Posts Tagged ‘mary kay’

Is Usana Running an Illegal Pyramid Scheme?

usana-health-sciences-chinaAll good multi-level marketing companies have one thing in common: They fail to disclose enough information to allow consumers and regulators to determine if they are in the business of recruiting or selling products. They disclose just enough facts and figures to make it appear that they are being transparent. But they hide enough information that no one could ever determine definitively if they are running pyramid schemes.

MLMs cleverly avoid the pyramid scheme issue by making it impossible to determine the level of retail sales of products to consumers.  The companies effectively use the technique of plausible deniability: They purposely do not track retail sales, so when the business model is challenged with the assertion that few retail sales occur (and therefore they are recruiting schemes), executives can claim that they know no such thing!

Usana Watchdog has released a report on Usana Health Sciences, challenging the company’s failure to reveal meaningful facts and figures that would allow consumers and law enforcement to determine whether the company is running an illegal pyramid scheme.

Create Your Own MLM in Ten Easy Steps

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).

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.

Multi-Level Marketing Companies and Pyramid Schemes

For decades, muti-level marketing companies like Amway, Mary Kay, Herbalife, Avon, and Usana have fought against being labeled as pyramid schemes. They say that pyramid schemes are illegal, and that their MLM business format is perfectly legal.

My definition of MLMs is a little nuanced. I tend to call them legalized pyramid schemes. What I mean by this is that multi-level marketing companies are indeed pyramid schemes, but our state and federal governments allow them to operate and generally call them legal if they have the right window dressing.

Is Multi-Level Marketing a Legitimate Business Model?

The heat has been on multi-level marketing companies lately, most notably Mary Kay Cosmetics, the focus of Virginia Sole-Smith’s article on the pink pyramid scheme.

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. 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.

Herbalife: Important or Not Important?

Questions posed to Herbalife earlier this year by David Einhorn sent the stock price down quickly. Einhorn simply wanted to know about customers… actual consumers of the Herbalife products.

One has to assume Einhorn has done lots of research on multi-level marketing. And he knows the real deal. Herbalife’s customers are the distributors. Corporate doesn’t care much if the products get to a real customer after that. They’ve already made their sale and collected their money.

Multi-level marketing has very little to do with selling the product, and relies almost exclusively on continual recruitment of new distributors. But the product is important to make the MLMs not look like pure pyramid schemes.

Interesting Develoments in Case of Mary Kay Cosmetics Trying to Stop Liquidators From Buying and Selling Their Products

In the world of Mary Kay Cosmetics, recruiting new victims into the multi-level marketing (MLM) system and frontloading them with large inventory packages is critical to the survival of the company. The company and the upper levels of the pyramid rely on repeated ordering of products by beauty consultants, and little attention is paid to whether or not the consultants actually sell the products.

Hundreds of thousands of consultants lose money each year, and nearly half a million quit the “business” each year. Quitting consultants can return unsold inventory to the company, but only as much as has been purchased from Mary Kay in the last 12 months. Often, quitting consultants are left with hundreds or thousands of dollars of inventory they haven’t been able to sell and can’t return to Mary Kay.

Fantastic Article About MLMs and Moms

The publication Brain, Child has a wonderful story written by Stacey Schultz, about the devastating effects multi-level marketing companies can have on women. She’s included specific comments about Herbalife, Arbonne, and Mary Kay, but also has a lot of general information on MLMs.

Excerpts of the story that pertain to Mary Kay and my site, Pink Truth, are here. You can read the full story here. It’s long, but well worth a read.

Irresponsible reporting about Usana by The Associated Press

In an article today about the Usana Health Sciences (NASDAQ:USNA) buyout offer by Myron Wentz (Gull Holdings), the following inaccurate statement was made:

The Securities and Exchange Commission concluded during the first quarter USANA’s marketing model is not a pyramid scheme, but the stock has a short interest about 34 percent, meaning many investors are betting the stock will fall.

The SEC did not say that Usana is “not a pyramid scheme.” Nothing could be further from the truth, although company management would like you to believe that this is what the SEC said.

Primerica Financial Services a Scam?

Over on my consumer awareness site, Pink Truth, I have put together a few articles about Primerica Financial Services.

Like Mary Kay, Usana, and Mannatech, Primerica is a multi-level marketing company (MLM). The big difference, however, is that these other companies have a tangible product for sale, and many of the abuses come from loading participants with inventory they won’t ever be able to sell.

Primerica sells insurance (mostly life insurance), mutual funds, mortgages, and debt consolidation services. It appears that “debt consolidation” is the cash cow for the company, and it’s questionable whether consumers are really better off with the Primerica products than without. (i.e. The representatives are incentivized to push these products, even if it may actually cost the consumer more money!)

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