Are Herbalife and FHTM Similar?

fhtm-herbalifeWith yesterday’s shutdown of Fortune Hi Tech Marketing, consumers have been asking if Herbalife is a similar operation. Last year Herbalife’s business model was called into question by David Einhorn, and then the company was accused of being a pyramid scheme by Bill Ackman.

Naturally, Herbalife denied being a pyramid scheme. Management has repeatedly said that Herbalife is all about selling products, and that the products are indeed selling, so it couldn’t possibly be a pyramid scheme. But according to this (start at 2:00 mark), no one really knows how much product is being sold to actual consumers. To be clear: Herbalife does not track retail sales.

I previously compared Herbalife and BurnLounge, a company shut down by FTC because it was a pyramid scheme. (BurnLounge is currently appealing, but that is a story for another day.) Today we compare Herbalife and FHTM:

I leave you to decide whether or not Herbalife and Fortune Hi Tech Marketing are similar. Remember that the FTC said the following about FHTM:

According to the complaint, recruits were told they could earn high commissions by selling products to people outside the operation, but instead only minimal compensation was paid for sales to non-participants, and few products were ever sold to anyone other than participants.  The scheme provided much larger rewards for recruiting people than for selling products, and more than 85 percent of the money consumers made was for recruitment.

I contend that this paragraph describes nearly all MLMs. While most multilevel marketing companies have products that appear to be legitimate and appear to be possible to retail for a profit, the reality is that the products are simply the bait to get people into the recruiting scheme, and almost no one makes a profit from retailing products.

Supplementary Materials:

Complaint against Fortune Hi Tech Marketing

FHTM Temporary Restraining Order

Memo by FTC outlining FHTM business practices

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3 Comments

  • Barbara Luke says:
    30 January 2013

    Isn’t it a pyramiding scheme if it has a recruiting hierarchy? Pyramiding schemes is really common nowadays. A lot of people believe that joining in such scheme will make them earn money in an easier way. Yes, we earn but we need to be careful in joining such as pyramiding scam is also rampant nowadays.

  • Tracy Coenen says:
    30 January 2013

    Barbara – Yes it is. And this should not be confused with employment recruiting. Companies recruit employees for jobs and pay them to perform those jobs. That is legitimate. In MLMs, people are recruited to PAY MONEY into the system (supposedly in return for the right to make money, except about 99% of people who participate will only lose money).

  • watermelonpunch says:
    31 January 2013

    I would say that there is something to be said for a company having an actual product – preferably a product &/or service which there would be some reason people would want to buy it as a customer or end user (not just someone who’s recruited themselves).

    FHTM did not have products, it presented the products of other companies, at higher prices, giving absolutely no reason that anybody would prefer to buy through FHTM.

    That said, when a company does have a product, I agree that often it seems to be just a facade to justify the business model.

    Also, at the sales pitch I attended for FHTM, it was obvious the whole thing was about the recruitment and the levels, and the buy in. They didn’t even seem to gloss that over at all. Their reference to it being a pyramid scheme was simply to point out how it was legal under the law, and therefore you can confidently participate in this legalized scam.

    So while I can see how Herbalife has been chugging along, it perplexes me more how FHTM has lasted so long without serious legal ramifications.

    But, though I do see some differences, that’s not to say that the difference between Herbalife and FHTM is significant in terms of legal, moral, or practical matters.

    In my opinion, if anything, I think Herbalife may be worse in the fact that they may be just more cleverly frauding unsuspecting people… And hwo is that better??
    Whereas with FHTM, I got the distinct impression that most people who sign up, must be well aware they are probably buying into a Ponzi-like scheme, but do it anyway because they see themselves as the potential scammers getting rich, rather than the marks they are who will do nothing but lose money – they expect that other people will fill that role for them. And THAT is the selling point, without much veneer.

    IE: In my opinion, the notable difference between Herbalife & FHTM is this:
    I can pity people who lose money trying to do Herbalife, because many may have truly been ignorant about business, and bought into it being a legitimately good sales position opportunity. That these people were simply looking for a job, as such.
    I don’t have as much (if any) sympathy for people who signed up with FHTM, because I think most of them must be, on some level, examples of the old sayings, “you can’t fool an honest man” & “a con relies on the greed of the victim”.

    Well, that’s at least my impression based on, admittedly, only one FHTM sales pitch party. It’s possible that other recruiters make presentations that are better & more slick at selling the idea of selling the products, and less blatantly playing to some people’s desire to be on the money making end of a scam, no matter how unethical & immoral.

    A very good example about how straight-forward morals can be clouded in the best of people is that on one web site, about FHTM, there was a comment that said something like, the worst part about FHTM is that you’re encouraged to sell to and recruit your family & friends into the scheme to make yourself money.
    So what? It’s okay to scam strangers?
    Then I read one of the responding comments pointed out that if that person had a problem with that, they could just sell FHTM to strangers…

    But that’s the current culture I’m afraid. Seems these days, the excuse/defense of “it’s just business” is used to justify any number of morally questionable behaviours.
    In a society that promotes a dog-eat-dog, buyer beware opacity, winner-takes-all culture, it’s hard to convince people that anything constitutes fraud. The libertarian dream of meritocracy being that people who get duped & can’t make it with the big dogs, deserve to lose their money, so fraud is not something to worry about.

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