to forex, you’re jamming with a whole lot of cowbell.  With forex, there’s obviously risk.  And that’s sort of the point.  Higher risk can mean higher return. Crypto is the riskiest of them all.  It’s the King Kong of risk.  And yes, there’s the opportunity for profit if you buy at the right time, sell at the right time, and swallow your vomit when the market drops 30% in a day.  With programs that are offering education about crypto trading, they’re opening themselves up for regulatory scrutiny they might not want or need.  When consumers inevitably get inspired and YOLO into an obscure crypto coin only to get ruined (referred to as “REKD” on crypto-twitter), regulators will be quick to find an entity, or person, to blame.  “But, but…we have disclaimers everywhere and we tell people to do their own research.”  Ok, that’s good.  But it would not be hard for a regulator to find one of your knucklehead reps that provided the encouragement/advice.  And that same regulator will try, probably successfully, to hold you to account.  It might not be fair, it’s just the way it is.  It's important for companies in this sector to take an objective look at their risk profiles and make intelligent decisions.  

Conclusion

Forex education and MLM can, theoretically, work.  Education can be a product.  There are a few companies out there doing quite well.  It’s imperative that they stay far, far, far away from providing specific financial ADVICE when it comes to trading.  They can talk about the HOW and WHY behind the market.  But the moment they direct people to the WHAT and WHEN...the line will inevitably be encroached.  And remember, it's not as simple as a single entity selling a product.  In network marketing, the message is carried far and wide, and frequently adulterated, by an army of independent contractors.  It’s always important to think about how the field will translate the language coming from corporate.  This is where working with a seasoned lawyer in the sector is vital: we actually know how this stuff REALLY works in practice.  While the company can maintain a disciplined message and ride the fine line between advice and education, the field will not be as disciplined and need strong, unbreakable guardrails to prevent the inevitable.  When companies dabble in this sector, they have a higher compliance burden.  It’s vital that they invest sufficient resources to ensure that (a) they’re regularly training people; (b) religious about sharing disclosures of average earnings; (c) monitoring the field for malfeasance; (d) refrain from making representations about the performance of their trading strategies; (e) automate penalties for infractions; (f) create standard operating procedures for compliance; (g) be consistent with the language about the services being offered and not offered; (i) hire someone at Thompson Burton.  (i) is a big, big bonus, though not required.  I would also suggest that the owners of the company have pristine reputations.  In the banking business, the makeup of the board matters.  The same applies here, more so than if the company was engaging in a more traditional sector e.g. dietary supplements, skincare, etc.  If an owner bilked people out of money in a ponzi scheme in years past, it would be best to minimize his or her role.  Regulators frequently miss once.  They rarely miss twice.  And companies in this sector need to operate with more modest compensation plans.  When the product itself triggers scrutiny, why supercharge the plan with a business model that heavily rewards recruiting?        

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It’s an exciting time to be an investor.  With the Federal Reserve adding trillions of dollars into the money supply, it seems to be creating an “everything bubble.”  Assets of all stripes are all going up.  This is creating an environment for gurus to provide clarity for the people that want to participate in the growth but lack the knowledge.  If you’re currently providing education to help people navigate these waters, just be careful.  With the boom, there’s always a bust.  And when people lose money, politically motivated regulators go out and collect trophies.