More public calls for an FTC investigation

by louabbott on October 26, 2013

Herbalife has been in the news consistently this year after hedge fund manager, stock trader, short seller, Bill Ackman publicly proclaimed that Herbalife was an illegal pyramid scheme.

While Ackman caused the stock to decline initially, it soared when other investors realized what a buy the company really was and caused “the mother of all short squeezes.”*

Herbalife Ltd. of Los Angeles has been fighting allegations it operates a pyramid scheme. (Mark Boster / Los Angeles Times)

Herbalife Ltd. of Los Angeles has been fighting allegations it operates a pyramid scheme. (Mark Boster / Los Angeles Times)

Now, a new group is claiming the same?  Or perhaps, just more short sellers are trying to recover something out of their losing trade?

FTC urged to investigate multilevel marketing firms such as Herbalife
By Stuart Pfeifer
October 24, 2013, 9:36 a.m.

Dozens of people have called on the Federal Trade Commission to investigate multilevel marketing, a controversial industry that includes companies such as Herbalife Ltd., Amway, Avon and others.

In a letter delivered to the FTC’s Washington offices Thursday, the group, led by Massachusetts attorney Douglas M. Brooks, urged the agency to crack down on an industry it says preys on low-income and unemployed workers with false hopes of easy wealth.

“The MLM industry has proved incapable of regulating itself, is rife with fraudulent and deceptive earnings claims and has caused — and will continue to cause — untold financial harm and misery to the poorest and most vulnerable of the consumers whom the commission was formed to protect,” the group’s letter said.

Photos: Top 10 Southern California companies

In addition to an investigation of the industry, the group asked the FTC to implement rules that would require multilevel marketing companies to disclose the past earnings and attrition rates of its salespeople.

The company has denied Ackman’s allegations, noting it has been in business since 1980 and its business model is legal…

The call for an FTC crackdown follows several other complaints, including some from Latino rights groups, that Herbalife victimizes its distributors by selling false hopes of easy wealth when most of them fail.

The full article can be read at the LATimes.com.

*Here’s the Herbalife stock price chart since before the middle of December, 2012, when Ackman made his play . . . judge for yourself if it was a good move.

Herbalife stock price graph from before Ackman

The “Mother of all short squeezes”?
Click for a larger image.

Did you note this in the Times article, “The MLM industry has proved incapable of regulating itself, is rife with fraudulent and deceptive earnings claims and has caused — and will continue to cause — untold financial harm and misery to the poorest and most vulnerable of the consumers…”?

What do you think? Do you agree or disagree?

Does the article make any points that all networkers and MLM companies should think about?

Leave your comments below.

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{ 8 comments… read them below or add one }

danienfeier December 25, 2013 at 1:00 am Thumb up 0 Thumb down 0

nice post and blog sharing mlm schems .in India too may company starts and taking some money form investose and shut down , i my self lost my 30000 through my frined to http://ecommercials.biz/ mlm company starts for 2 or 3 month taking moaney form my friend and go back no idea wher the whent monavie

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Patti Newton October 28, 2013 at 1:56 pm Thumb up 1 Thumb down 0

I have always been extremely careful to comply with my company’s policies and procedures regarding product and comp plan expectations as have my associates. For corporate, I suspect it’s a bit like herding cats when distributors number in the millions and work independently; there will always be those among us who misrepresent the product(s) and/or the opportunity out of ignorance, misguided enthusiasm, or outright fraud. I prefer to tell the truth and sign up fewer partners who appreciate the scope of work and become willing to roll up their sleeves as opposed to populating my down line with a lot of dead wood which achieves nothing but a short-lived false sense of security and remains an enduring disservice to the industry.

What a shame we have to continue working so hard to defend a legitimate and superior business model, which ultimately hurts many more than detractors say the industry hurts now.

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Claire Lindsay October 28, 2013 at 2:03 am Thumb up 2 Thumb down 0

That is a great perspective and a very true statement about system design. The system that is followed and passed down is crucial in MLM success. It seems that the system being passed down in most MLM companies is one that only a select few can follow and apply when a system that is accessible to all personalities should be the model that is duplicated. However, personal responsibility is always applicable to everything in life. Whether a company has made claims of giving people the opportunity to achieve great wealth, or not, it is every individuals responsibilty to do their due diligence in research before getting into any business. If they choose to get involved then it is their responsibility to be committed and put in the work necessary. Unfortunately MLM and NWM is often treated like a “get rich quick” scheme, where people can sit back and do nothing, as opposed to a legitimate business which requires hard work and dedication. Perhaps it is not the income figures that have been misrepresented but rather the requirements it takes to achieve that level of earning. MLM should never be represented as easy, prospects need to be aware of the amount of effort they need to contribute, this will allow them to make an informed decision and it will benefit the associate whose business they are joining as they now have prospects who know that they need to work and are still willing to commit.

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Alan Eames October 28, 2013 at 12:00 am Thumb up 3 Thumb down 0

Hello Lou,

Thanks for pointing out this article – much appreciated! I tend to agree with Michael’s comment. Just a few thoughts off the top of my head…
What percentage of college graduates are earning a living in their college major?
What percentage of people who get licensed for real estate sales are selling real estate?
Licensed life insurance agents still selling life insurance?
Percentage of people who have ever worked at McDonalds who are still working at McDonalds?

Yet people have made it big in every one of these fields and, of course, many more have failed.

Just because not all of those people who try a career or industry stick with it does not make the industry wrong!

Yes, there is a lot of sales hype in the network marketing industry, but have you looked in a fast food restaurant lately at their help wanted signs? Join our family! Great benefits! Join the team! Work with the best!

Every network marketing company I’ve looked at in the last 10 years has disclaimers on their earnings example and their compensation plans saying they are not representative, but only how it might work. And usually they say your results depend on your work ethic and efficiency, or some similar statement.

There are bad apples in every barrel, it doesn’t mean I’ll stop eating apples.

All the best,
Alan

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network luvr October 27, 2013 at 9:09 pm Thumb up 0 Thumb down 0

Today MLM is going great guns in India.. regarding Herbalife we hv always found that all the rules if WFDSA or IDSA are broken there.. from.initial product dumping on new distributors to advertisements to the kidney problems reported by herbalife product consumers… Ephedra in the products to.reduce weight..there are so many ppl in India & who hv lost millions on investing to buy Supervisor order promoted by all the Leaders supported by the company too..the marketing plan itself is a farce..there are
. Product medical miracle claims are done on the stage to.promote the gulliable public..they are forced to invest several Lakhs of Rupees (Indian currency) claiming incredible earning claims saying that they earned only becos.of such investment.. & making gulliable ppl take Loans to join herbalife.. in the process loosing their money..if u had to take loans to join a MLM business u could very well hv started a Traditional business why join a Referral marketing business..there are so many wrong things happening hr becos oh herbalife, don’t know wn the bubble will burst…!!!
..

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Michael Eisbrener October 27, 2013 at 6:43 pm Thumb up 2 Thumb down 0

The trouble is you cannot fix stupid.

IF the FTC bothers with the industry the can of worms opened will release the stench coming from, real estate, insurance, colleges …. all of whom have similar ‘deceptive practices’ of taking money, offering promises and blaming the people that pay the bills for lack of effort, lack of commitment, lack of ….. and never looking at how the ‘system design’ might be the culprit. IF you are accepted into the Marine Corps, your probability for successful completion of boot camp and tour…. 99%. Success is a design function.

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Roberto Santana October 27, 2013 at 8:38 pm Thumb up 3 Thumb down 0

The Lottery does 1000 times more damage than MLM in this area.
BTW The Marine Corps boot camp failure rate is pretty high too, it’s the Army & Air Force that graduate nearly 100% of recruits.
Michael, I like your phrase “Success is a design function”.
If MLM companies applied that approach to designing their entire structure, from pay plan to product pricing etc, this would be a much more accepted industry.

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Qasim Uthman October 28, 2013 at 8:43 am Thumb up 2 Thumb down 0

Great contribution there Roberto. In as much as Lottery which I even make bold to say is 10,000+ times more damaging than MLM is still accepted as legal, there is nothing any reasonable and responsible government can do about MLM.
The worst they can do is to target defaulting MLM companies, investigate them and clamp down on only those found wanting.
Perfectly agreeing with R.Kiyosaki, MLM is the business of the 21st century without doubt.

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