Herbalife had realized this and in 2013 have disallowed the use of most lead generations companies, esp. those ran or have close ties to its own affiliates. According to its own affiliate agreement, affiliates are prohibited from selling leads to each other, but these lead generations companies had NOT been scrutinized... UNTIL Ackman raised the pyramid scheme allegations.
While the Herbalife situation is rather unique, in that Shawn Dahl's company is a clone of his mother-in-laws pyramid operation outlawed in Canada (also for Herbalife), the phenomenon of creating potentially ILLEGAL business around supposedly legitimate companies is hardly unique to Herbalife.
Let us explore the underbelly of network marketing... You will learn about:
- How "fake" lead generation really works
- How "sales aid" companies perpetuate the "tool scam"
- How top affiliates get rich from training other affiliates
- How feeder matrix schemes feed pyramid schemes
- How fake ad posting requirements in Ponzi schemes spawn ad posting companies
How "Fake" Lead Generation Works
Ever heard ads on radio, or seen ads on TV, that says 'easy part-time job work at home, almost unlimited income, call this number to find out how'? They often appear on radio programs like Dr. Laura, Sean Hannity, and so on. That's often from a lead generation company.
If you call that number, you'll be given a sales pitch about you simply pay "shipping and handling" (about $10) for this business starter kit. Buried in the fine print is your card will be charged $50 unless you "return the kit within 14 days". And the kit is merely an application form and a DVD that contains a video pitch to join some mysterious program that has a ton of income. Flashy video, but contains no substance whatsoever.
Then you start to get phone calls, that you are interested in this opportunity, have you seen the video, are you interesting, etc.
What really happened is when you "bought" the so-called kit, your name was put on a "leads" list and sold to some desperate network marketing noobs who can't seem to make a sale or can't be bothered to pound the sidewalk looking for leads, but would instead, pay money to someone for the lead, and your name was just sold to this noob (for up to $100), who then call you and try to recruit you to be his/her downline.
The company benefited TWICE, once by you buying their promo teaser, and again by selling your name and phone number to the person who bought a lead.
The Verge has full coverage on this. It covered Herbalife, and it's since been confirmed that many of the high flyers in Herbalife have their own lead generation companies and these "teaser promo firms" (which are really the same). Other Herbalife top flyers left when the lead generation companies got disapproved in 2013. Another declared bankruptcy. Coincidence? Probably not.
There's a subset of lead generation companies that are even LESS legal, as they feed ponzi schemes. Before Zeek Rewards was shut down by SEC in August 2012, several companies are willing to supply email addresses to members for a fee so the members can "give away bids" in order to participate in 'profit-sharing'. As the profit are derived from the bids bought by the members, it's a ponzi scheme... $850 million ponzi scheme. And there's no proof that any of these email addresses have real people behind it. Indeed, Zeek would prefer a fake address, as with a real person behind the address, those bids may get used, rather than simply expire in 30 days, unused. Indeed, several people closely associated with the company may be launching these feeders before Zeek was shutdown.
How "Sales Aid" Companies Perpetuate the "Tool Scam"
You can benefit greatly from network marketing without being a network marketer. How? By selling tools and self-help related to network marketing. Want to know why network marketers love Robert Kiyosaki's Rich Dad Poor Dad? Because Kiyosaki was one of them... he was in Amway. Now only was he in Amway, he was selling "training tapes" with Bill Galvin, part of Yager Group, an "Amway Motivational Organization". Without Yager Group, which popularized Rich Dad Poor Dad back in 1998/1999 among its members, Rich Dad Poor Dad would have NEVER found a "real" publisher and made into a worldwide phenomenon today.
But Amway Motivational Organizations are commercial cults, and Yager group alone made hundreds of tapes, that sold for $6 each back in late 1980's on various topics related to Amway marketing and motivation. You can often still find them on eBay, of all places. And these are hardly the only items sold to the new affiliates, already struggling to make sales even though they were initially told it would be easy. And these training material added to the cost, leading some anti-MLM folks to call this "the second pyramid".
And it's not just tapes (of the week), there's also "book of the month", conventions, seminars, and rallies, that you are expected to attend, lest you be accused of "not trying hard enough" and "fear of missing out" (FOMO). And Amway knows, which is why it settled a class action lawsuit in 2011 and started offering money back on even training materials (for 90 days, same as their products sold to IBOs).
To learn more about the "Amway" Tool Scam, visit the website by Tex.
How Top Affiliates Can Earn Through "Training"
In many parts of life, you want to learn from the best, so it is not surprising that some people want to learn whatever the top affiliates want to teach in network marketing. The problem is... What are they really learning?
In Fortune High-Tech Marketing, two of the top affiliates offered $100 per day or higher "bootcamps" back in 2011.
Ruel Morton and Todd Rowland, two top Fortune money earners, are both offering "boot camps" to train the thousands of salespeople under them in their "downline." Morton's now-frequent pitches for the $395 three-day seminars at his Texas ranch are not subtle.FHTM was shut down by FTC and six state attorney generals in January 2013 as a nationwide pyramid scheme.
"You can either choose to be a king or you can settle for being the subject of someone else's kingdom!" he exclaims on his website, RuelMorton.com.
On his website, CoachRowland.com, Rowland says the benefits of his new $100-a-day "millionaire boot camp" include "making big checks immediately." The training cost — $150 if a spouse attends — includes food, activities, training, a workbook and "a set of Todd's favorite educational CD's."
"Presidential ambassadors" such as Morton and Rowland average $1,240,992 in income a year, yet make up just 0.07% of the company's representatives, according to a Fortune document. It also shows 30% of Fortune representatives make nothing, and 54% of those with earnings averaging $93 a month, before costs.
Let's assume for a moment that you are dealing with something that's NOT obviously a pyramid scheme. Is there something you can learn from the leaders that you can replicate?
As explained above, one of the surest ways to benefit from MLM is to start your own teaser promo / lead generation company. But that's probably both illegal and amoral.
However, here's another factor that you may not have considered... That the top players may have an inside track.
Did you know that John Tartol, who's on the board of directors at Herbalife, has TWELVE of his clan (his sister, her son, etc.) among the President's Club?
Did you know that Bob Proctor, personal friend of Vemma head BK Boreyko, has his wife and his daughter at Rank 11 "Ambassador", making 15K a month from Vemma?
Are those something you can "learn"? What are you really paying to learn? Probably just a feel-good story for "motivation", little else. You cannot learn the familiar relations or the inside track that these successful folks seem to have. How much do those special relations factor into their success? I don't know. But it is NOT ZERO.
How Feeder Schemes Work
Technically speaking, the "leader generation" companies above are quasi-legal feeder schemes. They attract potential recruits and feed them (for a fee) to someone as a downline. It's quite easy for the organizer to attach a few recruits to his or her own downline when there's a good supply of them.
But when the feeder scheme is feeding a scam... then it becomes a feeder scam.
TVI Express was a very obvious pyramid scheme that started in 2009, but it did not die until its head, Tarun Trikha was, arrested in India. However, several 'feeder scams' were created to feed members into TVI Express, and often used its own matrix scheme.
There are plenty of feeder scams feeding other suspect pyramid schemes.
How fake ad posting requirements in Ponzi schemes spawn ad posting companies
Zeek Rewards ponzi kept its investors thinking they are doing "promotion" for the company by giving the investors "busy work"... posing ONE ad somewhere on the Internet for Zeekler every day, then "report" the posting to ZeekRewards. There is no proof that this posting was ever verified by Zeek, and Alexa ratings showed that Zeekler traffic, when compared to ZeekRewards traffic, is miniscule. The ads are not being seen, and has NO effect. It is "busy work", nothing more, much like animals at a zoo are "enriched" through trick food storage that they need to "figure out" how to open and get their food through "contra-freeloading".
But some people are too lazy, and are willing to PAY people to post the ads... for a cheap monthly fee. Thus, the "ad posting companies".
AdAssure is one such, launched merely two months before Zeek was shut down, it has since relaunched as AdAssureLite, this time posting ads for TelexFree, suspect Ponzi scheme on two continents.
Other companies will post ads for suspect ponzi schemes too. AND recruit you.
There are many scams revolving around scams and allegedly legitimate companies.
These supposedly legitimate companies know about these "side-businesses" all along, and have allowed them to profit off their members through plausible deniability... until they are called upon to explain themselves in court of law. Amway settled one such long-standing lawsuit in 2011, and Herbalife, under pressure from Ackman's epic short in 2013, cut ties to most lead generation companies in hopes of appeasing the FTC.
The "tool scam" have been around for several decades.
There are tons of other scams feeding yet more scams. Zeek Rewards ponzi and TVI Express pyramid both have scams revolving around it, from ad posting to feeder matrix to "lead generation".
Be careful out there. Even if the MLM is not a scam, you can still fall for one of the peripheral scams.