Pyramid Schemes & MLM

Herbalife Charged Criminally for Bribery

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This morning Herbalife (NYSE: HLF) was charged criminally for paying bribes to Chinese officials. The action is related to criminal liability under FCPA (U.S. Foreign Corrupt Practices Act).

The company disclosed in an SEC filing today:

  • Herbalife violated the books and records and internal controls provisions of the FCPA
  • The company will pay $123 million as a settlement with the SEC and DOJ, and this amount has been included in current liabilities on the June 30, 2020 financial statemetns
  • If the company doesn’t have any other violations for 3 years, this deferred charge will be dismissed

Herbalife disclosed in May that it had entered into a settlement agreement with the government. Today’s court proceedings make it official.

It’s fun to see pyramid schemes being held to account, even if it doesn’t happen often enough.

Is MLM a Legitimate Business Method?

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pyramid-scheme-mlmDefenders 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.

Typical positive MLM talking points include: Continue reading

One Minute Primer on Ponzi Schemes

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In this one minute video, Tracy explains how Ponzi schemes work. They are also called pyramid schemes because the constant recruitment of new “investors” creates the shape of a pyramid, with many new investors required at the bottom of the pyramid to pay “returns” to the earlier investors.

The hallmarks of a Ponzi scheme include:

  • Promises of extraordinary returns (interest) on investment – When it sounds too good to be true, it probably is. Why on earth could you earn so much more on your money with this scheme than with a traditional investment?
  • There is no actual investment strategy – You won’t know this, because they’ll make it sound like there is. The promoter will tell you about this revolutionary product or business model or investment that is going to generate all this money. But in reality, there is nothing creating returns. The promoter is only generating “returns” from new investors, and is using your money to pay off other investors and line his own pockets.
  • Money from new investors is used to pay returns to earlier investors – Since there is no real business or viable investment strategy, new investors must be recruited to bring money into the scheme. The “returns” paid to earlier investors are often used as “proof” of the viability of the investment strategy when trying to recruit new victims.
  • The scheme eventually collapses – It may take a long time, but eventually the pyramid scheme fails when the promoter can’t recruit enough new investors to keep the money flowing.

Primerica Reviews on Glassdoor

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People researching multi-level marketing (MLM) company Primerica seem to end up on this blog. I wrote previously about the fake job interview that is really a recruiting session for Primerica, some of the scammy aspects of Primerica, and one former Primerica representative’s story.

I even get Primerica reps emailing me to tell me how awful I am for saying bad things about their company. It’s just a fact that MLM investment and insurance companies sell products that aren’t as good and are more expensive than traditional insurance and investment companies. They have less educated representatives, many of whom are dabbling in the field.

For fun, I looked for reviews of the Primerica “business opportunity” (no, MLM is not a business) and was pleasantly surprised with some findings on Glassdoor. Of course brainwashed reps have been asked to flood the site with positive reviews to tip the scales in the company’s favor. But there are still plenty of honest reviews about what a terrible “job” it is.

Here are some of the negative reviews of Primerica from Glassdoor:

SCAM

Pros

None absolutely none period run fast run far

Cons

all of them this is a pyramid scheme they hire people through friends and they get a commission when they do. Ive been one of those people. You pay $99 and then 25/month to access the website. SCAM. Then you sell life insurance through family and friends. These people are lower than scum. I would say more but more people can say it better than me. Whatever people said about Primerica is absolutely true. ITS A SCAM Continue reading

Updates to MLM Income Disclosure Statements

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For years I’ve been collecting income disclosure statements issued by multi-level marketing (MLM) companies. These are the proof that you have almost no chance of making money in MLM, no matter what the company or product.

Across the board, you see that the vast majority of the distributors make almost nothing in commissions. The “average earnings” for a company as a whole sometimes looks decent (who wouldn’t want to make an extra $2,000 per year!), but the averages are skewed by the handful of people at the top of the pyramid who make big money (at the expense of the many at the bottom).

Disclosures reflecting 2019 numbers are finally showing up online. I updated our library of disclosure statements to include new ones for Mary Kay, Young Living, Beachbody, Optavia (formerly Medifast), Scentsy, and Arbonne. I’ll keep looking for 2019 statements and add them as they come in.

Who Has FIVE Foreclosures?

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Jennifer McKinney, that’s who!

Years ago I delighted in writing about mommy bloggers who earned gobs of money at the expense of their readers (and the advertisers who wanted to get in front of them), but were dishonest in one way or another. I’ve written about the shenanigans of Dooce, but we spent a lot of time on Jennifer McKinney, known as MckMama. She frauded her way through bankruptcy court and went on to shill for MLM company Xyngular.

McKinney is currently one of the top producers for Xyngular, and has been recognized as a “million dollar earner.” She started with Xyngular in 2012, and by mid-2014 she made $500,000. (Made… means commissions paid to her plus the value of trips and prizes given to her.) In late 2015 she was up to $1 million cumulative. Then $2 million cumulative by the middle of 2017. It was $3 million cumulative by mid-2018. She has likely surpassed $4 million cumulative by now… which is an average of $500,000 per year for the last 8 years. Continue reading

How Does MLM Affect People?

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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. Continue reading

MLM Income Disclosure Statements

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A collection of annual income disclosure statements published by multi-level marketing companies, continuously updated. Last updates done 11/26/20 to add new statements for DoTerra, Herbalife, Isagenix, Mannatech, Melaleuca, NuSkin, Send Out Cards, Shaklee, and Stella and Dot.

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: Continue reading

Multi-Level Marketing is Not a Legitimate Business Model

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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. Continue reading

FTC Sues Nerium: Illegal Pyramid Scheme

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Last week the FTC announced a lawsuit against Neora (formerly known as Nerium), alleging that it is an illegal pyramid scheme. Couple this with the recent end to AdvoCare’s multi-level marketing method of business at the hands of the FTC, and people like me (who think MLMs are abusive pyramid schemes) have a bit of hope.

More specifically, the FTC suit goes after Nerium under the parts of the FTC Act that prohibit unfair or deceptive practices and false advertising. The company was known as Nerium from 2011 to 2019. In February 2019, the company changed the name to Neora. It is suspected that the name change was because the Nerium name was connected to so many complaints and lawsuits.

The current suit says that “unlike a legitimate multi-level marketing business,” Nerium’s compensation plan emphasizes recruiting new “brand partners” (BPs) over the sale of products to consumers outside of the company. (Note to FTC: This is what all MLMs do. They ALL focus on recruiting, and the actual retail sales are pathetic for several reasons.) The FTC says the business model makes it unlikely that distributors can make money selling products in response to legitimate demand from third parties. Continue reading