In light of the recent shutdown of multi-level marketing company Vemma (following allegations that it is a pyramid scheme),there has been much discussion of Herbalife. Is it a more legitimate MLM, or is it a pyramid scheme like Vemma and others that have been shut down before it (BurnLounge, Fortune Hi Tech Marketing, etc.)???
“Analyst” Tim Ramey, longtime Herbalife cheerleader, contends that Herbalife is not like Vemma:
Our opinion has always been that Vemma was likely an illegal structure – it has that endless chain feature where “Affiliates” are incentivized to buy a high-priced starter kit with minimal real value, only to turn around and very quickly find two, three or four others to do the same so that they can reap a quick profit and recoup their initial “investment,” said Ramey.
This is a familiar argument. MLMs left standing after one is shut down claim that THEIR company doesn’t pay for recruiting. And technically it appears that they don’t. Except they do. They may not have a “high priced starter kit” or may not pay a “commission” on the starter kit. Instead, they encourage distributors to buy a bunch of products up front and commission is paid on those. Since those products could theoretically be sold, I suppose that’s not paying for recruiting so much it is paying for getting the recruit to buy some overpriced, hard-to-sell products. MLM attorneys will tell you that you have to make it look like you’re not paying for recruiting or the kit. Continue reading
In a video released this week, Pershing Square (the hedge fund that exposed the Herbalife fraud) contrasts Herbalife’s public statements about the “business opportunity” with the statements made behind closed doors.
Herbalife claims to offer “the best business opportunity on the face of the earth.” But the reality is that it is an opportunity in which you are almost guaranteed to fail, with 96% of distributors making less than half of what is earned by employees making minimum wage (per the video). Despite Herbalife executives and high level distributors publicly repeating how lots of money can be made, the numbers really look like this (according to the video): Continue reading
Multi-level marketing companies that advertise shakes and potions designed to help you lose weight and get healthier are generally all guilty of the same offense: Distributors making false health claims. The products are generally terrible for losing weight and maintaining the weight loss. And the health benefits are nothing more than one could get from eating well and taking a simple multivitamin.
Nonetheless, people involved in MLMs routinely claim these potions cure things like ADHD, arthritis, high cholesterol, lupus, asthma, migraines, cancer, fibromyalgia, and more. The most disturbing part of this is when the distributors encourage people to stop taking medications that are critical to their health. This advice is simply dangerous.
Today Bill Ackman released a video demonstrating that Herbalife distributors are violating U.S. law by making false and deceptive claims about the Herbalife products. How do they get away with this? The company likely would contend that there is nothing illegal about distributors giving personal testimonials about the results they received from the products. Good luck with that defense. Continue reading
I have researched multi-level marketing companies for nearly a decade. During that time, I came to the conclusion that the vast majority of participants fail. What does that mean? 99% or more lose money. Since the participants are largely getting in because of the “business opportunity” to “earn unlimited income” and find “financial freedom,” failing to turn a profit is indeed a failure.
A few weeks ago, a wonderful article on Herbalife was published on Seeking Alpha. It started out by discussing hedge fund manager John Hempton’s blind (and incorrect) defense of the Herbalife business model. In essence, he claims that since meal replacement shakes are sold, this is a legitimate business opportunity.
This is the defense that every MLM company uses. “We have a product. People buy it. Therefore we are not a pyramid scheme.” Continue reading
I talk frequently about how almost everyone loses money in multi-level marketing schemes. Companies like Mary Kay, Herbalife, Amway, and Avon want you to believe that money is being made from retailing the products. They say they are not pyramid schemes because they have legitimate products that can be sold for a profit.
Unfortunately, almost no one profits from MLMs, and certainly not from the sale of MLM products. Why? Because there is only a tiny market for bona fide retail sales. Very little actual retailing of products occurs. The vast majority of the “product sales” are from the MLMs to their distributors, rather than third-party consumers.
But the companies have a vested interest in getting consumers to believe their lies. If consumers didn’t believe the products were being retailed, they’d never sign up as distributors. Oh sure, some retailing goes on. But it is a very small amount, and is usually not at full retail price. Mary Kay says it’s simple: Buy a product for $1 and sell it for $2. You’ve doubled your money! But it’s nearly impossible to sell at full retail pricing, especially when tens of thousands of products are being dumped on eBay at or below wholesale pricing. Continue reading
Several months ago I wrote an article on the Xyngular weight loss program being pimped by Jennifer McKinney (aka mommy blogger MckMama). The bottom line for me was that these programs do not work because:
- They create short-term weight loss through a dizzying cycle of starvation, unhealthy meal replacement shakes, and questionable drug-like “supplements” that are supposed to get you high and suppress your appetite
- The representatives make repeated health claims are strictly prohibited by the federal government. The distributors claim that the products cure anything and everything from joint pain, to autism, to diabetes, and more.
- Xyngular (and Herbalife, Medifast, Take Shape For Life, Visalus, Isagenix, and the rest of them) have poor long-term results because they are fad diets that rely on starvation and potentially unsafe substances. The vast majority who lose weight with these programs gain it all back. Continue reading
Former KPMG audit Partner Scott I. London brought great shame to the accounting profession this week by being charged with conspiracy to commit securities fraud through insider trading. After nearly 30 years with KPMG, London went down in flames after being caught passing insider information on audit clients of the Los Angeles office to his “friend,” Bryan Shaw.
Proving once again that there is no honor among thieves, Shaw got caught first, and then sold out his friend Scott to the Feds. He helped them get a gorgeous trail of evidence, including phone calls and photographs of the crime. Both are now charged with insider trading. Continue reading
You’re listening to a national radio show with a popular host. You hear an advertisement for IncomeAtHome. You don’t know what it is, other than you can make an income while working at home. But why on earth would the voices not tell you exactly what this “business opportunity” is?
Because it is Herbalife. If you’ve heard the name, you likely equate the “opportunity” with things Amway and pyramid schemes.
Fortunately, there is a website devoted to unveiling the truth about Herbalife and Income At Home. The site digs into issues such as the secrecy surrounding Income At Home (why are they so desperate to NOT tell you that it is Herbalife???). There is also an excellent blog on the site, which is keeping current on the efforts of Bill Ackman to expose the fraud behind Herbalife and the company’s good fortune in having Carl Icahn volunteer to shill for them.
Defenders of multi-level marketing (MLM) are often heard saying that it’s a legitimate business method! Even government regulators say MLM is legitimate. And it is true that state and federal governments in the United States generally allow multi-level marketing companies to operate with little oversight. This is despite the fact that structurally and operationally, MLMs are nothing more than pyramid schemes.
Oh sure, the MLMs are careful to use lots of window dressing that makes it appear they don’t violate anti-pyramiding laws. There are even lawyers who whore themselves out to tell owners of MLMs how to “stay legal.” And of course, the massive lobbying on behalf of “direct sellers” and multi-level marketing companies ensures that current laws against pyramid schemes will not be enforced, and that no new laws impeding MLMs will be enacted.
Yesterday the Chicago Tribune ran a piece on multi-level marketing, specifically referring to Herbalife and Fortune Hi Tech Marketing. Typical positive MLM talking points were cited: Continue reading
Hundreds of thousands of Americans get sucked into Multi-Level Marketing (MLM) companies each year. From Mary Kay to Amway to Herbalife to PrePaid Legal (now Legal Shield), the list is seemingly endless. Each offers its own special spin on the products it sells, but the main focus of an MLM is on recruiting new members.
MLMs live and die by the recruitment of new members, who make the bulk of the product purchases from the company. Little of the product is resold to an actual end user, but the MLM company doesn’t care. The sale has been made to the distributor (or associate or representative or member or consultant or whatever term you like). Continue reading