It May Well Be Time For State Attorneys General To Increase Enforcement Oversight In Respect To Multi-Level Marketing

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Includes: HLF
by: Bruce Craig

Summary

Given the recent election, current enforcement efforts regarding Multi-Level pyramid style offerings may be substantially curtailed or modified.

Herbalife is currently under a FTC compliance order, which will not reach active status until next year.

If Federal enforcement efforts are in fact reduced or modified, it will be up to the state Attorneys General to increase enforcement activity.

IT MAY WELL BE TIME FOR STATE ATTORNEYS GENERAL TO INCREASE ENFORCEMENT OVERSIGHT IN RESPECT TO MULTI-LEVEL MARKETING

The recent election has placed the issue of Federal Enforcement of pyramid style offerings in question. As stated in the below open letter to General Schneiderman, there is a real probability that current enforcement efforts by the Federal Trade Commission in respect to the Herbalife Corporation (NYSE:HLF), and Multi-Level Marketing in general, will be placed in jeopardy.

This is not the first open letter to New York's Attorney General, one was written in September 2014 by Rogier van Vlissingen. Further, questions have been raised about Mr. Schneiderman's ex-wife Jennifer Cunningham and her linkage to Herbalife via the lobbying and consulting firm SKD Knickerbocker.

From an investment point of view, the Trump presidency injects a good deal of uncertainty into future enforcement activity in respect to companies operating under the label, Multi-Level Marketing.

While some might consider this as favorable news, it also raises the potential for a future substantively unregulated area which has been noted for its excesses and which could easily push the boundaries of legal conduct in respect to recruitment efforts to the point of actual collapse. It has been my opinion that the vague legal standards currently in place have served as a protective cover for MLMs who can claim they are not one of the evil pyramid schemes. If these minimal standards are lifted, it could easily be open season in a business offering which features exponential recruiting potential.

Given this, as stated in the letter, it may well be up to prominent Attorneys General not predisposed to what may likely be our President' view on the matter.

I sincerely hope that Attorney General Schneiderman take this matter under serious consideration, particularly in respects to the Latino community, which is now facing meaningful challenges from several directions.

AN OPEN LETTER TO NEW YORK ATTORNEY GENERAL ERIC SCHNEIDERMAN

November 17, 2016
Office of the Attorney General
The Capitol
Albany, NY 12224-0341

Dear General Schneiderman:
I am writing as a former Assistant Attorney General (Wisconsin) who once litigated against pyramid schemes. I presently live in New York City. In 1970, I drafted Wisconsin's anti-pyramid regulation, which is similar to New York's prohibition of pyramid schemes in sec 359 fff of the Martin Act. I have currently been active in seeking public awareness and enforcement response in respect to these schemes. I am being paid by no one.
The reason for this letter is to ask that your office take serious note of the activities of these illegal offerings and pursue enforcement at the earliest possible time. Most prominent in this area of concern have been the activities of the Herbalife Corporation, now under enforcement mandate by the Federal Trade Commission. In New York, Herbalife has been particularly active within the Latino community.
The urgency of this request is based on the election of Donald Trump as President of the United States. Based on his recent personal business involvement in multi-level marketing and his publicized Wall Street associations it would appear highly likely that he is favorably inclined towards Herbalife and what has been termed 'Multi-Level Marketing. Of course, his negative attitude concerning some Latino categories has also been widely reported.
President Trump will be able to exert considerable influence in respect to the future direction of the Federal Trade Commission and it is virtually certain that his efforts will not be on behalf of the millions of victims of these schemes. The FTC action against Herbalife is still in a sensitive state, since the most significant compliance issues will not arise until the middle of next year.
Your office has specific authority on pyramids in the state's Martin Act and general authority against deceptive practices in GBL section 349. I think it would be fair to state that, to date, your office has not been particularly active in this area, even though general public allegations have been voiced in respect to pyramid schemes, and Herbalife in general, for several years. For instance, a number of issues have been raised concerning Herbalife'Nutrition Clubs' in Queens and the Bronx.
Generally accepted data indicates a 99% failure rate among these offerings and a full distributor 'churn' within two years. The total annual price tag in the United States is over $30 billion and $170 billion internationally, a result due in large part to an ambivalent attitude on the part of the Federal Government. Lax law enforcement toward these exploitive scams was highlighted recently on the popular satirical HBO show, Last Week Tonight with John Oliver. The YouTube of this show has more than seven millions visits in just one week.
The poor, particularly minorities, will very likely be significantly underrepresented in the Trump administration. It will now be the task of state Attorneys General, particularly those whose ideas do not coincide with the new president, to take up the task of actively protecting this segment of our population and those, in general, who will be seeking prosperity in new endeavors and who will be vulnerable to the appeals of these illegal offerings.
I respectfully ask that you give serious and immediate attention to this critical matter.

Bruce A. Craig, Esq.
New York, NY 10025

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am not paid by anyone in respect to the content of this article.