John Oliver Exposes the Scam of Multi-Level Marketing

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Last Week Tonight With John Oliver devoted this week’s episode to multi-level marketing. Although he uses quite a bit of humor in his presentation, his analysis of MLM is spot on. Multi-level marketing companies are pyramid schemes, plain and simple. MLM is not a business. It doesn’t matter what product you’re trying to sell, the whole set-up is a fraud in which 99% of participants lose money.

The full episode is shown below, and is well worth the time spent watching. John Oliver mentions companies like Mary Kay, Herbalife, Market America (Shop.com), Jeunesse, and Youngevi. The producers did an excellent job of honing in on the important facts about an industry that is made intentionally confusing (in order to conceal their fraud, of course).

Is Usana Running an Illegal Pyramid Scheme?

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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. Continue reading

Multi-Level Marketing Companies and Pyramid Schemes

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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. Continue reading

Herbalife: Important or Not Important?

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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. Continue reading

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

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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. Continue reading

Fantastic Article About MLMs and Moms

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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

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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. Continue reading

Primerica Financial Services a Scam?

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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!) Continue reading

The fight against Mary Kay Cosmetics gets some press

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A fluff piece about a Mary Kay Cosmetics distributor in the Springfield News Sun this morning mentions my website, pinktruth.com. The fluff piece focuses on a woman who drives a “Mary Kay car” and reportedly has good pay. Yet at this woman’s level in the distributorship chain, she is probably making less than $20,000 a year.

Here’s the mention of my consumer education site:

The Web site PinkTruth.com, established by Tracy Coenen, a forensic accountant and former sales consultant, offers opinions and experiences from women who have been members of the sales force and opted out.

On the site, Coenen listed her major concerns about what she believes is a multi-level marketing operation. “Incomplete information given during the recruiting process, unsubstantiated earnings claims, and pushing large quantities of inventory on new recruits” round out her list.

Willa Eichelman, a division chief with the Air Force at Wright Patterson Air Force Base and Enon resident, has heard the claims, but feels every woman involved can make her own decision. Working as a sales consultant under Stevens for the past year, Eichelman said she did not feel forced to take on a large inventory she could not afford.

She decided to carry an inventory so she could fill customer orders immediately. “It’s a personal business decision. It was suggested to me when I started, but not required,” she said.

The problem with the “optional” inventory, is that so many women are strongly led to believe they cannot succeed without it. And who goes into business to fail? New consultants are frequently overloaded with too much product, and it sits on the shelves due to the very small market of actual retail customers.

Pyramid Scheme Alert update

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In late November, I announced that I had been appointed to the Board of Advisors of Pyramid Scheme Alert (PSA). PSA is an organization dedicated to educating consumers about multi-level marketing companies and pyramid schemes. While MLMs are technically legal in the United States, the vast majority of them are nothing more than product-based pyramid schemes which depend upon an endless chain of recruitment of new members.

I bring to the Board of Advisors my expertise as a fraud investigator, as well as in-depth knowledge of Mary Kay Cosmetics, a multi-level marketing company that’s been around for over 40 years. The founder of PSA, Robert FitzPatrick, is very selective in his appointments. Those who are on the board must have expertise relevant to MLMs and the mission of the organization. I’m honored to be a part of such a credentialed group.

I’ve been working to pull together information on Mary Kay for PSA. Mary Kay Inc. has been flying under the radar for years! The company has generally enjoyed a good reputation in the business community. Mary Kay Ash was well-respected because she was a shrewd businesswoman who developed this company from the ground up. Unfortunately, that has overshadowed the abusive nature of the business opportunity. People haven’t recognized that the MLM system utilized by Mary Kay is very profitable to the corporation itself, but very detrimental to the individual business owners.

PSA never really considered Mary Kay to be a company that they should look into. It just wasn’t “out there” as a recruiting scheme or product-based pyramid scheme. That’s where I come in. I’m putting together materials on the pay plan and recruiting, as well as some of the “official” and “unofficial” materials distributed by Mary Kay and its representatives.

My website Pink Truth strives to educate consumers and potential recruits about the grim reality of this pyramid scheme. I present daily posts about realities of Mary Kay, examining the real earnings of representatives, why the plan is abusive, and how millions of women a year are conned into putting money into this losing proposition.

Additionally, I’ve been working on some other things related to MLMs, and generally enjoying playing an active role in PSA. More to come…