Archive for 2012

Multi-Level Marketing Income Disclosures

Medifast Pyramid SchemeSome multi-level marketing (MLM) companies release income disclosures or earnings disclosures. These documents theoretically provide insight into how much distributors earn in commissions or overrides.

However, the disclosures are generally worthless. What is more important than the information in these documents? The information that is not disclosed in the documents.

Multilevel marketing companies purposely omit important information that would allow potential distributors or investors to have real insight into these plans.

Medifast Take Shape For Life: Endless Chain?

A recent filing in the Medifast appeal (the case in which Medifast sued me and others, and lost miserably) raises some interesting questions about whether Take Shape For Life (TSFL) is an endless chain recruitment scheme. From that filing:

A. Medifast’s Evidence Does Not Prima Facie Show That FitzPatrick’s “Endless Chain” Statement is Provably False

Medifast’s reply again does not demonstrate that FitzPatrick’s endless-chain statement is false. Because Medifast has alleged libel, it must make a prima facie showing that challenged statements are untrue. Masson v. New Yorker Magazine, Inc., 501 U.S. 496, 516 (1991). Courts also evaluate whether an average reader would consider the statement to be fact or protected opinion. Carver v. Bonds, 135 Cal.App.4th 328, 344 (2005).

If Herbalife Was a Pyramid Scheme, It Would Have Collapsed By Now

herbalifeOne of the most common arguments used against those who deem multi-level marketing companies pyramid schemes, is that pyramid schemes collapse. Because Herbalife hasn’t collapsed, it must not be a pyramid scheme. Because the company has avoided total collapse for more than 30 years, it can’t possibly be a pyramid scheme. That is false, and I will demonstrate the falsity with the help of Bill Ackman.

Recruiting is the Name of the Game

A pyramid scheme has been defined as a scheme in which the participants obtain their monetary benefits primarily from recruitment rather than the sale of goods and services to consumers.

Herbalife Does Not Track Retail Sales

This little gem is courtesy of Shortzilla, a Seeking Alpha contributor. In a 1986 Final Judgment and Permanent Injunction against Herbalife in California, the company agreed to the following:

B.  defendants shall be in compliance with this Section 5, as long as a verification or documentation system they implement allows them, at any given point in time, to verify or: document to plaintiffs that any and all participants who receive commissions, bonuses, overrides and/or advancement from defendants in  defendants marketing program, after entry of this judgment, are based on retail sales made by or through such participant(s) or others introduced directly or indirectly under participant(s).

Milwaukee Public Schools Suck (For the 83rd Time)

Only in Milwaukee Public Schools (MPS) is uncertainty about the future a massive problem that no one can do anything about. (Doesn’t every business face uncertainty about the future? Aren’t they unsure of how many customers they will have? Doesn’t the changing world mean that what they’re selling may have to change?)

Only in MPS does declining enrollment not save the school in any money. That’s right folks. The number of students in Milwaukee Public Schools has been declining for years. More than ten years ago, the student population in MPS hovered near 100,000. But everyone still talks about it like it is yesterday. The district has had more than 10 years to adjust spending according to enrollment. So what’s the big deal?

Tax Fraud and Family Law

If you’re a family law attorney practicing in Wisconsin, you might want to consider attending a State Bar of Wisconsin CLE seminar being presented by Gregg Herman and Al Dassow on January 11, 2013. They’re talking about Tax and Tax Fraud Issues in Family Law.

Gregg Herman has been practicing family law since I was a little kid (he’s going to hate me for saying that), and I’m fortunate to run into him in my office building from time to time. He has blogs on family law issues, and I urge you to take a peek at his blog and put it into your RSS reader so you can keep up with it. He has been blogging faithfully for the better part of a year (no small feat!) and I am looking forward to reading more.

Bill Ackman on His Herbalife Short

Herbalife (NYSE: HLF) has been hit by a short seller again. Earlier this year it was David Einhorn simply asking questions about the business. This time it is Bill Ackman calling Herbalife a pyramid scheme and laying out his case.

Pyramid scheme allegations are nothing new. Each time, Herbalife vehemently denies it is a pyramid scheme, and says it’s a legitimate company, with legitimate products, and a legitimate business opportunity. It is this “business opportunity” that merits the pyramid scheme allegations.

Herb Greenberg of CNBC has been researching Herbalife for a long time. Back in May, Greeberg pointed out the reasons he thinks investors should worry about Herbalife:

Multi-Level Marketing or Pyramid Scheme?

Recently Bruce Craig, a retired lawyer from the Wisconsin Department of Justice in the area of consumer protection, published an interesting article on multilevel marketing: An Investor’s Guide To Identifying Pyramid Schemes. The controversy surrounding Herbalife (NYSE: HLF), and initiated simply because David Einhorn asked a few questions about the company, was the impetus for Bruce’s comments.

I believe that most mulit-level marketing companies (MLM, for short) are pyramid schemes that are allowed to operate in the United States. They are very careful in their efforts to avoid the label of “illegal pyramid scheme,” but that doesn’t mean they’re not pyramid scheme in substance.

Should Forensic Accounting Be Regulated?

forensic-accountingThe profession of “public accounting” has been regulated by states through the process of issuing CPA licenses. There is one CPA exam taken by candidates across the country, and then each state uses the pass/fail results in their process of certifying accountants. In addition to passing the exam, states generally have education, ethics, and training requirements.

The field of forensic accounting has developed rapidly over the last decade or so, with lots of new professionals practicing forensic accounting. A CPA license is generally not required when providing forensic accounting or fraud investigation services, although many professionals do maintain the CPA credential because it adds a level of credibility to their work.

Internet Marketing and Multi-Level Marketing: Same Scam, Different Name

Recently I have been digging into the Salty Droid (you can’t make money online) archives. Salty Droid is an attorney in Chicago who writes about scammers who pitch their wares on the internet. I’ve been aware of the site for a while. But little did I know that Salty Droid has been covering a number of scammers that I’ve had my eye on for a while: Chris Brogan, Kevin Trudeau, Alexis Neely, Sean Stephenson, Mindy Kniss, Darren Rowse, Stephen Pierce, and Yanik Silver. We also have a mutual interest in assholes like Mark Shurtleff and  Crystal Cox.

But what struck me today as I was perusing the archives of Salty Droid is how similar “internet marketing” and “multi-level marketing” are. They take a product which is either non-existent or has very little interest to actual consumers (i.e. third party purchasers, rather than the pushers/distributors themselves) and build a “business” around convincing others to push the same “product.”

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