Is Herbalife A Pyramid Scheme? ¿Quien Sabe? [View article]
Very good article. The differences between the interests of those investing in the market, those currently involved in MLM, and those concerned about the fate of the many victims of these pyramid type offerings, as reflected in the comments, is significant.
There is no doubt that a great deal of money and personal initiative has been lost due to the documented high failure rates among MLM participants. One thing that the market advocates at the Wall Street Journal appear to have ignored, in addition to the lost potential of individual initiative, is the diversion of entrepreneurial effort from other enterprises which could well offer a more stable business opportunity to those who hope to better their lot.
The billions of dollars which have accrued to those at the top levels of these companies do not appear to have been shared with the 99% who eventually fail. This is not of value to a market economy or to the other proponents of business opportunities who use promotional tactics that do not include extensive emphasis on the extreme wealth of the few that succeed in these pyramid type offerings and a dearth of information on the success rates of prior participants.
A fair marketplace, one which benefits the economy, depends on legal business practices and efficient oversight by governmental agencies assigned with the task of preventing illegal unfair and deceptive competitive practices. This is particularly true during this current financial difficulty - where the need for productive opportunities among the middle class is at a premium.
Unfortunately, the agency that is charged with maintaining this level playing field, the FTC, has been asleep at the switch - to the point where it exempted MLMs from its Business Opportunity Rule and the requirement of disclosing business outcomes for prior participants. As pointed out in the article, the FTC's case against a pyramid company took place 10 years after the company started doing business. Consider the damage done in the interim and to others victimized by other similar offerings.
One hopes that the new Chairman of the FTC will step forward with meaningful efforts to restore the fundamental elements of market fairness necessary for the health of our economy and the needs of those in the middle class seeking to better their lot in life. One also hopes that pundits at the Wall Street Journal will take a less than myopic view of the marketplace and its relationship to the needs of the public which it is supposed to serve.
An Investor's Guide To Identifying Pyramid Schemes [View article]
I note you ask whether our study involved persons no longer active or with the company. The list of direct distributors was provided to us by the Amway Corporation.
Aside from the fact that my misstating a current average income would be an improper act in respect to ongoing litigation, Amway, as defendant, was provided all the underlying information in respect to the study and could compare it with its distributor records. It made no objection to the study or its conclusions and offered to, and did, settle the case the day before trial.
I note you were associated with Alticor. I suggest you contact them for copies of the litigation documents, which include the income study.
An Investor's Guide To Identifying Pyramid Schemes [View article]
the direct distributors were provided to us by Amway, there were 192 exactly. I believe they were active at the time, since I am sure there were many more than that over the years. The years were 1979-80.
Our Response To Robert Walter Regarding Herbalife And 10b5-1 Plan [View article]
Tough question. It probably can't be answered under the current enforcement environment. The FTC legal standards are not very clear and they do not necessarily conform with current case law. Also, just what is going on with these companies is very unclear. As I suggested in a response to another question, it would make sense for the FTC to begin investigative efforts to see just what is going on in this $30 billion industry, what business practices, if any, protect, or injure, the public and what has been the experience over the years for those who have participated in this marketing area. Reports of a 99% failure rate among distributors do not lend much optimism to the outcome.
Our Response To Robert Walter Regarding Herbalife And 10b5-1 Plan [View article]
decent question. Given that the MLM industry is a $30 billion/yr operation, it would make sense that the FTC look into the factors that distinguish, in its opinion, a legal from an illegal pyramid - considering its statements concerning the significant damage that pyramids can cause to their victims.
A logical start would be with the larger MLMs. It would be hard to imagine, given the current disputes re HLF and others, that the Commission would not make any statement of an investigative effort to evaluate this critical legal distinction, if in fact any such effort existed. It would not have to make an explicit report on a particular company, just a public statement that it had a formal investigative program in place and was looking into this problem.
The FTC's case against Fortune Hi Tech, however, would cast some doubt on the current existence of any monitoring program, since the company was operating in plain sight for 12 years before the case was started. Also the Commission made no statement that its legal action was based on an ongoing program of evaluating possible pyramids as to the existence of "retail sales" and other supposed protective elements.
One other item, David Einhorn asked Herbalife a relatively simple 'retail sales' question of the type that might have been asked by the FTC, the ambiguity of the answer, and the controversy it started, would imply that the question had not previously been asked by the FTC. It is also likely that if HLF had been contacted by the FTC, and cleared, that it would have make this point by now. Ackman has posed a series of questions, which HLF does not seem inclined to answer. Perhaps the FTC could take some guidance from these questions and pose them to Herbalife in a formal context. This would not seem to be an extreme effort, given that Belgium, the seat of the European Union, has already declared Herbalife a pyramid.
Our Response To Robert Walter Regarding Herbalife And 10b5-1 Plan [View article]
I find it interesting that the SEC has established complex, but basically understandable, legal criteria, such as 10b5-1(c), for certain corporate conduct. Contrast this with the FTC's "legal standards" concerning the critical issue whether a company is operating an illegal pyramid or a 'legal' pyramid based direct selling plan.
Not only are the FTC standards virtually incapable of the type of legal analysis and discussion in this comment thread, but the Commission appears to have failed to use its investigative authority to determine whether high volume corporations, such as HLF or Amway, are operating in accord with these standards - unclear as they might be. Certainly there are no reporting requirements, dealing with 'retail sales' for instance, similar to the SEC's. Given the economic consequences for the thousands of victims involved with pyramids (100,000 victims in the recent Fortune Hi Tech case, concerning a company operating in public view for 12 years) it would seem a good idea for the FTC to establish, by rule, a clear set of standards and, in the meantime, file investigative requests to the larger corporations using a pyramid type selling plan and analyze the quality of responses received in terms of protecting the public.
Herbalife: Icahn Cometh - Could The Stock Be Worth $103.93 Per Share? [View article]
CRAIG, I'll end this now, but perhaps you could point me to the 'numerous' FTC regulations, formally promulgated by the FTC - as is necessary to establish a legal standard.. I would just like to know what your understanding is on this topic.
Also, if these standards require an experienced lawyer to determine compliance, how is a low income prospect from Queens (or an everyday investor) supposed to know whether or not he or she is investing their savings in a pyramid. It took the FTC and its experienced lawyers 12 years to decide that Fortune Hi Tech was a pyramid. Maybe the public needs a little more clarity on the point
Herbalife: Icahn Cometh - Could The Stock Be Worth $103.93 Per Share? [View article]
I just asked the author about his understanding of these 'standards' since he stated they were 'quite clear' I assumed he would be able to answer, but maybe not.
Herbalife: Icahn Cometh - Could The Stock Be Worth $103.93 Per Share? [View article]
Intellectual property? I started litigating against pyramid companies in 1969. Still would like to hear what the current clear standards are, jibberish or not.
Herbalife: Icahn Cometh - Could The Stock Be Worth $103.93 Per Share? [View article]
You mention the 'quite clear' 'applicable statutory regulations'. I take this to mean regulations that could be verbalized in a court of law - like a speed limit or ones that have a generally understood meaning, such as gross negligence or fiduciary duty.
Would you state just what these regulations are and what legal standards apply?
The Federal Trade Commission And The Need For Investigations Into Pyramid Schemes [View article]
One of the critical facts in respect to pyramids is the number of participants that fail - stated to be close to 99%. An excellent survey of this data, and the surrounding reasons for problems of this magnitude, is the publication by Robert Fitzpatrick, "The Main Street Bubble", it is worth a read http://bit.ly/UtMMMv If the problem is this great it would seem that the FTC could simply ask the questions some investors, such as David Einhorn, have about retail sales. On this point, the 1979 Amway case established the legal principle that it is the obligation of a company using a pyramid marketing plan, not the FTC, to prove, as did Amway, by direct sworn testimony that its retail sales, to non participants, are 70%. A study paid for by the company does not seem to meet this standard. While I don't agree with the Amway decision, it would seem a reasonable start for the FTC to ask these questions. This does not mean that a company is going to be sued, it just means that the FTC needs the information in order to understand the substance of a marketing operation.
Herbalife's Circular Reference - 'Popping The Question' [View article]
Matt Stewart correctly states: “the critical question is: does the proliferation of the business rely upon an endless chain of recruitment...?” “you have confirmed that Nutrition Clubs actually exist...big deal...what does this have to do with whether or not the compensation system is a pyramid scheme? “
Much of this discussion here concerns (a) the inability of a major corporation to accurately document what percentage of its customers are 'retail purchasers', and (b) who should be counted as retail purchasers in determining whether a company is a pyramid or not?
Has anyone considered what the impact of these opaque legal standards has on the investing community and, of course, the victims of these schemes? A company operating with the clearly stated elements of a pyramid can start up, recruit thousands of participants, in many countries, have revenues in the billions of dollars, and operate for years before anyone in authority, if ever, asks for documentation about the existence of retail sales and other practices which would, according to the Federal Trade Commission, thereby legalize that which would otherwise be a pyramid scheme. This process, if contested, could easily take five years, as it did in the Commission's recent BurnLounge pyramid case.
Also, how could the FTC ever hope to adequately, and in a timely fashion, investigate or monitor the hundreds of MLM/pyramid type companies now in existence, to determine a critical element which it claims eliminates the illegal aspects of a pyramid.
The hard fact is that, as I argue in my recent Seeking Alpha article http://seekingalpha.co... , the Federal Trade Commission has created a flawed legal standard and is powerless to effectively oversee these companies to determine even whether this standard, if it is a standard, is being followed. We are talking about a $29 billion/yr industry here. There is no legal standard or enforcement procedure that corporations, investors, or participants can rely on – in advance – to assure themselves that they are involved with a legally structured entity.
One could argue that it is not his concern whether the company is running a pyramid. If he wants to take a chance that the question of illegality will never be posed, what's wrong with that? Think for a minute what it means that an investor in the largest stock market in the world is, in part, relying on the inability of a governmental entity to do its job in policing the integrity of a listed corporation.
Also, the question has occurred to me – why does a company interested in retail sales have to assess a mandatory inventory purchase requirement as a prerequisite to recruit another prospect into the marketing system and why does this recruiting process have to be endless? If the real goal is to efficiently retail products one would think the company would want a qualified recruiter of distributors, inventory purchase or not, and would reserve the right to limit downline recruiting rights to the extent that new wholesale distributors are not directly competing with the persons who recruited them or with others in an already saturated market.
One hopes that the SEC or the CFPB will also take a look into this matter and pick up where the FTC left off.
Recognizing Pyramids - Without A Lawyer, An Economist, Or The FTC [View article]
Your article clearly and cogently sets forth the underlying structure of a pyramid style offering and why the investing public, potential participants, and the Federal regulatory authorities should have second thoughts about the legal status of this type of business proposal.
Some of the comments to your article have pointed to the fact that a number of MLM companies have been in existence for a long time and have not faced governmental inquiry, at least in the United States. In this context, it would be helpful to revisit the reason for current disputes and the legal history behind them.
In 1975, the FTC sued the Amway Corporation, alleging, among other claims, that it was a pyramid scheme. In 1979, the Commission ruled that Amway was not a pyramid because direct testimony from corporate officers established that all company distributors sold 70% of their products at wholesale and/or retail during a given month, that each qualifying distributor had certified it had at least 10 retail customers, and that the company had a buy back program. In other words, that which was initially alleged to be a pyramid scheme was ruled not to be one because of these saving factors. It is critical to note that this legal conclusion was reached only after direct sworn testimony, which was reviewed and accepted by the FTC. The ruling in this case is limited to Amway and the facts found in that case. The practical result of this ruling, however, was that other MLM companies thereafter claimed that they were “just like Amway”. Note that the most current FTC case on the issue of retail sales, BurnLounge, makes it clear that distributor recruiting rewards, in order to avoid the pyramid label, cannot “include sales to other participants or recruits or to the participants’ own accounts.”
While I disagree with the Amway decision, on the basis that retail sales and buy back factors should not be grounds for legitimizing a company otherwise structured as a pyramid scheme, I formally requested that the FTC use its investigative authority to authenticate the continued existence, and factual accuracy, of the sworn testimony it considered in ruling Amway not a pyramid and, further, whether these exculpatory elements have in fact prevented the abuses attributed to pyramid schemes. This request, made in 2000, was turned down.
Even though the Amway decision, and subsequent court rulings, are not fully clear on the issue of 'retail sales' as a legal standard, they do, however, raise an interesting question that is relevant to the current discussion. How many MLMs, even those in existence for a long time, have developed actual documentary evidence which meets the evidentiary and factual standards that convinced the FTC to reverse its legal position that Amway was a pyramid – and which meet the BurnLounge standard? This would seem to be a logical step for a legitimate Multi-Level marketing company to take in order to persuade the investment community of minimal risk of governmental action. It would also be of informative value to governmental authorities and prospective participants.
To my knowledge, no company has met this standard. It is likely that this fact was the reason the simple inquiry by David Einhorn resulted in a major drop in HLF stock. There is, to say the least, a dearth of public declarations on the issue of retail sales by those publicly listed companies that claim immunity under the Amway ruling. If the Amway Corporation was able to prove its case on retail sales, in a formal court proceeding, why can't the rest of the MLM companies do the same, particularly those listed on the stock exchange?
This raises another question. What is the documented record of retail sales to persons in other countries, sales made pursuant to business offerings made by a US listed corporation? Are these corporations acting in accord with US law in their dealings abroad?
It would seem to me that the investment community, not to speak of the Federal Government, should be interested in the answers to these questions.
Herbalife's Lieberman Report: Smoke And Mirrors [View article]
There seems to be a good deal of attention paid to the question of retail sales. One of the problems with this approach, which I try to deal with in the attached article, is whether 'retail sales' are even a legal element of a pyramid scheme. They aren't an element of many state laws and earlier FTC cases limited a 'retail sales' exemption only to 'consummated' sales, i.e. override type commissions on existing orders to persons managing a sales staff.
The other main problem with the retail sales defense is just how does a company document retail sales when all it has are records of wholesale transactions. Aside from problems with studies such as the one discussed here, what standards does an enforcement agency such as the FTC apply if it is considering whether a company is a pyramid or not. Does it accept the study? Is it legally obliged to prove an absence of retail sales - where could it get this information? Exactly what percentage of retail sales, assuming one could get accurate information, makes a company otherwise using illegal pyramid sales procedures all of a sudden legal? Would 70% be legal and 69% illegal? Do retail sales include sales to distributors for their own use and how is this proven?
My point is that retail sales shouldn't even be a legal element when considering a pyramid scheme. The FTC has not done its job in clarifying this matter and a lot of companies are doing quite well in the fog, which has existed ever since the FTC's Amway decision over 30 years ago.
Is Herbalife A Pyramid Scheme? ¿Quien Sabe? [View article]
There is no doubt that a great deal of money and personal initiative has been lost due to the documented high failure rates among MLM participants. One thing that the market advocates at the Wall Street Journal appear to have ignored, in addition to the lost potential of individual initiative, is the diversion of entrepreneurial effort from other enterprises which could well offer a more stable business opportunity to those who hope to better their lot.
The billions of dollars which have accrued to those at the top levels of these companies do not appear to have been shared with the 99% who eventually fail. This is not of value to a market economy or to the other proponents of business opportunities who use promotional tactics that do not include extensive emphasis on the extreme wealth of the few that succeed in these pyramid type offerings and a dearth of information on the success rates of prior participants.
A fair marketplace, one which benefits the economy, depends on legal business practices and efficient oversight by governmental agencies assigned with the task of preventing illegal unfair and deceptive competitive practices. This is particularly true during this current financial difficulty - where the need for productive opportunities among the middle class is at a premium.
Unfortunately, the agency that is charged with maintaining this level playing field, the FTC, has been asleep at the switch - to the point where it exempted MLMs from its Business Opportunity Rule and the requirement of disclosing business outcomes for prior participants. As pointed out in the article, the FTC's case against a pyramid company took place 10 years after the company started doing business. Consider the damage done in the interim and to others victimized by other similar offerings.
One hopes that the new Chairman of the FTC will step forward with meaningful efforts to restore the fundamental elements of market fairness necessary for the health of our economy and the needs of those in the middle class seeking to better their lot in life. One also hopes that pundits at the Wall Street Journal will take a less than myopic view of the marketplace and its relationship to the needs of the public which it is supposed to serve.
An Investor's Guide To Identifying Pyramid Schemes [View article]
Aside from the fact that my misstating a current average income would be an improper act in respect to ongoing litigation, Amway, as defendant, was provided all the underlying information in respect to the study and could compare it with its distributor records. It made no objection to the study or its conclusions and offered to, and did, settle the case the day before trial.
I note you were associated with Alticor. I suggest you contact them for copies of the litigation documents, which include the income study.
An Investor's Guide To Identifying Pyramid Schemes [View article]
Our Response To Robert Walter Regarding Herbalife And 10b5-1 Plan [View article]
Our Response To Robert Walter Regarding Herbalife And 10b5-1 Plan [View article]
A logical start would be with the larger MLMs. It would be hard to imagine, given the current disputes re HLF and others, that the Commission would not make any statement of an investigative effort to evaluate this critical legal distinction, if in fact any such effort existed. It would not have to make an explicit report on a particular company, just a public statement that it had a formal investigative program in place and was looking into this problem.
The FTC's case against Fortune Hi Tech, however, would cast some doubt on the current existence of any monitoring program, since the company was operating in plain sight for 12 years before the case was started. Also the Commission made no statement that its legal action was based on an ongoing program of evaluating possible pyramids as to the existence of "retail sales" and other supposed protective elements.
One other item, David Einhorn asked Herbalife a relatively simple 'retail sales' question of the type that might have been asked by the FTC, the ambiguity of the answer, and the controversy it started, would imply that the question had not previously been asked by the FTC. It is also likely that if HLF had been contacted by the FTC, and cleared, that it would have make this point by now. Ackman has posed a series of questions, which HLF does not seem inclined to answer. Perhaps the FTC could take some guidance from these questions and pose them to Herbalife in a formal context. This would not seem to be an extreme effort, given that Belgium, the seat of the European Union, has already declared Herbalife a pyramid.
Our Response To Robert Walter Regarding Herbalife And 10b5-1 Plan [View article]
Not only are the FTC standards virtually incapable of the type of legal analysis and discussion in this comment thread, but the Commission appears to have failed to use its investigative authority to determine whether high volume corporations, such as HLF or Amway, are operating in accord with these standards - unclear as they might be. Certainly there are no reporting requirements, dealing with 'retail sales' for instance, similar to the SEC's. Given the economic consequences for the thousands of victims involved with pyramids (100,000 victims in the recent Fortune Hi Tech case, concerning a company operating in public view for 12 years) it would seem a good idea for the FTC to establish, by rule, a clear set of standards and, in the meantime, file investigative requests to the larger corporations using a pyramid type selling plan and analyze the quality of responses received in terms of protecting the public.
Herbalife: Icahn Cometh - Could The Stock Be Worth $103.93 Per Share? [View article]
Also, if these standards require an experienced lawyer to determine compliance, how is a low income prospect from Queens (or an everyday investor) supposed to know whether or not he or she is investing their savings in a pyramid. It took the FTC and its experienced lawyers 12 years to decide that Fortune Hi Tech was a pyramid. Maybe the public needs a little more clarity on the point
Herbalife: Icahn Cometh - Could The Stock Be Worth $103.93 Per Share? [View article]
Herbalife: Icahn Cometh - Could The Stock Be Worth $103.93 Per Share? [View article]
Herbalife: Icahn Cometh - Could The Stock Be Worth $103.93 Per Share? [View article]
Would you state just what these regulations are and what legal standards apply?
The Federal Trade Commission And The Need For Investigations Into Pyramid Schemes [View article]
If the problem is this great it would seem that the FTC could simply ask the questions some investors, such as David Einhorn, have about retail sales. On this point, the 1979 Amway case established the legal principle that it is the obligation of a company using a pyramid marketing plan, not the FTC, to prove, as did Amway, by direct sworn testimony that its retail sales, to non participants, are 70%. A study paid for by the company does not seem to meet this standard. While I don't agree with the Amway decision, it would seem a reasonable start for the FTC to ask these questions. This does not mean that a company is going to be sued, it just means that the FTC needs the information in order to understand the substance of a marketing operation.
Herbalife's Circular Reference - 'Popping The Question' [View article]
“the critical question is:
does the proliferation of the business rely upon an endless chain of recruitment...?”
“you have confirmed that Nutrition Clubs actually exist...big deal...what does this have to do with whether or not the compensation system is a pyramid scheme? “
Much of this discussion here concerns (a) the inability of a major corporation to accurately document what percentage of its customers are 'retail purchasers', and (b) who should be counted as retail purchasers in determining whether a company is a pyramid or not?
Has anyone considered what the impact of these opaque legal standards has on the investing community and, of course, the victims of these schemes? A company operating with the clearly stated elements of a pyramid can start up, recruit thousands of participants, in many countries, have revenues in the billions of dollars, and operate for years before anyone in authority, if ever, asks for documentation about the existence of retail sales and other practices which would, according to the Federal Trade Commission, thereby legalize that which would otherwise be a pyramid scheme. This process, if contested, could easily take five years, as it did in the Commission's recent BurnLounge pyramid case.
Also, how could the FTC ever hope to adequately, and in a timely fashion, investigate or monitor the hundreds of MLM/pyramid type companies now in existence, to determine a critical element which it claims eliminates the illegal aspects of a pyramid.
The hard fact is that, as I argue in my recent Seeking Alpha article
http://seekingalpha.co...
, the Federal Trade Commission has created a flawed legal standard and is powerless to effectively oversee these companies to determine even whether this standard, if it is a standard, is being followed. We are talking about a $29 billion/yr industry here. There is no legal standard or enforcement procedure that corporations, investors, or participants can rely on – in advance – to assure themselves that they are involved with a legally structured entity.
One could argue that it is not his concern whether the company is running a pyramid. If he wants to take a chance that the question of illegality will never be posed, what's wrong with that? Think for a minute what it means that an investor in the largest stock market in the world is, in part, relying on the inability of a governmental entity to do its job in policing the integrity of a listed corporation.
Also, the question has occurred to me – why does a company interested in retail sales have to assess a mandatory inventory purchase requirement as a prerequisite to recruit another prospect into the marketing system and why does this recruiting process have to be endless? If the real goal is to efficiently retail products one would think the company would want a qualified recruiter of distributors, inventory purchase or not, and would reserve the right to limit downline recruiting rights to the extent that new wholesale distributors are not directly competing with the persons who recruited them or with others in an already saturated market.
One hopes that the SEC or the CFPB will also take a look into this matter and pick up where the FTC left off.
Herbalife's Value Chain - Can You Spot The Loser? [View article]
Recognizing Pyramids - Without A Lawyer, An Economist, Or The FTC [View article]
Some of the comments to your article have pointed to the fact that a number of MLM companies have been in existence for a long time and have not faced governmental inquiry, at least in the United States. In this context, it would be helpful to revisit the reason for current disputes and the legal history behind them.
In 1975, the FTC sued the Amway Corporation, alleging, among other claims, that it was a pyramid scheme. In 1979, the Commission ruled that Amway was not a pyramid because direct testimony from corporate officers established that all company distributors sold 70% of their products at wholesale and/or retail during a given month, that each qualifying distributor had certified it had at least 10 retail customers, and that the company had a buy back program. In other words, that which was initially alleged to be a pyramid scheme was ruled not to be one because of these saving factors. It is critical to note that this legal conclusion was reached only after direct sworn testimony, which was reviewed and accepted by the FTC. The ruling in this case is limited to Amway and the facts found in that case. The practical result of this ruling, however, was that other MLM companies thereafter claimed that they were “just like Amway”. Note that the most current FTC case on the issue of retail sales, BurnLounge, makes it clear that distributor recruiting rewards, in order to avoid the pyramid label, cannot “include sales to other participants or recruits or to the participants’ own accounts.”
While I disagree with the Amway decision, on the basis that retail sales and buy back factors should not be grounds for legitimizing a company otherwise structured as a pyramid scheme, I formally requested that the FTC use its investigative authority to authenticate the continued existence, and factual accuracy, of the sworn testimony it considered in ruling Amway not a pyramid and, further, whether these exculpatory elements have in fact prevented the abuses attributed to pyramid schemes. This request, made in 2000, was turned down.
Even though the Amway decision, and subsequent court rulings, are not fully clear on the issue of 'retail sales' as a legal standard, they do, however, raise an interesting question that is relevant to the current discussion. How many MLMs, even those in existence for a long time, have developed actual documentary evidence which meets the evidentiary and factual standards that convinced the FTC to reverse its legal position that Amway was a pyramid – and which meet the BurnLounge standard? This would seem to be a logical step for a legitimate Multi-Level marketing company to take in order to persuade the investment community of minimal risk of governmental action. It would also be of informative value to governmental authorities and prospective participants.
To my knowledge, no company has met this standard. It is likely that this fact was the reason the simple inquiry by David Einhorn resulted in a major drop in HLF stock. There is, to say the least, a dearth of public declarations on the issue of retail sales by those publicly listed companies that claim immunity under the Amway ruling. If the Amway Corporation was able to prove its case on retail sales, in a formal court proceeding, why can't the rest of the MLM companies do the same, particularly those listed on the stock exchange?
This raises another question. What is the documented record of retail sales to persons in other countries, sales made pursuant to business offerings made by a US listed corporation? Are these corporations acting in accord with US law in their dealings abroad?
It would seem to me that the investment community, not to speak of the Federal Government, should be interested in the answers to these questions.
Herbalife's Lieberman Report: Smoke And Mirrors [View article]
The other main problem with the retail sales defense is just how does a company document retail sales when all it has are records of wholesale transactions. Aside from problems with studies such as the one discussed here, what standards does an enforcement agency such as the FTC apply if it is considering whether a company is a pyramid or not. Does it accept the study? Is it legally obliged to prove an absence of retail sales - where could it get this information? Exactly what percentage of retail sales, assuming one could get accurate information, makes a company otherwise using illegal pyramid sales procedures all of a sudden legal? Would 70% be legal and 69% illegal? Do retail sales include sales to distributors for their own use and how is this proven?
My point is that retail sales shouldn't even be a legal element when considering a pyramid scheme. The FTC has not done its job in clarifying this matter and a lot of companies are doing quite well in the fog, which has existed ever since the FTC's Amway decision over 30 years ago.
http://seekingalpha.co...