Saturday, February 1, 2014

MLM Absurdities: To a Recruiter, There Are No Customers (Just Potential Downlines)

Previously, MLM Skeptic has posed the question... Why had network marketing lost its will to retail?  It was more of a hypothetical question as network marketing should be all about retail, but it seems that many network marketing firms had morphed into "product-based pyramid scheme" (PBPS) that seem to be making a lot of sales, but has no proof that it was actually retailing (most if not all) products to the end consumers. Instead, they are selling products to their distributors... and from there, they don't care any more. They'd love to have the distributors to consume all of the products, and in fact, DSA had fought so, by getting several states to adopt anti-pyramid laws that specifically legalized self-consumption, and DSA said about internal consumption (i.e. self-consumption)
...compensation received by salespeople for products they themselves buy and use, and those bought and used by other salespeople within their organization, is a legitimate, legal and ethical practice and not evidence of illegal pyramid activity.
DSA, by adopting the position, has undermined its own position that network marketing is about retail, by allowing distributors to take "shortcuts" to sales goals by buying products themselves. Without audits and limits, self-consumption leads to product-based pyramid schemes.

Somewhere along the way between 1979 (FTC vs. Amway) and now, MLM had lost its soul along the way, by forgetting about retailing, but instead, embraced "self-consumption" and fudging numbers, and probably a bit of willful ignorance, i.e. we don't know about how much we retail because if we know, we may find ourselves illegal.

Part of the cause is the rise of the recruiter-MLMer, previously identified in "6 types of MLMer", and they helped PBPS along by playing loose with the rules.

But first, let us discuss what is the "ideal" MLM, and how far had the modern MLM wandered from that ideal.

Friday, January 31, 2014

BREAKING NEWS: New Brunswick, Canada joined the parade of authorities outlawing WCM777

Following parade of jurisdictions outlawing WCM777, New Brunswick, Canada has also issued its own investor alert regarding WCM777.

Please see WCM777 tag for other related updates.

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MLM Absurdities: When MLM Sells Not Just Woo, but Fake Woo

Back in early 2013, Waiora settled a lawsuit for selling watered down version of their own product (as full strength) That brought back some questions... how do MLM promoters, and I mean the ethical ones who really push products (instead of the scam-y ones that just recruits) actually know what they're selling is actually any good?

They rely on the company being forthright and honest of course. They don't know anything. They have to rely on company literature, genetic fallacy (this ingredient is good, so anything containing this ingredient must also be good!), pseudo-science, anecdotal evidence (which doesn't really count), and bandwagon fallacy (X users can't be all wrong!)  However, that's for another article.

What we're here to discuss is instead, what if the company's literature / promotional material is NOT the whole truth? But actually half-lies?

The Waiora case is a great example... That the product doesn't even contain what it supposedly contains (it has some... but at a far lesser concentration than labelled). According to tests done in 2010, Waiora product called NCD that allegedly has some anti-aging properties through "zeolite" (some sort of volcanic mineral that is supposed to help body purge "toxins"), is supposed to contain 2400 mg of zeolite per bottle.  Actual tests shows it has less than 150 mg... that's less than 10% of advertised strength.  The test was done at a second independent lab, which found the concentration to be even LOWER.

The lab results were presented to the company, who dismissed them, claiming the products were tested and *does* contain the advertised amount. However, a few months later, the company seem to have quietly switched suppliers and the product has a different flavor, consistency, and color than the allegedly watered down version.  A bottle of NCD (Natural Cell Defense) has MSRP of $50 per 15-mL bottle.

Class action lawsuit was launched in 2012, and was finally settled out of court in April 2013. Waiora, without admitting fault, is giving 3 bottles (full strength this time) of NCD to any one who ever bought NCD, as well as 12 million (unknown distribution).

This brings up a serious question... Whose fault was it that watered down the product? Usually a factory wouldn't cut corners like that, as it does them no good cutting corners like that. This heavily suggests there is some sort of complicity in Waiora, and their subsequent action, such as deny any wrongdoing, then quiet change factories and settle out of court would suggest (but NOT confirm) some sort of conspiracy between the factory and a senior official at Waiora.

But the real damage is how can any one in MLM trust that the product they got from the factory is real and contains whatever exotic ingredients it was supposed to contain in the right amount?

Thursday, January 30, 2014

BREAKING NEWS: WCM777 / Kingdom 777 outlawed in Lousiana, "suspends" payment in the US

Previously we have reported that California had outlawed WCM777, quickly followed by Colorado and New Hampshire have either outlawed WCM777, or issued "investor alerts". Actually Massachussetts was first to close down WCM777 in the US.  In South America, Colombia was first to ban WCM777, quickly followed by WCM77 being outlawed in Peru and their WCM777 office raided by police.

In response to all this turmoil, WCM777 simply switched name to "Kingdom 777" and appointed a new "president" by the name of James Tenorio, who seem to have absolutely no experience running anything. His most significant prior employment appears to be that of a voice actor, though he may have worked with some sort of prepaid card service as of 2010, according to his LinkedIn profile.

Today, we found that Louisiana had also issued investor alerts, and in response to these actions, the current head of WCM777 / Kingdom 777, "James Tenorio", has announced that WCM777 / Kingdom 777 will suspend payout in the US.

MLM Dictionary: Omnitrition Case

The term "Omnitrition Case" refers to "Webster vs. Omnitrition" class action lawsuit that was argued in 9th Circuit Court (of Appeals) in 1996.

Explaining the Case

(editor's note: I am not a lawyer, so you can read the full case, and summaries by several MLM attorneys and MLM critics near the end.)

Omnitrition was started by Roger Daley, who had previously worked at Herbalife in the 1980's, and may have known Mark Hughes, founder of Herbalife, quite well. When Herbalife hit a rough patch, Daley went off on his own with a few close Herbalife fellow sellers and created OmniLife 4, a liquid supplement formula that became the foundation of Omnitrition International. Later, when Omnitrition hit a rough patch,  in the 1990's, he was served with multiple lawsuits, including the Webster vs. Omnitrition.

Shaun Webster and Robert Ligon worked for Omnitrition until they, in 1992, decided to sue Omnitrition International, a MLM selling vitamins and such supplements, charging it as a pyramid scheme. The case gained "class action' status, as it sought relief for all similar reps who had allegedly been cheated by Omnitrition. Webster also charged Omnitrition with violations of securities law as well as violations of California's "endless chain" (pyramid scheme) laws, as well as various other laws such as RICO (racketeering), wire and mail fraud, etc.

At the time, Omnitrition's comp plan has distributors (no multi-level commssion), and various ranks of supervisor. Lowest rank, "bronze supervisor" requires $2000 order in one month, or $1000 orders over two consecutive months. The order goes to Omnitrition.  (Omnitrition's comp plan is very similar to Herbalife's comp plan, because Daley used to work at Herbalife)

Omnitrition's defense is that it had followed Amway Safeguard Rules and thus it cannot be a pyramid scheme if Amway was ruled not a pyramid scheme by the FTC (per FTC vs. Amway).

District Court ruled in Omnitrition's favor in 1994, granting it a summary judgement ("Not pyramid scheme") and thus essentially dismissing the lawsuit. Webster appealed.

The 9th Circuit Court of Appeals reviewed the case in 1996 and found that the district court have ruled the summary judgement in error in not considering sufficient evidence. However, it had also ruled that some additional charges brought against Omnitrition's lawyers and such are not valid and the summary judgement issued by lower court for those are affirmed.

BREAKING NEWS: Canada launches formal probe into Herbalife

According to New York Post, Canada's Competition Bureau has launched a formal inquiry into whether Herbalife operates as a pyramid scheme there.

CCB has no comment.

It is unknown if this had anything to do with Shawn Dahl's side business, which was a clone of his mother-in-law's business that was closed in Canada as a pyramid scheme.

Guest Post: Vemma and Napoleon Hill's "Think and Grow Rich", Part 2 of 6

Previously we had SlayerofScams, a fellow scambuster on IGN, posting his essay on how people misconstrue Napoleon Hill's advice to coerce the weak-minded sheeple. [ Part 1 of 6 ]

Here's part 2.


SlayerOfScams, Dec 30, 2013

Here is some more wisdom from Napoleon Hill to Vemma victims. This is one of Hill's thirty causes for failure at life:
29. GUESSING INSTEAD OF THINKING. Most people are too indifferent or lazy to acquire FACTS with which to THINK ACCURATELY. They prefer to act on "opinions" created by guesswork or snap-judgments.
Where have we seen that before in relation to Verve? I can think of at least two places.

First, in Post #940 (link to IGN board), where we see Darik Alexander saying: "Don't even entertain the notion [that Vemma is a pyramid scheme] because you know it is not...and if you don't even entertain the notion, they [potential new recruits] will just be like, 'Oh damn, I feel like an idiot for even saying that question."

Second, in Post #944 (link to IGN board) where we see Darik Alexander saying: "The only way you are going to know if what I am telling you is really real is if you trust me."

So, to paraphrase those above quotations, we have Hill saying: don't be an idiot - don't rush into irrational decisions, and don't form irresponsible opinions without first doing research and educating yourself with the necessary facts.

Next, we have Alexander saying: don't even bother thinking about whether Verve is a pyramid scheme or not because the subject is not even open for discussion and you should feel stupid for even wondering about it. Further, we also have Alexander saying to trust him just because he said he should be trusted. No thinking is required, on the part of you, the Verve victim. From you nothing is required except for blind faith in the scammer who wants to take your money.

And most damning of all, on top of all that, we have Alexander (again in post #940) saying at about the 10:00 mark of his "home event" video: "Don't overcomplicate it. We got really rich because we didn't overcomplicate it. Tell everyone you know to come to the next event...Don't say 'Vemma.' Don't say 'Verve.' Say: 'This is going to change your freakin' life' - because it actually will, and I will guarantee that. You make sure they show up, I make sure they sign-up."

Translation from SlayerOfScams [what Alexander's words really mean]: "Successful professional scam artists like myself do not mention the words Vemma or Verve to potential new victims, because to do that would give them the power to research Vemma/Verve and realize that it is a scam and illegal pyramid scheme before we have had a chance to brainwash them at one of our events. Therefore, sell to everyone you know nothing but the dream of riches. Get them to come to one of our Vemma party events, and I will do the heavy-lifting to make sure that they become fully brainwashed and join the Vemma/Verve pyramid before they have had any chance to research or to think about it."

Wednesday, January 29, 2014

BREAKING NEWS: WCM777 / Kingdom 777 also banned in New Hampshire and Colorado

ASDUpdates spotted the latest notices:

Ming Xu signed consent decree for World Capital Market, WCM777, and himself to not do business in Colorado. 

New Hampshire issued investor alert to WCM777 illegal securities offered for sale. Anyone in New Hampshire who bought anything from WCM777 and any related companies are urged to contact NH authorities ASAP. (see link for details)

What other state will be next?
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MLM Basics: Why Had Network Marketing Lost Its Love of Retail?

Modern network marketing companies lost their love of retail, and thus its primary purpose.

According to the law and their implied purpose, a network marketing company's purpose is to retail stuff through their affiliates (IBOs, distributors, counselors, salespeople... whatever). However, few if any of modern MLM's verify that the products they sold to their affiliates are actually retailed. Almost all network marketing companies merely require a signed "promise" from the affiliates that they promise to honor the Amway Safeguard Rule #1 "Retail Customer Rule". And without retail, the common affiliates's only income would be to recruit additional affiliates (who also do not retail, since retail is hard). If you extrapolate this out, you have a bunch of salesepeople who sold stuff to themselves, while recruiting yet more people like that. That would make it a pyramid scheme.

The Omnitrition Case and Lack of True Retail

In the Webster vs. Omnitrition case, Webster, an affiliate of Omnitrition, sued Omnitrition of being a pyramid scheme. The company responded by asking the court for a summary judgment, i.e. "Court, please tell me (and whoever sued me) I am NOT a pyramid scheme! I use Amway Safeguard Rules! I can't be!" After looking at the evidence,  the court ruled that if the company (Omnitrition) does not audit actual retail, then the company cannot use this "signed promise" to prove they are not a pyramid scheme. Omnitrition then immediately settled the lawsuit with Webster, as they apparently find paying off Webster, et al. to be easier than actually auditing their retail.

Yet dozen years after Omnitrition case, no major network marketing company that I know of, audits retail.

The implication is mindblowing: virtually all major network marketing companies in the US are in danger of being declared a pyramid scheme, despite their claimed adoption of Amway Safeguard Rules that supposedly separated network marketing from pyramid schemes, because they do NOT audit retail.

When Herbalife was first accused by Bill Ackman to be a pyramid scheme at the end of 2012, Herbalife cannot cite how many retail customers it has. Even now in 2014, Herbalife is STILL citing the retail number it EXTRAPOLATED from surveys it conducted in 2013. Herbalife cited a lot of ancillary numbers, like "amount of products directly shipped to non distributors" (31% IIRC), but it has NO RETAIL NUMBERS.

Herbalife classified their ranks by amount of downlines they have (no downline, single level downline, multi-level downlines), and claimed those with no downline are "customers", and those with single level downline are retailers.

THIS MAKES NO SENSE. By definition, EVERY distributor, no matter if they have downline or not, ARE RETAILERS, if the company was following the Amway Safeguard Rules!

Herbalife also produced survey results in 2013 that claimed 44% of its distributors have NO INTENTION OF RETAIL PROFIT, and 73% PRIMARILY JOINED FOR 25% DISCOUNT.

Why would a company NOT encourage retail, which is at the heart of network marketing?

Because lack of retail enrich those at the very top of the company and the company itself, with minimal effort and expenses needed all the way around (company or affiliate).

Tuesday, January 28, 2014

Guest Post: Vemma and Napoleon Hill's "Think and Grow Rich" Part 1 of 6

Cover of "Think and Grow Rich, Original 1...
Cover via Amazon
Many self-proclaimed financial gurus are fond of quoting Napoleon Hill's "Think and Grow Rich". I have that book around here somewhere, along with Dale Carnegie's "How to Gain Friends and Influence People". Those two books, along with "Rich Dad Poor Dad" sort of became must-have books in recent years, for income seekers.

However, it appears that many people have been quoting Napoleon Hill out of context.

"SlayerofScams", a fellow scambuster on IGN, had this to say about people who wrongly applied the sound advice of Napoleon Hill. Here is part 1 of 6 of his "Napoleon Hill, from beyond the grave", which is reposted with his permission. Content's unchanged except a few bits of editor's note, and slight formatting changes.


SlayerofScams / Dec 30, 2013.

I have discovered that Bob Proctor is one of Vemma's most notable shills and that his wife, Linda Proctor, has been given a prominent position within the Vemma pyramid. Proctor disgraces his former good name and defecates all over whatever legacy he might have otherwise had by promoting the illegal pyramid scheme that is Vemma. Because of that foolish decision, Bob Proctor will now forever be remembered in history as nothing other than a lowdown dirty scammer.

(editor's note: Bob's daughter Colleen Filicetti, has the same Vemma rank as her stepmom, Linda: Ambassador, making about 15000 per month.)

Over the weekend, I was watching an old Proctor seminar video (it looked to be from the late 1980's although I am not sure exactly when it was released), in which he basically paraphrases the 1937 book by Napoleon Hill, Think and Grow Rich, along with a few other books. In that seminar Proctor appears to be a respectable guy. That seminar presents some good ideas (although Proctor admits that the ideas are not his own).

Then I watched a video of Proctor shilling at a Vemma convention from 2013, and presenting those same ideas that he presented in the old seminar, in order to justify Vemma as a great company, and to justify all of Vemma's victims as winners.

Proctor was one of the people behind The Secret which was big about 6 years ago. The Secret is basically a plagiarization of Hill's book, albeit The Secret also cuts out a vast majority of the sensible advice that Hill claims (many times!) to be mandatory parts of his book. That is why reasonable people usually condemn The Secret as crazy rubbish, whereas Hill's book remains famous and popular to this day.

In Proctor's seminar and in his Vemma convention shilling, Proctor directly gives credit to Hill and Hill's book, professes his undying love for Hill's book, and tells all his fellow Vemma shills that they too should get and read Hill's book.

All of that has led me to start to read Hill's book.

Here is some good news: Hill's book is in the public domain and so it is legally free for anyone to get and read. Here is a link to it:

To address the sane readers of this thread: for personal interest, you might want to read that book for some sensible advice on how someone, maybe yourself, might possibly get rich (of course, no guarantees exist). I am sure many of you have read it already. To give a brief summary of Hill's book: Hill interviewed Andrew Carnegie, and Carnegie introduced Hill to most of the richest men in America during Hill's lifetime. Hill spent 25 years interviewing them in order to learn their secrets and find out what they had in common, so that he could present to his readers a sound theory about how someone might get rich.

For the remainder of this post, I will address not the sane readers, but rather, the Vemma shills/victims.

Monday, January 27, 2014

Wall Street Runs on Greed... And Conspiracies (so Don't Trust Them)

English: Wall Street sign on Wall Street
English: Wall Street sign
on Wall Street
(Photo credit: Wikipedia)
Previously, MLM Skeptic had pointed out the futility of using stock price as a measure of the company's "legitimacy". Wall Street will drive the stock prices higher as long as the company remains profitable, no matter how many people it screwed over.

However, Wall Street also runs on fear. Merely mention of Senator Markey's letter to SEC and FTC asking for an investigation into Herbalife dropped its stock price down more than 10% in a day.

And this fear had turned some stock analysts into conspiracy theorists, looking for someone to blame, and who better than the ultimate stock market boogeyman, and Herbalife "nemesis" Bill Ackman?

Brian Bolan published an essay on Zachs that claimed not only is Herbalife a good bet, he outright accused Senator Markey of colluding (perhaps unwittingly) with Bill Ackman to drive down Herbalife stock price to help with Ackman's epic short that started back at the end of 2012!

Sunday, January 26, 2014

BREAKING NEWS: WCM777 (aka Kingdom 777) Outlawed in California, ordered to cease operations

WCM777 and World Capital Market has been outlawed in California, as of January 8th, 2014, by order of California Commissioner of Business Oversight.

Order was issued originally on January 8th, 2014, appeared on official website on January 15th, 2014, and only noticed today by BehindMLM. Quoting from the end of the order:
Based upon the foregoing findings, the California Commissioner of Business Oversight is of the opinion that World Capital Market, Inc., WCM777, Inc., WCM777 Limited, Ming Xu, Zhi Liu and Harold Zapata engaged in the offer and sale of securities in the form of WCM777 membership units. 
These securities have not been qualified under the California Corporate Securities Law of 1968, in violation of section 25110 of the Corporations Code. 
Pursuant to section 25532 of the California Corporate Securities Law of 1968, World Capital Market, Inc., WCM777, Inc., WCM777 Limited, Ming Xu, Zhi Liu and Harold Zapata are hereby ordered to desist and refrain from the further offer or sale of securities in the State of California, including but not limited to WCM777 membership units, unless and until qualification has been made under the law or unless exempt. 
The California Commissioner of Business Oversight is further of the opinion that World Capital Market, Inc., WCM777, Inc., WCM777 Limited, Ming Xu, Zhi Liu and Harold Zapata offered and sold securities in the form of WCM777 membership units, by means of written and oral communications including untrue statements of material fact and omission of material facts necessary to make the statements not misleading, in violation of section 25401 of the Corporations Code. 
Pursuant to section 25532 of the California Corporate Securities Law of 1968, World Capital Market, Inc., WCM777, Inc., WCM777 Limited, Ming Xu, Zhi Liu and Harold Zapata are hereby ordered to desist and refrain from offering or selling any security in the State of California, by means of any written or oral communication which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. 
This Order is necessary, in the public interest, for the protection of investors and consistent with the purposes, policies, and provisions of the Corporate Securities Law of 1968. 
Dated: January 8, 2014
Sacramento, California

MLM Absurdities: How Scam Evolve Around MLMs and Pseudo-MLM Scams

Previously, MLM Skeptic have pointed out that many so-called "legitimate" MLMs have scams revolving around them in what's known as "lead generation" companies. They work by sending out teases to large number of people by selling them bogus "business starter kits", then sell the info of these people who bought a kit to affiliates desperate to sign people up. Company benefits twice. (Read full details on the Verge)

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
Let's get started... First stop... How "fake" lead generation really works...