Feature News Analysis
What's the Matter with ACN, or, Would Donald Trump Mislead You?
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 State regulators and television news media have recently shined a light on what many people thought was one of America's fastest growing multi-level marketing companies, ACN, based in North Carolina. ACN's great claims to fame and legitimacy have been its reputed fast growth and its television endorsements by celebrity, Donald Trump.
But new developments and revelations are uncovering some troubling - even for believers - aspects of ACN. 
Donald Trump, a famous television personality and, for some people, a trusted business guru, is telling consumers that becoming an ACN sales representative is a great "deal." But could he be wrong or possibly misinformed about the multi-level marketing (MLM) business model?
Despite Donald Trump's promises and endorsements, the state of Montana has, in fact, charged ACN with operating a pyramid scheme, and it is seeking refunds for its citizens who invested. The state also wants to impose fines on ACN for misleading its people.
There have also been probing news inquiries into ACN in Los Angeles and North Carolina, where the company appeared to be concealing facts. In Los Angeles, reporters were cursed on camera (see video) for asking about the $500 fee to join ACN and they were barred from a Trump recruitment rally. In North Carolina, reporters were similarly barred from the Trump rally or the featured ACN "training" event.
The investigative reporter in North Carolina reported that the training event was run by two ACN reps who had recently been convicted for participating in an illegal drug ring while they were ACN reps. The North Carolina media also encountered the same brick wall as those in Los Angeles did when they started asking for real figures on income averages of ACN salespeople, rates of quitting, and who actually gets most of the commission money. They were told that ACN did not reveal facts about the financial plight of consumer/distributors because the company is "privately held."
Here are some issues and facts coming to light, though hard data, if it is ever disclosed, may later change these indicators:
1. The average, and perhaps nearly all, ACN's sales reps appear to be losing money!
In Canada, ACN is required to disclose the "average" income of ACN sales reps. The ACN Canadian website reports the average of just the "active" reps to be only about $9 a week. That's less than the cost of joining and actively participating. Add in the "in-actives", factor potential "top loading"(the largest share of the commission going to the top 1-5% of recruiters) and then consider business costs, and it appears that hardly anyone could be making money in ACN in Canada, except the insiders and those that got in very early. Canada had prosecuted ACN several years ago under rules governing multi-level marketing companies, but a judge stopped the prosecution, claiming - ironically - that the government had not given enough evidence that ACN was even a MLM company. Australian regulators also prosecuted ACN as a pyramid scheme and the court upheld the prosecution, but the ruling was later over-turned by a higher court.
Now one state in the USA is also charging ACN, again as a pyramid scheme. The state of Montana obtained some hard data from ACN and concluded that virtually no one in that state was making a profit who had signed up as an ACN sales person. Montana is seeking fines and refunds.
2. ACN is, apparently, not growing!
ACN promoters often tout the company as moving rapidly toward a billion dollars in revenue. Consumers are exhorted to "get in now". ACN's fast growth is hyped as one of the main reasons for signing on. Yet, according to ACN's own statements, the company has, apparently, not increased its revenue or customer base at all in four years! In 2006 ACN reported to the FTC that it had exactly the same number of customers and total revenue as it told NBC-affiliate reporters in Charlotte, NC in 2010. But one figure did change during this time. ACN doubled the number of salespeople! In that time, the number of USA sales reps went from 50,000 to 100,000 according to ACN. So, based on ACN's data, more of ACN's money would have to be coming directly from the salespeople. The data would also indicate that the mean average income of all salespersons would have to have decreased over the last four years, while the company itself did not grow.
3. There may not be market need or demand for ACN's showcase product, residential video phones!
Donald Trump is hyping ACN's video phones, but is there really a demand for them? In Charlotte, NC, the news media noted that no one knows how many ACN phones are in operation now. Video phone connections can be done over the Internet for free via Skype on a computer and on smart cell phones too. So, can ACN salespeople find enough retail customers willing to pay for ACN video phones and its proprietary service charges?
ACN's video phones are not portable and they require a monthly service charge. Of course, they are no good at all for video unless someone you are calling also has the same phone and the ACN service. So, to make the system work, a salesperson may need several phones and phone service contracts, costing well over a thousand dollars. ACN offers "Family Plan Lines" but they are for calls made on ACN's network only and cannot be used to call non-ACN phone numbers. These lines cannot be used for a primary phone line and do not have 911 access. Video Phone purchases require a 2 year commitment. Early termination fees for services and equipment apply.
At present very few other brands of residential video phone are on the market. The number of consumers currently using them is unknown. Future interest or demand is also unknown. Even the CEO of the WorldGate, the manufacturer of ACN's phone, has acknowledged that a mass market for these phones may not currently exist. However, he personally believes it will develop "over the next three-to-five-year time frame."
4. Even if residential video phones were not in demand by the general public, and even if each ACN sales person only bought or sold just a few; and even if ACN did not make much profit on each purchase, ACN's insiders could still make millions!
ACN sales reps don't just sell video phones. Many of them buy the product as part of the income plan. To get "points" required for gaining commissions from others they recruit, many ACN reps will buy the flagship product. They may buy them as samples, demos and for their own personal use. Of course, to get value they may need to buy more phones for someone to talk to! The ACN video phones can only do video with each other.
Consumers may sign up as ACN sales reps, buy the phone for themselves (to get pay plan points), then persuade a few friends and family to buy them or give the phones to them as gifts (so they can work), then recruit others to sign up as ACN sales reps also to do the same (to get the promised income). The buy-recruit-buy-recruit process, according to the pay plan, is designed to continue forever. There is no limit on the number of salespeople recruited in any geographic area. As long as recruitment continues, the money continues to flow up to those higher on the recruitment chain, according to the pay plan. Thus, many ACN phones may be purchased as a result of the ACN pay plan, whether there is "demand" from the general public for the phones themselves or not.
ACN told NBC-affiliate news in North Carolina that it has 200,000 salespeople. It has reportedly committed to ordering 300,000 phones from the manufacturer over a two-year period. That is not very many phones to sell, per salesperson, or for all the salespeople to make a profit from. ACN might be able to meet its goal by just getting each sales rep to buy one a year.
But even if ACN reps could not or did not sell many phones or make any profit on them and even if the ACN company itself did not make much profit selling only a few phones to each sales rep and their friends and family, ACN insiders might still make a lot of money another way.
ACN's owners are also among the owners of the company that makes the video phones, WorldGate. WorldGate (WGAT.OB) happens to sell its stock on the over-the-counter stock market. According to WorldGate's 2009 annual report to the Securities & Exchange Commission, when ACN's owners took over WorldGate, they received over 202 million shares of WorldGate stock, 63% of the total, plus warrants to buy another 140 million. ACN pledges to buy 300,000 phones from WorldGate over the next two years. So, even if ACN or its sales reps did not make a profit from the reps' purchases or sales of phones, WorldGate's revenue could go way up and so might stock and warrants held by ACN insiders.
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Irish News Media Probes USA-Export: Multi-level Marketing; Government Warns Irish Consumers
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ A few years back, the U.S. Federal Trade Commission and several US states shut down a USA-based multi-level marketing company, operating in many countries. It was called SkyBiz. The FTC said the MLM was a pyramid scheme. In addition to being prosecuted in the US, at least four other countries, Australia, New Zealand, Canada and Malaysia, arrested distributors, launched investigations or issued warnings to consumers regarding the scheme. The FTC estimated that more than one million people were tricked into investing in the Sky Biz business.
It turns out that millions of SkyBiz' ill-gotten dollars that the government seized to refund consumers were harbored in a bank in Dublin, Ireland. Now, another American MLM is in Ireland - hyped by a former SkyBiz promoter. The ex-SkyBiz promoter is in the country to recruit Irish citizens into a "magical" pay plan of a new USA company called called MyShoppingGenie. MyShoppingGenie promoters are claiming participants can gain up to one million dollars in the first year, with just a $199 initial investment and payment of $29 a month fee. They just have to recruit a few other salespeople and let the recruitment process continue. The Irish news media noted the connection between a top SkyBiz recruiter from Canada and his recruiter role in this new business. The company urges consumers to join up and then start giving away software that supposedly searches the Internet for the best shopping deals.
According to an article in the Irish newspaper, The Independent, "The company was co-founded by Bruce Bise and David Freed. Bise had been sentenced to seven years in jail in the US for felony forgery and fraudulent schemes artifice. When he got out of jail he became involved in a series of multi-level marketing schemes such as Celebrity Galleries International, My Hand PC and Get Moving Today, which filed for Chapter 11 (bankruptcy protection) leaving thousands of investors stranded. David Freed was the international marketing manager of that company."
Investigative reporter, Rory Egan of the Independent worked with the Irish television documentary show, PrimeTime, taking hidden cameras into MyShoppingGenie meeting, signing up as rep to hear the full presentation, fact-checking the effectiveness of the product, and then consulting with experts and government regulators about the scheme's legality. His conclusion: the company has the hallmarks of a pyramid scheme and he asked the government to investigate. See the PrimeTime report.
The National Consumer Agency of Ireland is now calling on consumers to be very wary of any get-rich-quick schemes, particularly involving pyramid selling. |
| Pyramid Selling Schemes, a Powerful Lobby in Washington
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Everyone has heard of the pharmaceutical lobby, the oil lobby, the gun lobby and the Wall Street lobby, but few know about the Pyramid Lobby. In fact, there is an enormous force, backed with millions in campaign and political contributions, a K Street office in Washington, extensive use of PR and law firms, and other measures all aimed at protecting pyramid selling schemes, euphemistically called "direct selling" or "multi-level marketing" (MLM).
In the last two years the MLM industry orchestrated a major campaign against an FTC measure that would require more disclosure to consumers when MLMs solicit consumer investments for its hallmark "business opportunity,." This income opportunity is usually touted as "unlimited", "unique" and "explosive". These are euphemisms for recruit five who recruit 25, who recruit 125, et., etc. with money from all flowing up to you!
Enforcement of state anti-pyramid scheme laws or Section 5 of the FTC Act against "unfair and deceptive trade practices" potentially could devastate the MLM "industry." To prevent this, the Pyramid Lobby engages in a powerful influence-buying program, which is largely unknown to the general public.
MLM's stealth influence-buying aimed at thwarting consumer protection is now beginning to get flushed out from the shadows. Multi-level marketing made it into the October edition of Mother Jones magazine's feature article, "Who Owns Congress." The exposé includes a section, entitled "Trickle-Up Economic Caucus." It notes Nuskin's contributions to Utah Republican Jason Chaffetz and Amway's money going to Charlotte, North Carolina congresswoman Sue Myrick and Michigan's Vern Ehlers. Amway is listed as the nation's 68th largest "corporate sponsor" on Capitol Hill ahead of food and farming giant, Archer Daniels Midland. (Wal-Mart is #60 and Goldman Sachs is #3).
Corporate contributions (sometimes disguised as "retail industry" to candidates are only a small part of multi-level marketing's true impact. There are also personal contributions from MLM execs to candidates and to related causes and Republican party coffers. (MLM has focused nearly all its money on influencing the Republican Party.) Additionally, some MLM events collect cash contributions from thousands of MLM hopefuls, and many top MLM recruiters are contributors in local elections of Attorneys General, Congress and state legislators.
According to a 2005 Center for Public Integrity study, Amway's Dick & Betsy DeVos were the fifth largest political givers in the country during the 2004 election cycle. Richard DeVos Sr. and his wife, Dick's parents, were ranked third. And Jay Van Andel, Dick's father's business partner, was ranked second.
This MLM influence-buying has been in force since the early 1990s and has been growing each election cycle. According to the consumer watchdog group, Common Cause, Amway and affiliated donors made soft money contributions to the Republican National Committee totaling $4,147,000 between January 1, 1991 and June 30, 1997. In April 1997, the co-founder of Amway Corp. gave $1 million to the Republican Party, one of the largest single donations on record from an individual. A publication of the Brookings Institute lists Amway among the top ten "soft money" contributors to the Republican Party in 2000, just below (only $500 less) Enron.
For an in-depth report on the chilling influence of multi-level marketing on consumer protection and law enforcement, the report, "The Main Street Bubble," is available upon request. Send an email with words Main Street Bubble in the subject line.
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~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Pyramid Scheme Alert is all-volunteer and non-profit, but it still has many costs to maintain its website, to help with legal defense, publicize its research and analysis and to assist thousands of individuals worldwide. PSA's costs are covered by contributions from courageous private citizens. You can support PSA's work by making a donation. |
| 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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