Once Again, Herbalife Is Accused of Operating a Pyramid Scheme, this time by Insiders
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 The charge of operating a pyramid scheme has dogged Herbalife from its beginning, and for good reasons.
- Herbalife is structured as an endless chain;
- Requires a large upfront investment of about $3,000 to gain a position on the chain and get payments from new recruits;
- The pay plan sends nearly all the money to the top 1%;
- Churns through "failures" at an 80% per year rate;
- Causes a 99% loss rate year after year among all who sign up.
Now, according to an article in the Los Angeles Times, the pyamid scheme charge is coming from those who actually "succeeded", top insiders who want to quit.
See the evidence against one of the MLM industry's largest and oldest members.
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| China Fighting to Keep USA-style MLMs out, and Leads the World against the Global Scourge of Pyramid Selling Schemes
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ A feature article in USA Today, Sept. 8, 2009, describes the ongoing battle in China to fight USA-style multi-level marketing (MLM) pyramid schemes, some of which are based in America. The story is a lesson for the world.
In China, MLM schemes are seen as especially pernicious during a Recession because they always cause financial harm to people who are already financially struggling. Additionally, the government of China sees pyramid schemes as a subversion to the general economy and therefore a threat to the nation. Multi-level marketing schemes in China are not viewed as legitimate businesses, though they disguise themselves as "direct seling" companies. Read how China is battling the USA-based MLM industry.
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| Conflicts of Interest and Evasion of Key Issues in Better Business Bureau's Accusing iJango of Pyramid Fraud
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Two more Better Business Bureau offices, Wisconsin and Phoenix, have accused the multi-level marketing (MLM) scheme, iJango, of operating as a pyramid scheme. The BBB in Dallas also makes the accusation. Warnings are also posted on the national BBB website.
Yet, the BBB is tying itself into knots to explain why it is singling out iJango while silently endorsing hundreds of other multi-level marketing schemes. The BBB is avoiding the key question for identifying MLM pyramid schemes. That questions is: where does the money for commissions come from, retail sales or mostly from the salespeople?
Instead, the BBB is critiquing iJango's product and making arbitrary distinctions between payments from salespeople for fees versus payments for products.
At the core of BBB's tortured arguments may be an internal dilemma. BBB is challenged to identify iJango as pyramid scheme, while not implicating one of its key Corporate Partners, Amway. Amway is the world's lightning rod for pyramid scheme accusations, yet Amway and its representatives serve in key positions of influence within the BBB. Amway and its trade organization, the Direct Selling Association (DSA), are BBB financial contributors as national "Corporate Partners." And two individuals, Timothy Muris and Jodie Bernstein, both of whom served as Amway attorneys, are on the BBB Board of Directors.
Amway's trademark "endless chain" pay plan is banned in China as pyramid scheme fraud. Amway
was recently prosecuted in England when regulators uncovered that in 30 years
time, 99% of all English consumers who became Amway sales reps had lost
money. UK regulators sought to have Amway closed down completely in that country. A criminal investigation is underway in India against Amway for violating that country's anti-pyramid law. And in America, Amway currently faces the largest class action lawsuit in its history with distributors charging that Amway is a global pyramid
scheme. A long list of other lawsuits against Amway from low level distributors to top level insiders make exactly the same charge, that Amway is a pyramid scheme perpetrating "business opportunity fraud." All pyramid schemes must perpetrate deception about income. Amway deception was exposed in a NBC Dateline exposé in 2004.
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Despite international prosecutions, class action lawsuits, and a devastating exposé of deception in a 2004 report on NBC Dateline, the BBB gives Amway an "A+" Rating. ___________________
Another BBB "Corporate Partner", the Direct Selling Association (DSA), of which Amway is a member, is also at the center of pyramid scheme controversies. DSA is the political lobbying arm of
the MLM industry. It lobbied to change the anti-pyramid scheme law in Texas (iJango is based in Texas) and other states so that MLMs are exempt from laws and court rulings that require retail revenue. This may account for why the BBB is avoiding the key questions of retail revenue versus recruiting.
Court rulings and many FTC prosecutions have defined MLMs without significant retail revenue as pyramid schemes. But, under the DSA-sponsored law, MLMs
don't need retail customers! They only need salespeople to pay fees and
buy products and to recruit other salespeople who do the same. DSA also, unsuccessfully, tried to get a similar law passed for the entire nation that would protect MLMs from prosecution for pyramid fraud.
The DSA recently became further embroiled in pyramid scheme controversy when it enrolled a new multi-level marketing member, YourTravelBiz.com (YTB). This company passed the DSA test for legality and ethics and was given DSA
membership. It was then prosecuted by the Attorney General of California for pyramid fraud.
The California AG found that the vast majority of revenue for the
company came only from the salespeople, not from the sales of travel
services to retail customers. Even after this prosecution,
YourTravelBiz.com remains a member of the DSA.
MLMs that have little or no retail revenue get their money only from the salespeople. The only way a salesperson can make a profit is, therefore, from recruiting other salespeople. Such a plan dooms the majority of all salespeople to be in the lower levels where they cannot make a profit. Such schemes always result in 99% loss rates among the salespeople, and any claims of "income opportunity" for many people are false.
Since BBB Corporate Partners, Amway and the DSA, promote MLM "non-retailing", this may explain why the BBB also ignores the results
of MLM companies. 99% of the "sales people" who invest in the
MLM "business opportunity" lose money. BBB does not focus attention on these losses as a red flag of "business opportunity fraud" or on the obviously false promises that such MLMs use to lure
consumers into these recruiting traps
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Amway and its lobbyist, the Direct Selling Assocation
are BBB "Corporate Partners".
Two attorneys that represented Amway
are on the BBB board of directors.
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Two individuals who are also at the center of national pyramid scheme controversy are on the BBB Board of Directors. One is Timothy Muris, an attorney whose former law firm listed Amway as its largest client. He moved directly from Amway attorney to Chairman of the Federal Trade Commission, appointed by George W. Bush, a major recipient of Amway political contributions. During Muris' term at the FTC, the agency effectively halted pyramid scheme prosecutions and enforcement actions against MLM companies. Muris now serves as a lobbyist/attorney for another MLM company.
The other Amway-connected insider at the BBB is Jodie Bernstein. She currently serves as an Amway attorney for the law firm, Bryan Cave. She used to be Consumer Protection Chief at the FTC. Immediately after leaving the FTC she used her influence with the FTC on behalf of Amway. She lobbied the FTC to exempt Amway and other MLMs from any rules that would require greater financial disclosure and other consumer protections that would restrict MLM promotions.
So, the Better Business Bureau must somehow challenge iJango's legality and accuse it of operating a pyramid scheme while also protecting key Board members and Corporate Partners who are tied to the multi-level marketing industry and involved in limiting the definition of pyramid schemes.
For more information about iJango and the BBB's questionable arguments, see:
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Some New Websites and Articles Shed Light on Realities and Truths about MLM
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More and more, the veil of silence and disguise is being lifted. The truth about the MLM "industry" is getting out. Several new web sites and articles add to the literature and offer consumers factual information.
- Excellent analysis of the MLM, Take Shape for Life, a division of Medifast, by David Phillips, a widely quoted Wall Street veteran who writes the popular blog, The 10-Q Detective.
- A good overview of MLM and its fundamental flaws, but also a focus on how MLMs are infecting other industries beyond the standard "pills, potions and lotions."
- The Blog, MLM - USANA Health Sciences Watch Dog, researches USANA Health Sciences, Inc. and "provides analysis for shareholders, distributors, and prospecting distributors." The blog addresses Usana's overpriced products, pyramid pay plan, and the actual financial fate of Usana distributors.
- The online article, 'Superjuices' Touted as Cures for Cancer, Swine Flu and the Recession -- Are They Dangerous Scams? by Stan Cox on AlterNet.org, examines a sector of the MLM industry represented by MonaVie, XanGo, Tahitian Noni International, Zrii and Freelife International, which "have cooked up a new recipe that is energizing the MLM industry with billions of dollars per year."
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Report on FTC Neglect and Corruption Now Available
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ The report, "The Main Street Bubble: A Whistle Blower's Guide to Business Opportunity Fraud; How the FTC has Ignored and Now Protects It" is now available to the public at no charge. If you want a copy of the report in PDF format, email PSA. Include the words "FTC Report" in the subject line.
In the wake of the Bernard Madoff Ponzi scheme collapse and other Wall Street frauds, there have been shocking revelations about neglect, collusion and incompetence at the Securities & Exchange Commision (SEC). A similar pattern developed at United States Federal Trade Commission (FTC), the federal agency
charged with investigating and prosecuting "business opportunity
frauds" and pyramid schemes.
In 2001, virtually all consumer protection in this area stopped at the FTC. What happened to cause this radical change? How did the FTC move from protecting consumers to protecting pyramids?
The whole story has been researched and presented in a new report authored by Pyramid Scheme Alert president, Robert FitzPatrick, with help from many other consumer activists. The 21-page report details political influence-buying, conflicts of interest, and failure to protect the public. The story is eerily similar to the recent revelations of the SEC, which led to Wall Street frauds and the Bernard Madoff scam.
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| No More Silence: Take Action ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Over
the last eight years, Pyramid and Ponzi schemes have grown and spread.
The Internet is now choked with "cash gifting" scams and "matrix
selling" frauds. Pyramid selling scams have multiplied and now boast
that the Recession will bring them more desperate "recruits." The false
promise of income from an "endless chain" recruitment scheme is the
lure of these multi-level marketing scams. Many of the "job" and
"business opportunity" solicitations on the internet are nothing more
than pyramid schemes, flim-flam frauds.
Consumers now have a way
to fight back. A petition for stronger regulation is being gathered on
the Pyramid Scheme Alert Website.
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