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Douglas Brooks

 
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  • Direct Selling And Multilevel Marketing In The U.S.: A Note To Investors And Regulators [View article]
    Though not precisely fitting your criteria, YTB International, known as Your Travel Biz (YTBLQ), was a publicly held MLM and member of the Direct Selling Association. They were sued by the California Attorney General for being a pyramid scheme and submitted to an injunction and an order to pay $1 million in penalties and restitution. http://bit.ly/1c5pAry. They also were investigated by the State of Illinois and settled with them. The company filed bankruptcy earlier this year.
    Nov 8 10:12 AM | Likes Like |Link to Comment
  • Direct Selling And Multilevel Marketing In The U.S.: A Note To Investors And Regulators [View article]
    Bill, this is a fascinating history, and a compelling call for action by the FTC. On a side note, I was particularly struck by your discussion of the aggressive reaction of traditional retailers to direct sellers in the early days of the industry. Have you seen any evidence that modern retailers pay much attention to their MLM "competitors" today? The only case that immediately comes to mind is the lengthy litigation between Amway and P&G, and this can probably be dispensed with as an oddity since it was based on rumors of Satanism spread by Amway distributors. Traditional retailers can - and often do - sue each other for false advertising claims under the Lanham Act. Bringing such a claim is evidence that the plaintiff company considers the defendant to be a competitive threat. I would think that if there is a relative rarity of such suits between traditional retailers and MLM firms this would suggest that the former do not consider the latter to be competitive threats, or even competitors.
    Nov 7 01:16 PM | 1 Like Like |Link to Comment
  • International Coalition Requests Federal Trade Commission To Protect Consumers From Multi-Level Marketing Schemes [View instapost]
    For regulators to act it is important for victims to stand up and be counted. I hope that mlmpetition.com will provide a safe forum for MLM victims to tell their stories and realize that they are not alone, and demonstrate to regulators and legislators that the MLM industry needs serious attention.
    Nov 1 09:56 AM | 1 Like Like |Link to Comment
  • Money Back Guarantee Makes Herbalife Even More Sinister [View article]
    Matt -

    The other serious problem with this type of money-back guarantee is that it only applies to products purchased from the company. MLM distributors spend money on all sorts of other things. For instance, a Nutrition Club operator is going to have to spend money on building out a retail space (including green curtains to hide the fact that they are Herbalife dealers), rent and equipment. Is Herbalife going to reimburse failed distributors for all of those expenses?
    Oct 30 12:32 PM | 3 Likes Like |Link to Comment
  • Herbalife: An Ethical Short [View article]
    On the materiality of "samples," this is from Herbalife's latest 10-Q:

    "If a distributor wants to pursue the Herbalife business opportunity, the distributor is responsible for growing his or her business and personally pays for the sales activities related to attracting new customers and recruiting distributors. Activities may include hosting events such as Herbalife Opportunity Meetings or Success Training Seminars; advertising Herbalife’s products; purchasing and using promotional materials such as t-shirts, buttons and caps; utilizing and paying for direct mail and print material such as brochures, flyers, catalogs, business cards, posters and banners and telephone book listings; purchasing inventory for sale or use as samples; and training and mentoring customers and recruits on how to use Herbalife products and/or pursue the Herbalife business opportunity."

    Also, note that according to Herbalife's Nutrition Club rules, no products are actually "sold" at Nutrition Clubs; all of the products consumed there are considered "sampling." The payments by club "members" are considered to be membership fees.
    Oct 30 08:52 AM | 1 Like Like |Link to Comment
  • Herbalife: An Ethical Short [View article]
    Excellent article - and from an intriguing perspective - the Russian SEC!

    I write to respond to John Hempton's comment that Herbalife is an "ethical long" because a few distributors have shared their weight loss stories and attributed various positive health effects to their use of Herbalife products. What Hempton doesn't acknowledge is that new Herbalife distributors are told to develop a "product story" and an "opportunity story" to use when recruiting prospective distributors. No problem if the new distributor does not really have his or her own weight loss story, and has not achieved anything remotely akin to financial success. They are encouraged to adapt one of the stories told by their "uplines."

    Herbalife may or may not be a good investment. But relying on anecdotal reports of distributors concerning their supposed experiences with over-priced generic weight loss powders seems foolish. Hempton's previous investment thesis was more sensible, albeit cynical. He said on his blog, following up comments he made to CNBC:

    "I agreed with Bill Ackman that Herbalife is mostly about ripping off distributors and people at the end of the chain. The product is more than twice as expensive as competitor shakes. I called Herbalife "scumbags".

    "But they are highly cash flow positive scumbags and they will use the cash flow to buy back shares. Over the past five years the share count has gone from 140 million to 108 million and will fall further.

    "They are scumbags then - but they are scumbags working for stock market investors."

    This does not sound like an "ethical long."
    Sep 30 09:58 AM | 5 Likes Like |Link to Comment
  • Hempton's Failed 'Test' Of Herbalife And Still Unanswered Questions [View article]
    Bill - another great article. Although John Hempton's analysis was quite superficial, we are indebted to him for one of the best quotes about the MLM industry:

    "I agreed with Bill Ackman that Herbalife is mostly about ripping off distributors and people at the end of the chain. The product is more than twice as expensive as competitor shakes. I called Herbalife "scumbags".

    "But they are highly cash flow positive scumbags and they will use the cash flow to buy back shares. Over the past five years the share count has gone from 140 million to 108 million and will fall further.

    "They are scumbags then - but they are scumbags working for stock market investors."

    See http://bit.ly/11gvxju

    Hempton criticized Ackman for investing on the premise that the FTC or some other regulator would shut Herbalife down. But Hempton (and Icahn, and Soros, et al) are investing on the premise that the regulators will do nothing at all, which I think is equally as risky.
    Aug 1 03:13 PM | Likes Like |Link to Comment
  • Herbalife Challenged By Rising Private Firm [View article]
    Those who have read my articles on SA know that I am no fan of Herbalife, or the MLM industry in general. But there is something odd about this article, and not just that it is remarkably superficial, as other posters have noted. I wonder if the author is exploiting a loophole in the SA rules regarding disclosing conflicts of interest. He states that he has no position in any stocks mentioned, and no business relationship with any company whose stock is mentioned in the article. Of course, Vemma is not publicly held, so this disclosure would not reveal whether the author has a business relationship with Vemma, or a Vemma distributor. I googled "Ryan Jacobson" and Vemma and found this link to a facebook page of a Joshua Noble, who is a high ranking Vemma distributor. http://bit.ly/10r529T There is a "like" by a Ryan Jacobson, whose page is here: http://on.fb.me/10r541p

    The same search also listed a google+ page for another high ranking Vemma distributor, Bruce Morton, who has a Ryan Jacobson in his circle, as well as the above mentioned Joshua Noble. http://bit.ly/10r541r
    The Ryan Jacobson in Morton's circle looks like the same dude who wrote this article.

    If Mr. Jacobson has a business relationship with Vemma or one or more Vemma distributors I think it should be disclosed.
    Jun 29 08:07 AM | 4 Likes Like |Link to Comment
  • Recent Information Indicates Herbalife Has Data Which Can Resolve Its Legal Problems [View article]
    Bruce -

    If, as Just2Look seems to think, there were such a thing as an "anti-MLM kabal" I think we would spell it "cabal." And, collectively, we could be referred to as "gonifim" as thomptex suggests, but singularly you would be a "goniff."

    On a more serious note, Murc229 speculates that Herbalife may have already provided "audited retail documents" to the FTC. Herbalife. This would certainly be a welcome development. On May 2, 2012 Herbalife filed a Form 8-K which stated, as to retail sales (i.e., sales outside of its distributor network), "We don’t track this number and do not believe it is relevant to the business or investors." Herbalife has not released any statement since then which suggests that it has changed its policy and exercised its contractual right to collect retail sales data from its distributors. If it has done so, and provided the data to the FTC, I would think that would be a material development.
    Jun 22 09:44 AM | 1 Like Like |Link to Comment
  • Herb Greenberg, ever the skeptic, requests a copy of the full Nielsen report which has shares of Herbalife (HLF +7.3%) surging (previous). According to Greenberg, the company's response was: "No, sorry." [View news story]
    Herb Greenberg was right to request a full copy of the Nielsen report. In order to evaluate the validity of a survey you need to know exactly what questions were asked, in what order, how the sample was selected, etc. But a bigger issue is why did Herbalife not survey its own distributors and ask them who they sold to? Herbalife requires its distributors to maintain records of retail sales, including the products sold, the prices charged, and the identities of the purchasers. These records are the best evidence of how much Herbalife product is actually retailed to non-distributors. The type of consumer survey that Nielsen apparently conducted is inevitably going to be less accurate than obtaining actual record from Herbalife's own distributors. Herbalife could have spent the same amount of money on surveying its own distributors as it did on surveying a random sample of consumers, and gotten better data. Why did it choose a more difficult and less accurate method? And, by the way, in conducting a survey of its own distributors, Herbalife could also have asked them questions that would have provided some insight into the viability of its distributorships as business opportunities; questions like how much time and money are you spending on your distributorship and how much money are you making, or losing. That Herbalife has thus far failed to ask these questions indicates that they really do not want to know the answers.
    Jun 13 10:29 AM | Likes Like |Link to Comment
  • The FTC has released 100 complaints from people who paid money to companies that promoted "work from home" opportunities, only to discover later that they were being asked to join Herbalife's (HLF) network and sell its products. The people then had trouble getting refunds. The batch of complaints about Herbalife is the second this year that has been released and will add to questions about its business practices. [View news story]
    Gadget is right to point out that advertising concerning the virtues of the products or services is not the issue. The issue is the deceptive earnings claims made by Herbalife promoters. Deceptive earnings claims violate the FTC Act regardless of whether Herbalife is a pyramid scheme. Most of the earnings claims made by Herbalife promoters are deceptive under the standards that have been developed by the FTC. By terminating its relationships with these promoters, Herbalife is doing what it should have done years ago. But closing the barn door now leaves a legacy of hundreds of thousands of current and former distributors who lost thousands of dollars thinking they were pursing a viable business opportunity. Lest anyone think that this is a minor issue, consider the fact that just one of these promoters - "income at home" - generated sufficient revenue to fund millions of dollars worth of advertising on syndicated radio talk shows, as detailed here: http://bit.ly/YuMIZh
    Apr 17 07:52 AM | Likes Like |Link to Comment
  • The FTC has released 100 complaints from people who paid money to companies that promoted "work from home" opportunities, only to discover later that they were being asked to join Herbalife's (HLF) network and sell its products. The people then had trouble getting refunds. The batch of complaints about Herbalife is the second this year that has been released and will add to questions about its business practices. [View news story]
    The issues raised by the Herbalife lead generation schemes like OnLine Business Systems and Income at Home is not limited to whether Herbalife is a pyramid scheme. The primary issues are whether the promoters are using deceptive recruiting tactics, and the extent to which Herbalife benefits from its top level distributors' use of those tactics.

    If herbs4mike is actually earning a net profit from his Herbalife business, he is in a tiny minority of Herbalife distributors.

    "herbalifestudy" implies that the promoters at issue are simply selling a promotional DVD for ten bucks. This is deceptive. While the initial purchase from a lead generation promoter may be nominal, this is only the first step in a carefully designed recruitment scam. Purchasers of the initial DVD are induced to make far larger payments, in many cases amounting to thousands of dollars. In one of the class actions I litigated against Herbalife and the promoters of a Herbalife lead generation system known as "The Newest Way to Wealth", the average losses per claimant were over $10,000. http://bit.ly/XPNmQq
    Apr 13 09:52 AM | 2 Likes Like |Link to Comment
  • The FTC has released 100 complaints from people who paid money to companies that promoted "work from home" opportunities, only to discover later that they were being asked to join Herbalife's (HLF) network and sell its products. The people then had trouble getting refunds. The batch of complaints about Herbalife is the second this year that has been released and will add to questions about its business practices. [View news story]
    This release continues the unfolding story of Herbalife's uncomfortable relationship with the "lead generation systems" operated by its top level distributors. See my articles on Seeking Alpha: http://seekingalpha.co... and http://seekingalpha.co...

    In a nutshell, Herbalife relies on its top level distributors to recruit the hundreds of thousands of new distributors it needs to replace those lost through attrition every year. However, the techniques and representations typically used by those distributors are highly deceptive. Herbalife faces the Hobson's choice of either disassociating itself from its top recruiters - and facing the resulting drop off in the ranks of distributors - or endorsing those top recruiters and being forced to defend their deceptive practices to the FTC and state regulators.

    Significantly, the FTC has recently prosecuted a group of home-based business services that operated in a manner very similar to Herbalife lead generation systems. http://1.usa.gov/YtXLGs
    Apr 12 07:12 AM | 2 Likes Like |Link to Comment
  • The World Is Fat: The Law Of Supply And Demand And The Western Diet [View article]
    One of the typical MLM tricks is to mix in some truths with the lies. Dr. Gratton is correct that the obesity epidemic is not limited to the U.S. While this is not my area of expertise, I highly doubt that a powdered shake mix is the answer. I recommend Michael Pollan's "In Defense of Food" on this topic. Spoiler alert: Pollan's lesson is "Eat food. Not too much. Mostly plants."

    But the issue of how best to address the obesity epidemic is entirely distinct from the issue of whether Herbalife offers a viable business opportunity. For the vast majority of participants, it does not. Exactly how bad it is is a fact known only to Herbalife's executives, and they're not telling. In fact, Herbalife and other MLM firms spent millions of dollars lobbying to win an exemption for their industry from the FTC's new Business Opportunity Rule. Herbalife has failed, dismally, to respond to Mr. Ackman's pertinent questions concerning the Herbalife business opportunity.

    In this context, Dr. Gratton's article should be seen for what it is - a cynical exercise in misdirection.
    Mar 15 09:02 PM | 4 Likes Like |Link to Comment
  • "You should be investigated." "No, you should." That's about the gist of the latest exchanges between Bill Ackman and Herbalife (HLF -0.7%). Ackman yesterday backed a call from the National Consumers League to probe the company for possibly being a pyramid scheme. Herbalife responds by accusing Ackman of making "a reckless $1B bet against the company based on knowingly false statements." [View news story]
    It's gist not that simple. The NCL's call for an investigation of Herbalife is a real blow to Herbalife, because the NCL has previously received funding from the Direct Selling Educational Foundation, an arm of the Direct Selling Association, which is the lobbying organization for the MLM industry. Herbalife's chief legal counsel, Brett Chapman, is chairman of the board of the DSA and a member of the board of the DSEF. So, the fact that the NCL is calling for the investigation of Herbalife is newsworthy and significant. On the other hand, Herbalife's call for an investigation of Ackman is old news; they have been repeating that refrain since December.
    Mar 13 10:37 AM | 2 Likes Like |Link to Comment
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