How Does MLM Affect People?

pyramid-selling-scamThe late Jon Taylor, PhD wrote a thorough and excellent book about multi-level marketing (MLM): The Case (For and) Against Multi-Level Marketing: The Complete Guide to Understanding the Flaws – and Proving and Countering the Effects – of Endless Chain “Opportunity” Recruitment, or Product-Based Pyramid Schemes.

He put the book together in 2011 and 2012, but it is still relevant.

If you’re not familiar with MLM, you should acquaint yourself with the horrible statistics.  Basically, the odds of a distributor losing money in multi-level marketing are greater than 99%. Despite the fact that participants are almost guaranteed to lose money in MLM, these scams are marketed as business opportunities with the potential for unlimited earnings.

Read moreHow Does MLM Affect People?

MLM Income Disclosure Statements

A collection of annual income disclosure statements published by multi-level marketing companies, continuously updated. Last updates done 05/12/20 reflect new statements for Mary Kay, Arbonne, Beachbody, Optavia (formerly Medifast), Scentsy, and Young Living.

Some MLMs release income disclosures or earnings disclosures. These numbers are not required to be disclosed in the United States, but some of the companies do it anyway to appear transparent. The disclosures theoretically provide insight into how much distributors earn in commissions or overrides, but they are generally worthless. They are worthless because of what they do not disclose.

Multilevel marketing companies purposely omit important information that would allow potential distributors or investors to have real insight into these plans. In general, earnings disclosure statements often fail to provide the following information that is critical to understanding the plans and the results:

Read moreMLM Income Disclosure Statements

Lost Profits Calculations in Litigation

In the below video, Tracy Coenen talks about three common methods that are used to calculate lost profits in commercial litigation: the before and after approach, the yardstick approach, and hypothetical profits. In general, these methods are aimed at determining the profits a company would have realized if the incident giving rise to the litigation … Read more Lost Profits Calculations in Litigation

Why Roddy Boyd’s Ethics Failure Matters

The long-running Overstock.com fraud story probably isn’t of interest to most of my readers. But when you’ve got a company that manipulates its financials to turn losses into profits and the executives profit handsomely from manipulating the stock and the company’s lunatic CEO harasses and stalks critics, you can see why a fraud investigator might want to tune in.

The Cohodes/Overstock Donation Debacle

Earlier this week I wrote about Roddy Boyd and his Southern Investigative Reporting Foundation (SIRF), and the shenanigans surrounding his receipt of $329k of Overstock.com stock from Marc Cohodes. Marc is a short seller who lost a lawsuit brought by Overstock against his company Rocker Partners for its very public criticism of the company and its CEO, Patrick Byrne.

In 2017, Marc mysteriously made up with Byrne and became a very vocal pumper of Overstock’s stock after taking a substantial long position.

In December 2017, Cohodes offered Roddy 5,000 shares of Overstock.com stock, and Roddy took it and sold it for $329,000.  Marc was buying Roddy’s silence on Overstock, and both of them knew it, whether or not it was explicitly stated between them.

Roddy confirmed that in June 2018:

Read moreWhy Roddy Boyd’s Ethics Failure Matters

How NOT to Do Investigative Journalism

A decade ago, I was really into blogging about companies that were perpetrating frauds on consumers and investors. Nobody paid much attention to me, but I enjoyed digging into company financials and exposing the actions of dishonest executives. It fit nicely with my fraud investigation work.

One of the companies that interested me was Overstock.com. The company was prone to cooking the books, and they were headed up by an unbalanced CEO named Patrick Byrne who was fond of conspiracy theories.

There’s only so much you can write about a company repeatedly manipulating its financials and the SEC inquiries that follow. I stopped writing about them in early 2010, until things got interesting again in 2017.

Marc Cohodes, a fairly well-known short seller who had criticized the company massively (and ended up on the losing end of a big lawsuit by Byrne), suddenly switched sides.  Cohodes went long Overstock on May 2017, hyped the company at a Grant’s Interest Rate Observer conference in October 2017, said Byrne was now his friend, and had all the negative information about him wiped from Byrne’s Deep Capture website. Sam Antar did an excellent write-up about how Byrne and Cohodes got so chummy. In fact, they were so chummy that Cohodes was trying to get others (such as Antar) to stop writing negative things about Overstock and Byrne.

Read moreHow NOT to Do Investigative Journalism

How to Investigate a Cash Business

Closely-held businesses often create problems in divorces, as they need to be valued for the property division and the income needs to be evaluated for support purposes. It can be difficult to examine the income of a business that transacts with its customers primarily in cash. However, there are ways to verify whether the income being reported is reasonable.

Some of the ways that the income of cash businesses can be examined and verified include:

1. Find out the normal mark-up or profitability of the product or service being sold, and see how recently reported figures of the company compare.

Read moreHow to Investigate a Cash Business

Multi-Level Marketing is Not a Legitimate Business Model

One of the common defenses of multi-level marketing is that it is a legitimate business method that has been around for a long time.

I’ve also been told that if it was illegal, it would have been shut down. Some companies that were widely touted as “legal” or “legitimate” MLMs, such as Advocare, HAVE been shut down or prohibited from using the MLM model. Who knows the rhyme or reason to that.

But neither the length of existence nor the lack of law enforcement action means something is legitimate or not a fraud. Remember Enron? Remember Bernie Madoff? These and others have been in business for a long time, and turned out to be complete frauds.

Read moreMulti-Level Marketing is Not a Legitimate Business Model