Jon M. Taylor

Jon M. Taylor
Contributor since: 2013
"It needed to be said. Most of the press gets wrapped around the axle with legal mumbo jumbo, just like judge Timony did in '79. If the rapist was pleading with the parole board for early release, and promising he would use a prophylactic next time, people would laugh him out of court. But in Amway '79 a rookie Administrative Law Judge bought it [the phony protection of the "retail rules"] hook line and sinker, and then the full FTC under Chairman Robert Pitofsky committed that foolishness into law."
Beautiful analogy, Rogier.
The notion of HLF converting from MLM to legitimate direct selling, to conventional retailing, or to online sales is naive. MLM companies are built on endless chains of recruitment of participants as primary customers. They are top-weighted with upside-down commission structures that reward those at the top at the expense of a rapid churning of duped recruits at the bottom, 99.7% of whom lose money. My analysis of average income figures of 50 MLMs and comp plans of over 600 MLMs supports this conclusion. (mlm-thetruth.com)
If HLF or any major MLM attempted to convert to a legitimate retail or online sales operation, they would soon be overwhelmed with lawsuits from TOPPs (top-of-the-pyramid promoters) who are dependent on commissions from the purchases of a revolving door of new recruits who "pay to play" the game.
Great article - followed by insightful comments by Rogier.
After 20 research projects over a period of 20 years and analysis of the compensation plans of over 600 MLMs (multi-level marketing programs), I can say with confidence that all MLMs have the same fundamental flaws. They ignore normal laws of supply and demand and assume infinite markets, which don't exist in the real world. So they depend on unlimited recruitment of endless chains of participants as primary customers - with no stable or significant retail base. They also depend for their growth on a top-weighted, upside-down commission structure - rewarding a few TOPPs (top-of-the-pyramid promoters) and founders at the expense of a churning supply of new recruits at the bottom who purchase products to qualify for commissions and advancement in the scheme.
Based on average income data gathered from 50 MLMs like Nu Skin, 99.7% of recruits lose money. New recruits are being sold a ticket on a flight that has already left the ground.
It is good to see China take action against these product-based pyramid schemes. If the FTC had acted appropriately in the 1979 Amway decision, these MLMs would have been labelled illegal pyramid schemes, and MLMs would not have proliferated. At least they would not have existed legally. And you would not be reading this today. So congratulations to China in this field for taking the lead in protecting consumers and investors.
Asking if an MLM is a pyramid scheme is like asking if a Toyota Prius is a car. The Prius may have some advanced features, but it is still a car.
MLMs, or product-based pyramid schemes (PPS) are structured exactly the same as classic, no-product pyramid schemes (NPS). With unlimited endless-chain recruitment, they both assume an infinite market, which does not exist in the real world. The only way to advance in rank in either one is to recruit a "downline." There is a 'pay-to-play" feature for both, with the purchases more ongoing and substantial over time for NPS (MLMs). And commission structures for both are top-weighted, meaning the bulk of the rewards go to those at the top of the pyramid; almost everyone else (at least 99%) loses money.
The primary difference between the two (NPS and PPS) is that investments made to participate in an NPS are made in cash, whereas in an MLM (or PPS), the investments are in the form of purchases of products through a company infrastructure, meaning a lower percentage of payout or rebates goes back to the network of participants. Also, the downline networks for MLM are far more elaborate. Where a classic 1-2-4-8 NPS has 15 participants with 100% of the money going to the top person, with MLM less than 50% goes to the distributor network, which may include thousands of participants. So the loss rate for NPS schemes is approx. 99%, where it is only about 90% for NPs (87.7% to 93.3% depending on amount of re-investment - or "re-pyramiding"- by those at the top). MLMs are far worse than no-product pyramid schemes by any measure - loss rate, aggregate losses, and number of victims. For details, go to mlm-thetruth.com and download free of charge my latest book "Multi-level Marketing Unmasked'. Cheers.
Well said, Bob.
Great job, Bob. The evidence you have compiled for this article makes a strong case for investors to pay close attention to the issues you raised.
Not to detract from your outstanding article, Matt, but most pro-MLM folks and even many regulators and media folks can’t seem to wrap their minds around the charge that Herbalife – and similar MLMs - are product-based pyramid schemes in disguise. But it really doesn’t matter. The reason the FTC considers pyramid schemes illegal is that they are unfair and deceptive. This places them in violation of FTC Act Section 5, which mandates against unfair and deceptive practices in the marketplace.
My book "The Case against Multi-level Marketing – an Unfair and Deceptive Practice" provides plenty of evidence that the MLM business model employed by purported “business opportunities” like Herbalife are inherently unfair and deceptive practices – as well as widespread and extremely viral and predatory. If the FTC were not so heavily influenced by the DSA (Direct Selling Assn.) lobby - and if it had the staff with the skill, the will, and the resources - these companies would be prosecuted and shut down.
My book is based on 20 years research and analysis of 500 MLM programs, including Herbalife. It can be downloaded free of charge from my web site at mlm-thetruth.com. A special report titled “Regulatory Capture – the FTC’s Flawed Business Opportunity Rule” can also be downloaded free of charge from the same web site. It gives a detailed history of how the DSA/MLM lobby gained powerful influence over the FTC - the very agency that should be regulating MLMs like Herbalife.
-Jon M. Taylor, MBA, Ph.D. President, Consumer Awareness Institute
Matt –
As usual, your article is a fine piece of writing and analysis. You are to be congratulated for your bravery in challenging the culture of deception that is common in HLF – and indeed in virtually all MLMs (multi-level marketing programs). Based on a flawed business model, they must deceive in order to survive and grow.
After 20 years of research on over 500 MLMs, I wrote a 420-page industry-wide analysis titled THE CASE AGAINST MULTI-LEVEL MARKETING AS AN UNFAIR AND DECEPTIVE PRACTICE, which can be downloaded free of charge from my website – mlm-thetruth.com. From my research, I can tell you that all of the 500 MLMs I have examined assume an infinite market, which does not exist in the real world. They also assume a virgin market, which cannot exist for long. That is why the more successful ones “re-pyramid” (my term) from market to market – a phenomenon Ackman calls “pop and drop.” Their expansion from one country to another and from one program to another is not real growth, but an effort to continue churning new recruits through their program to keep it from collapsing from market saturation. Older MLMs like HLF, NUS, and Amway (no longer publicly traded) can eventually begin recruiting a whole new generation, which is how they last so long without market saturation bringing them down.
Just a couple of comments seem in order:
1. Your analysis of the place of “internal consumption” in the Herbalife recruitment-driven compensation plan is right on the mark.
2. Your critics are correct in saying that no commission goes to the upline from the original sign-up fee. But it soon becomes apparent that to get anywhere in the program in terms of commissions or rank advancement, one must satisfy certain purchase quotas – supposedly for resale. But to meet those quotas, participants soon learn that it’s easier to buy than to sell. So they purchase quantities of products to move to the next level and/or to qualify for commissions at ever increasing rates as they climb the pyramid. The upline and the company profits primarily from their purchases. This is typical in the compensation plans of 500 MLMs I have analyzed.
3. You suggested NuSkin (NUS) as an example of a more legitimate MLM. If you read the information on my web site, you would soon find yourself retracting that. They are one of the most exploitive, highly leveraged (degree twhich those at the top profit at the expense of those at the bottom) of MLMs. From my research, I would have to say that a “good MLM” is an oxymoron.
But overall, I greatly admire you for supporting Ackman in his efforts to bring down Herbalife. I just wish he were not specific in his targeting one MLM. If Herbalife falls flat, there are hundreds of MLMs ready and willing to fill the void.
Jon M. Taylor, MBA, Ph.D.
Consumer Awareness Institute
Research-based web site – mlm-thetruth.com
Re dhuddle comments: These are easy arguments to rebut:
Let’s be specific. HLF may not be a classic no-product pyramid scheme. But it meets all the causative and defining characteristics of a recruitment-driven MLM, or product-based pyramid scheme, even by weak legal standards.
As for your 3 common sense guidelines:
1. The BBB guideline is meaningless, since the BBB allowed the Direct Selling Assn and leading MLMs to be “corporate sponsors” of the BBB. Now the BBB gives a rating of A+ to Amway – which says more about the BBB than it says about Amway.
2. Successful product-based pyramid schemes, like Herablife and Nu Skin, have learned to overcome the seemingly inevitable saturation and collapse of a classic pyramid by “re-pyramiding from market to market. Ackman calls this “pop and drop” and presents excellent evidence of this phenomena. It is not true growth, but a necessary strategy to prevent collapse of the pyramid.
3. The small entry fee is a ruse to foil regulators. To get anywhere in Herbalife - that is to earn significant commissions or rank advancement where the money is made - one must buy a significant amount of products every month. This is usually done by subscription, and results in hundreds, and often thousands of dollars every month.
Great article, Doug. This aspect of the Ackman v. Herbalife saga needed to be told.
Sometimes what Peter says about Paul says more about Peter than it says about Paul.
Matt - Bulls -eye! Your analysis confirms what my research on the MLM business model has proven over a period of 18 years - and not just for Herbalife, but for the 500 MLMs I have analyzed. If you haven't already done so, you might want to read chapters 2 and 3 of my eBook "The Case (for and) against Multi-level Marketing," which can be downloaded free of charge from my web site at mlm-thetruth.com.
The author treats the term Ponzi schemes as interchageable with pyramid schemes. While both depend on recruitment of new investors to survive, the originator of the offerings in a Ponzi is the same entity. But in a pyramid scheme, the fundamental flaw is the endless chain of recruiters recruiting recruiters, ad infinitum. Jack recruits Joe, who recruits Bill, who recruits Sam, etc. etc. - without end. Both assume infinite markets, which don't exist.
There is a lot of confusion about what constitutes a pyramid scheme, and the distinction, if any between pyramid schemes and "legitimate" multi-level marketing, if such exists. I know that readers who are just beginning to study this issue will wonder what I am talking about. Please get informed by reading Chapter 2 of my e-book "The Case for and against Multi-level Marketing," which is based on analyses of approximately 500 MLM programs and research and feedback over a period of 18 years. The book can be downloaded free of charge from - mlm-thetruth.com.
Brilliant analysis, Matt. The whole Herbalife/MLM culture of deception (and some of the comments here) remind me of the FTC ruling in the 1974 Holiday Magic case, in which it found in the very structure of "multi-leveling" or "pyramid selling" "an intolerable potential to deceive." Boy , was that prophetic!
Zeus 2012 wrote:
"After all, 99.9999% of the people who play the lottery loses money. The only consistent winner is the governmental entity that sponsors such events. You don't see them being accuse of running some kind of scheme used to target vulnerable poor people of this country."
The lottery is not promoted as a "business opportunity" that offers anyone the opportunity for a lifetime of residual income if they will work hard (at Herbalife or any other MLM) for only a few hours a week, when in fact approximately 99.9% lose money after expenses. (See bases for stats at mlm-thetruth.com) But I will grant you that people with a lottery mentality are often attracted to a product-based pyramid scheme like Herbalife.
Thank you, Daniel Ravicher, for providing those of us who are advocating for consumers with some powerful new tools for discouraging the proliferation and survival of inherently fraudulent product-based pyramid schemes, such as Herbalife. My research leads to the conclusion that such MLM programs in the aggregate cause tens of millions of victims to lose tens of billions of dollars every year. I will be including some of your ideas and tools on my research-based web site - mlm-thetruth.com. If you have any other ideas to help our cause, I would certainly welcome them.
NOTICE: The author of this article is as uninformed as are FTC officials on the ratio of complaints filed with the FTC to the number of victims of the Herbalife scheme. The number of complaints filed with the FTC and state AGs by victims of product-based pyramid schemes (MLMs) or endless chain "opportunity" recruitment scheme is a tiny fraction of actual victims - probably less than 1/5 of 1%.
I learned this from my research while working with a group of about 20 victims of a similar company, Nu Skin. Though as a group they had lost about $300,000, it took almost a year to convince them to file a complaint with the state. It wasn’t that they were embarrassed for their “failure” (which the company said would be their fault) so much as their fear of self-incrimination. Because all MLMs are based on a network of endless chains of recruitment, every major victim is of necessity a perpetrator, having recruited as many friends and family and others as possible to have any hope of recouping their ongoing quota of product purchases, to say nothing of operating expenses. They feared consequences from or to those they recruited (who could be their best friend or their mother, etc. - who was still in the program) if they went public or filed a complaint.
After 18 years of research and analysis of the compensation plans of 500 MLMs and average incomes (where data is available), I just completed a revision of my book THE CASE (FOR AND) AGAINST MULTI-LEVEL MARKETING, which can be downloaded free of charge from my web site – mlm-thetruth.com. Chapter 9 “Villains and Victims” explains in detail who are the villains and who are the victims in MLM – and why victims almost always remain silent.
Chapter 7 provides my analysis of the loss rates of those companies for which I was able to obtain average income (loss) data. I calculate that 99.9% of Herbalife distributors lose money – even when giving HLF the benefit of the doubt in the assumptions used in my calculations.
As for the potential for any legal action against HLF, you might want to read Chapters 11 titled “Where is law enforcement in all this?”
As for any significant action by the FTC, it would be highly unlikely that they would do more than a gentle slap on the wrist – perhaps a small fine of a few millions dollars (pocket change to them) and encouragement to place more emphasis on sales to non-distributors. The FTC is a pager tiger in this arena, having been captured by the DSA/MLM lobby (a.k.a. the “pyramid lobby”). The FTC yielded to pressure from the pyramid lobby to exempt MLMs like Herbalife from having to provide transparency to prospects in selling its “business opportunity.” A detailed report of the power of this lobby was just completed titled “REGULATORY CAPTURE: The FTC’s Flawed Business Opportunity Rule” – also available free of charge from my web site.
in a 1974 ruling, the FTC found in the very structure of “multi-leveling” or “pyramid selling” (now called multi-level marketing, or MLM) “an intolerable potential to deceive.” This statement has proven to be very prophetic. Unfortunately, the FTC backed off from that finding in its 1979 Amway case, which opened a Pandora’s box of pyramid selling. In fact, over 38 years’ experience has proven the 1974 ruling to be correct.
The comments on my article have been interesting, but I feel many want quick answers, where a lot of explanation is needed to unravel the deceptions inherent in any MLM, including Herbalife. At the risk of SA not accepting it for length, I am quoting below my summary of findings from my research on over 500 MLMs.:
SUMMARY OF FINDINGS ABOUT MLM (MULTI-LEVEL MARKETING)
By Jon M. Taylor, MBA, Ph.D., Consumer Awareness Institute


After analyzing the compensation plans of over 500 MLMs (multi-level marketing programs), summarizing thousands of pages of research, collecting 18 years of worldwide feedback, reviewing applicable federal and state laws, and testing the Nu Skin program for a year, I come to the conclusions below in answer to key questions about MLM.
(NOTE: When I refer to "recruitment-driven MLMs," I am referring to virtually all the MLMs I have studied. a "good MLM" may be an oxymoron)
WHAT IS THE APPEAL OF RECRUITMENT-DRIVEN MLMs?
1. The “easy money” appeal of MLM is often couched in terms such as “time freedom” (to do what you want), perpetual or “residual income” (like author’s royalties or annuities), and “unlimited income possibilities,” with the success of recruits limited only by their efforts.
2. MLMs are often sold as a viable alternative to an unfavorable job market and as a better route to retirement than traditional plans.
3. MLM programs typically sell “pills, potions, and lotions” or other products that are consumable, that have unique appeal, and that can be claimed to deliver benefits not available elsewhere.
4. One sees a strong sense of belonging, or an “us versus them” cultish mentality.
AS A BUSINESS MODEL, ARE RECRUITMENT-DRIVEN MLMs LEGITIMATE?
1. MLMs depend on unlimited recruitment of a network of endless chains of participants.
2. Participants secure and advance to ranks or positions in a pyramid (“downline”) of participants based on timing and recruitment, rather than on merit or appointment.
3. As endless entrepreneurial chains, or “opportunity” recruitment schemes, MLMs assume an infinite market, which does not exist in the real world. They also assume virgin markets, which don’t exist for long. They would be doomed to eventual market saturation and collapse, except that some avoid this by expanding – or “re-pyramiding” – to other countries and/or through the same markets with new product offerings and divisions.
4. Therefore, as endless chains, MLMs are ihherently flawed, unfair, and deceptive – profitable primarily for those at or near the top (top-level “upline”, or “TOPPs”, for top-of-the-pyramid promoters) – who are often the first ones to join.
5. Worldwide feedback suggests that MLMs can be extremely viral and predatory. As endless chains, MLMs quickly spread from state to state and often to vulnerable foreign markets.
6. I have challenged state and federal regulators to identify any “business opportunity” that is systemically more unfair, deceptive, viral, and predatory than MLM. None have met the challenge.
7. MLMs typically finance their operations from purchases by participants who are incentivized to buy overpriced products to qualify for commissions and for “rank advancement” (to advance to higher levels in the pyramid of participants). With the exception of some party plans, the majority of sales are typically to participants.
8. Typically, MLM products are unique (making it difficult to compare with alternative products), consumable (to encourage repeat purchases), and priced higher than products sold elsewhere – to pay commissions on many levels of participants.
9. In MLMs, most of the commissions are paid to those at or near the top levels in the hierarchy of participants (TOPPs). It is this extreme concentration of commissions paid to TOPPs that motivates them to work tirelessly to expand downlines, thereby assuring the MLM’s survival and growth. They also must continually recruit to replace dropouts due to high failure rates.
10. Relative vertical equality in commission structure - which appears benign – results in extreme inequality in distribution of income to participants. (See Chapter 7.)
11. Most MLMs become even more top-weighted with five or more layers in their compensation plans – more than are functionally justified.
12. Some have asked if it is possible to design an MLM that is honest and fair to all participants. To accomplish this would require major adjustments, such as the following:
a) Commissions would be paid only on sales to non-participants – and no overrides or commissions paid for personal consumption of downline participants.
b) Most (over 50%) of the commissions and bonuses paid by the company would be paid to the front-line person who sells the products, with amount of commissions decreasing at each higher rank level.
c) The number of levels on which commissions can be paid would be limited to four (the maximum needed to manage any standard sales function, including branch, division, regional, and national managers).
d) There would be no minimum ongoing purchase requirements to qualify for commissions or rank advancement.
Unfortunately, to my knowledge, none of the MLM founders have taken such steps to achieve honesty and fairness. (See "What would a good MLM look like" in Chapter 2)
13. The villain in MLM abuse is not so much the leaders as a flawed system built on unlimited recruitment of endless chains of participants as primary customers. MLMs enable the transfer of money from a rapidly churning supply of new recruits to TOPPs, founders, and the company itself.
14. MLM promises what it cannot deliver. To be successful, MLM promoters depend on a litany of deceptions, including much self-deception. Misrepresentations regarding products, income potential, and legitimacy are commonplace in MLM. (See Chapter 8.)
Based on the foregoing and on the research discussed below, if asked if MLM is a moral or ethical business model, I would have to answer “no!” (See Chapter 12)
WHAT ARE THE EFFECTS OF MLM ON PARTICIPANTS,FAMILIES, AND ON SOCIETY AT LARGE?
1. Based on available company data, approximately 99.7% of all MLM participants lose money – spending more on company purchases and minimal operating expenses than they receive in commissions from the company. Attrition rates are high. And if one removes TOPPs from the calculations of average income, the loss rate is closer to 99.99%, which means that the chance of new recruits profiting is approximately ZERO.
2. Those who lose the most are those who invest the most, having accepted deceptive claims that the MLM is a legitimate income or business opportunity, and having continued to invest in the vain hope of eventually profiting handsomely.
3. Based on statistics from the Direct Selling Association, the chief MLM lobbying organization, aggregate losses suffered by tens of millions of victims exceeds ten billion dollars a year in the U.S., with far greater losses worldwide. (MLMs often plunder vulnerable populations overseas.) This means that total aggregate losses from hundreds of millions of MLM victims worldwide since the 1979 Amway decision. would amount to hundreds of billions of dollars. (See Exhibit 7E)
4. In some cases, monetary losses from MLM participation lead to heavy indebtedness, bankruptcy, foreclosed mortgages, and failed educational and career pursuits.
5. Some MLM participants lose more than money. Divorces and rifts among extended families are commonplace. Even suicides and murders related to MLM participation, have been reported.
6. Addiction to MLM can result from excessive commitment to MLM – which can become a lifestyle. “MLM junkies” – who have internalized its “easy money” appeal – may find it difficult to work again in a normal work setting.
7. MLM is an unfair and deceptive act or practice (UDAP) that siphons money away from legitimate businesses. And with the FTC’s granting of an exemption to MLMs from having to comply with its Business Opportunity Rule, the market for legitimate non-MLM direct selling and other business opportunities could be virtually eliminated in favor of an MLM business model that escapes the regulation.
Are recruitment-driven MLMs legal? If not, what explains the inaction by law enforcement, and what actions can be taken by and for consumers to protect them?
1. The case can easily be made that virtually all MLMs are violating some federal and state laws, although law enforcement seldom acts against them – partly because victims of endless chains rarely file complaints. For the same reason (as well as financial support from MLMs and the DSA – see #3 below), the Better Business Bureau seldom issues a negative report on major MLMs. The media are also largely silent.
2. The DSA (Direct Selling Association, the major MLM lobbying group), together with major MLMs, work together as a cartel to weaken laws and regulatory efforts against product-based pyramid schemes. Through promised votes and carefully placed political contributions to Attorneys General and other key politicians, they have been successful in getting laws passed in Utah and other states that exempt MLMs from prosecution as pyramid schemes. They have donated to the political campaigns of presidential candidates and to those with oversight responsibility for the Federal Trade Commission to assure that no action is taken on the federal level by the FTC or any other agency.
3. Even the Better Business Bureau is corrupted by support from the DSA/MLM cartel, members of which are “corporate sponsors” of the BBB. Amway, for example, gets an A+ rating from the BBB – which says more about the BBB than it says about Amway.
4. Most MLM participants spend no more than a few hundred dollars in products and services and then drop out. They are the lucky ones. Despite having spent more than they received, few blame the company for their losses – even large losses. They have been taught that they (not the company) are responsible for any failures. Except for the first ones to join an MLM, generally those who invest the most, lose the most. New recruits are being sold a ticket on a flight that has already left the ground.
5. The silence of victims of MLMs is also explained by the fact that in every endless chain, major victims are also perpetrators, having recruited as many people as possible to at least recover costs of participation. So they fear self-incrimination if they file a formal complaint, and they fear consequences from or to those they recruited – which often include close friends or family members.
6. Consumers must get informed, and regulators should insist that crucial information be made available to prospects to make informed decisions about participation, such as average commissions from – and payments to – the company for all participants.
7. To get the attention of law enforcement, victims must complain to authorities.
DEFINING MLM
Recruitment-driven MLMs (which is virtually all MLMs) can be distinguished from legitimate businesses by the following characteristics in their compensation plans:
1. They assume unlimited recruitment of endless chains of participants.
2. Participants advance by recruitment, rather than by appointment like other businesses.
3. In order to qualify for commissions or advancement, participant must make minimum incentivized or “pay to play” purchases of products or services.
4. Compensation plans allow for relative vertical equality in commission payout, which results in extreme inequality in payout to the entire network of participants. Most of the override commissions paid by the company are paid to those at or near the top of a pyramid of participants – often the first to join. Founders may also skim a percentage of all revenues.
5. For most MLMs, company payout is to five of more levels of participants, with commissions to those at the bottom levels seldom enough to cover the cost of “pay to play” purchases.

I conclude with what I believe is the only accurate, research-based, and consumer-friendly definition of the business model labeled “multi-level marketing”: It applies to approximately 500 MLMs I have analyzed:
Multi-level marketing (MLM) is a purported income opportunity, in which products are sold by recruitment of persons who are incentivized to recruit others in endless chains of participants, who must buy products to qualify for commissions and to advance upward through multiple levels in company-sponsored pyramids of participants.
Further – With unlimited recruitment, MLM assumes both infinite and virgin markets, neither of which exists in the real world. MLM is therefore inherently flawed, unfair and deceptive. It can also be extremely viral and predatory.
Prospects are typically lured into MLM with exaggerated product and income claims. Rewards are stacked in favor of those at or near the top of the pyramid, who are often the first ones to join. Since approximately 99% of participants lose money, most of them eventually drop out, to be replaced by a continual stream of new recruits, who are likewise destined for loss and disappointment.
-- From the Introduction to my book "The Case (for and) against Multi-level Marketing" which can be downloaded free of charge in whole or in part from my web site - mlm-thetruth.com
Your argument about validity of data would hold up if it were limited to one study and one set of data. The more extensive research I have done correlating compensation plans with available data on average earnings (published by the companies themselves) would be more incontrovertible. The tax study - together with the findings from the tax returns for Amway distributors in Wisconsin help to corroborate my findings (especially given the same commonalities between compensation plans for Amway and Herbalife and hundreds of other MLMs). Again, I have good reason to stand on my conclusions based on the TOTALITY of my research, which was a huge challenge, given the concerted effort ot the MLM industry to avoid transparency on this issue - for obvious reasons.
tigress 1, I suspect you may be the same person who - without any evidence - accused me before of shorting companies attacked by Minkow. Not so, as I have not invested for several years. And I was extremely careful not to misrepresenting facts. But you, as an MLM promoter, cannot say the same.
As for lives "ruined," I have a collection of hundreds (representing thousands) of correspondents who have thanked me profusely for saving them from losing funds and friends from MLM participation.
I grant that my tax study would not meet strict scientific standards of data gathering, as I and any other researcher would have preferred. But the efforts of myself and others to get legitimate data from the MLM companies or from agencies that could get the data has been futile. In fact, as the FTC's exemption of MLMs from having to provide any transparency with its Business Opportunity Rule illustrates, the DSA/MLM lobby has been extremely successful in obfuscating or suppressing any data gathering that might be useful in regulating the industry.
But that does not negate the need for information to help consumers make wise decision. Rather than let the situation continue as is, I decided to do some creative research, imperfect though it may be. And I can tell you that in spite of its imperfections, I feel confident that I have done the best that I could with available data to provide solid information from the many studies I have done in the field. One has to step back and objectively look at the totality of my research to assess its validity as a whole.
As far as my tax study is concerned, it essentially confirms another tax study that was done by Bruce Craig in Wisconsin in the 80's. In a case against Amway, investigators were actually able to obtain tax data of Amway distributors in the state of Wisconsin. The average annual incomes of Amway Direct Distributors (the top 1%) was minus $900. You may say that thay is irrelevant because it was Amway and over 25 years ago. But the compensation plan is essentially the same, and the same fundamental flaws can be found in Herbalife or any MLM.
It would take a book to rebut your arguments. And in fact, I have two books for you to do just that - which can be downloaded free of charge from my web site - mlm-thetruth.com
Nu Skin is built on the same flawed foundation and assumptions as Herbalife - recruitment of a whole network of endless chaiins of participants as primary customers. It assumes an infinite market, which does not exist in the real world. It also assumes a virgin market, which cannot exist for long. So like HLF it must "re-pyramid" from market to market to survive and grow.
I tested the Nu Skin program as a distributor for one year - rising to the top 1%, but still losing money (Top 1% is not good enough in their pay plan.). All of this is reported on my web site and in my ebook, which you can download free of charge from my web site - mlm-thetruth.com
After analyzing some 500 MLM programs, I find that all have the same fundamental flaws in their compensation plans. In my opinion, a "good MLML" is an oxymoron.
Did you read the whole article, or just skim it? I won't repeat the explanations that I have already written and that answers most of your objections.
My consumer advocacy work is all pro bono, although I occasionally get called in as a consultant or expert witness in MLM cases.
As for the buyers' club concept, I would have no objection if an MLM company like Herbalife sold its products as a "pay more" buyers' club. But it is grossly misleading to promote it as an income or business opportunity when 99.9% lose money. Again, one can do far better in Vegas.
Selling Herbalife as a business opportunity makes as much sense as placing a "BUSINESS OPPORTUNITY" sign over the roulette wheels in Caesar's Palace. Even though the odds of profiting are far greater at the gaming tables than for MLM recruits, if a casino owner did that, the Nevada gaming commission may revoke his license.
As for the difference between a Ponzi scheme, a pyramid scheme, and MLM, I would refer you to Chapter 2 of my ebook, "The Case (for and) against Multi-level Marketing," which can be downloaded free of charge from my web site. Chapter 9 ("Villains and Victims") and Chapter 11 ("Where Is Law Enforcement in all This?") will answer your final objections.
I was contacted for my advice in an insurance case in which a person had terrible side effedcts from the products. He complained to the person who sold them and wanted to make an issue out of it for the company - but the complaint went nowhere. When the distributor and an upline person showed up. the customer shot and killed both of them. That's three murders and six suicides related to MLM participation that have been reported to me. It's not just about the money.
Apples and oranges comparison. MLM is not insurance.
The buy back program is a ruse - exercised for less than 1% of sales. with its "clawback" provisions and with self-incrimination implications of endless chain recruitment programs (as explained in the article), HLF has protected itself from having to worry about significant buybacks. Victims often wind up storing, tossing, or giving the stuff away.
My take on the growth outlook for HLF is that it will continue growing to the extent the execs are resourceful enough to keep coming up with new markets to exploiit; i.e., re-pyramiding from maraket to market. And when they've covered the world, it will be time for a new product division to start the whole process over again. Perhaps sexual enhancement pills? Than ought to be good for another twenty years. Then they can start all over with a new generation. How about smart pills?
Incidentally, some MLMs are going after college students, who are using thier student loan funds to "build a future" that college may not provide. Many are thus giving up on their education and wind up flipping hamburgers instead.
Get the dismal picture?
The 100% buy back is a ruse to satisfy regulators, the media, and the public. Ackman explains in his presentation why refunds are less than 1% of sales. The hurdles for exercising the buy back option are too formidable for all but the most determined to exercise it. And if we have learned anything about MLM, it is that victims are not only blaming themselves, but with "claw-bacK" and other provisions, they usually just keep, store, or give away the inventory and eat their losses.
Herfalife and similar MLMS also claim thee is little or no cost to join. But it you study their compensation plan carefully, you will see that you don't gain commissions or rand advancement without a considerable purchase commitment.
<Is it much different in traditional sales?>
Yes. Traditional sales are tough with low success rate. But not less than one in a thousand.
<Are the odds of a new college graduate making the C-Suite any better than making the HerbaLife President's Team?>
It depends. In MLM, the first ones in can make a killing. Every one else is sold a ticket on a flight that has already left the ground. This is true of any pyramid scheme, especially one as highly leveraged as Herbalife.
<Why don't you go after the gambling industry with this same kind of fervor? The losses to the average Joe are many times as great as the losses with MLMs like Herbalife.>
Apparanlty you didn't read the last of the article comparing gambling to MLM. I conducted a survey of tax preparers in Tooele County, Utah, which borders on Nevada. There were 300 times as many reports of winnings from gambling as from MLM, even though approximately 6% of the population in Tooele County was involved in MLM.. These statisitacal cmparisons are all reported on my web site - mlm-thetruth.com
Yes!
Matt Stewart's logic is right on target. Appropriate officials from both the SEC and the FTC should read this.