News from Pyramid Scheme Alert:

Mannatech, a long time MLM company, member of the Direct Selling Association and publicly traded on the New York Stock Exchange, has agreed to pay millions of dollars to consumers who were deceived by its false health claims about its products. The state of Texas, where the scheme is based, charged that Mannatech falsely claimed that its food supplements cured Down syndrome, cystic fibrosis, cancer and other serious diseases.

The unholy combination of a snake-oil product with a pyramid income scheme is a defining characteristic of multi-level marketing. The schemes often claim “patented” products made from “secret formulas” that work at the “cellular level” and always, “not a available in stores.” These claims are made for vitamins, herbs, and minerals. In virtually all cases the products are essentially same as products readily available in health food stores or even grocery stores for a fraction of the price.

In some cases, the products are lethal, as when MLMs were the largest promoters of weight loss herbs containing ephedrine, now banned by the FDA for causing strokes. The latest craze of miracle health claims is fruit juice, selling for $40 a bottle! The organizer of the largest scheme of that type, Monavie, had previously been stopped by the FDA for making the very same types of lies that Mannatech was fined for. That scheme, like Mannatech’s, is based on endless chain recruiting, and causes massive consumer losses.

Consumers are frequently lured into MLM not just by the amazing health claims but by the promises that the products can produce extraordinary income. This income potential often gives the products nearly magical powers, at least for awhile. Many consumers will swear the products produced cures, better energy, greater intelligence and focus or improved sex, as long as they belive they will soon make a lot of money. Predictably, as the income promises prove unrewarding, the curative health benefits tend to wane. Soon, most consumers quit the scheme and stop buying the products forever.

Beyond illustrating, yet again, that many MLMs are in the snake-oil business, there is one more aspect to the Mannatech case that applies to the larger MLM industry. The Attorney General of Texas charged this company only with making false product claims, but it did not prosecute it for operating a pyramid scheme. Manatech is a classic endless chain recruitment scheme. It has minimal retail sales, and only pays a 9% commission for retailing while paying 45% out in recruitment-based commission, with most of that money going only to the those at the very top of the recruitment pyramid. So, why was Mannatech not prosecuted for pyramid fraud?

One probable reason is that under Texas law, an MLM can legally operate an endless chain pay scheme, with virtually no retail customers, a classic “closed” market in which product depends entirely on endless chain recruiting. How could this be?

The lobby group for he MLM industry, the Direct Selling Association (DSA), wrote the “anti-pyramid” law in Texas. As in several other states, the DSA has pushed though bills that revise anti-fraud law so as to make “product-based” pyramids legal. The trick in the wording is to exempt schemes in which pyramid payments are based on “product purchases.” With that wording change, pyramid rewards can be paid  on the purchase derived solely from those within the pyramid and in which endless chain recruiting is the only way to make a profit. Even though such a plan is closed, non-competitive and  dooms 90-99% to losses, (since they will be in bottom ranks), the law makes it legal for promoters to claim they are a legitimate “income opportunity” for all.

Some pyramids have tried to disguise the money transfer as “gifts.” MLM’s favored disguise is “product purchases.” Most MLM products are absurdly overpriced and 40-50% of the exorbitant price is transferred to the pyramid recruiters as “commissions.”  In this way, the pyramid money is laundered through “products.” The Texas law, written by the DSA, exempts schemes, such as Mannatech, that do this.

This same “wolf in sheep’s clothing” law that pretends to be “anti-pyramid” while in fact protecting the scams, was also introduced as a proposed federal law. Pyramid Scheme Alert opposed the bill and alterted Congressional representatives of its devious and harmful intent. It never got out of committee in Congress, but it did gain some Congressional supporters, many of whom were strongly supported by the Amway corporation, such as Congresswoman Sue Myrick of North Carolina. The sponsor of this pro-pyramid bill in Congress was Joe Barton of Texas.


  1. quixtarisacult 04/22/2009 at 6:37 am - Reply

    It is easy to prey on people who want to believe things like magical ‘carb blocking’ pills work. Made with an extract from of all things, beans, most researches feel that the pills might have some effect, but have to be taken in amounts far in excess of the daily recommended dosage to achieve any effect whatsoever. In other words, to enjoy any potential benefit, one must take the whole bottle prior to every meal. The researcher stated that just eating the beans themselves has the same effect, that of binding the carbs with proteins and taking them out of the body relatively undigested. One can achieve the same effect simply by having a bowl of beans. Gas just happens to be a by product. Of course you then need another beano-like pill to counter this gaseous problem.

    Something indeed does ‘stinks’ about these Amway/Herbalife/Mannatech pills, potions and incredibly overpriced vitamins. The MLM con men, tracing their history to Bible salesmen, snake oil hucksters and traveling scoundrels of all types, is still very much alive and hopes to continue swindling gullible modern folk the way hucksters of old convinced locals that gout and goiter could be cured by an extract of crude oil.

  2. wife 05/21/2009 at 4:11 am - Reply

    Dear Tracy,

    What specifics can you give me on Usana-company, set-up, distributor costs, products,etc? We have never made money with these ML M schemes and I do not trust this one either. If the products are decent, they cost too much and most who get involved with them lose not make money.
    Money is tight for us and I do not want to get ‘sucked’ in to some scheme that will ‘bleed us’ of finances we need. My husband is considering getting involved and I need facts to convince him not to go further with it. Can you quickly provide me any info. regarding this?
    Would appreciate it if you would not print this..I just need some information regarding this. Thanks!

  3. Tracy Coenen 05/21/2009 at 7:31 am - Reply

    All of my research on Usana is here:

  4. […] just about Carson’s medical judgment outside his field, but his willingness to benefit from a predatory business model (the profit of a different sort of pyramid […]

  5. […] not just about Carson’s medical judgment outside his field, but his willingness to benefit from a predatory business model (the profit of a different sort of pyramid […]

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