Scam and MLM Absurdities: Why do Scams and MLMs do "Same Wine, New Bottle"?

Looking at history of network marketing, and scams and an interesting pattern emerged.

Most people who start network marketing companies were former grunts in network marketing... And sometimes, these alleged network marketing companies turned out to be outright scams.

First, let's get the more legitimate (compared to the scams) folks listed...

• Cambridge Diet top distributor Sandra Tillotson went on to co-start NuSkin
• Natural Health Trend's high-ranker Terry LaCore went on to start bHIP (and later, Rippln)
• Herbalife member Roger Daley went on to start Omnitrition International

Given that NuSkin is in trouble in China, Mr. LaCore had a run-in with the SEC, and Roger Daley's Omnitrition was slapped down by 9th Circuit Court of Appeals... Well, let's just say they are NOT egregious scams (except maybe NuSkin in China)

Then there are the outright scams... Where participants of MLM or scams went on to start and/or continue to participate in scams.

Scam Absurdities: When You Say You're Not a Scam, Don't STEAL the Explanation! (Vemma thieves beware!)

It's surprising how many people PRETEND to have ethics, but in reality, shows a complete lack of ethics, and how many of them ended up in MLM. Today, the sterling example of such hypocrisy is... Quinn, who works for Vemma selling Verve (energy drink) even though he calls himself an 'entrepreneur', and claims to work for himself.

In an article on his website, Quinn goes on to "prove" that network marketing / MLM has a reputation tarnished by some people who are not suited for it, failed, and create a 'bad rap' for the system. As I have no desire to give him "linkjuice" I am NOT linking it. However, here's a screenshot of his website.

Quinn's "explanation" why Vemma's not a scam,
but did he write it? 

The problem is the ENTIRE article did not mention Vemma even once. Furthermore, the style of prose is very different from the rest of his website. Yet there is no "by", and thus implying Quinn wrote this.

Highlighting a couple words and search via Google revealed that this is actually PLAGIARIZED from about.com. Not a single word had been changed, but title was changed, and author's name was removed.

Can you say... THIEF?

Guest Post: Vemma and Napoleon Hill's "Think and Grow Rich", Part 3 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 ] [ Part 2 of 6 ]

Here's part 3.  Enjoy

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SlayerofScams, January 7, 2014

This seems like a good time for Round Three of Napoleon Hill's Smackdown of Vemma/Verve From Beyond the Grave.

Here is Hill’s twenty-seventh cause for failure at life:

27. INTENTIONAL DISHONESTY. There is no substitute for honesty. One may be temporarily dishonest by force of circumstances over which one has no control, without permanent damage. But, there is NO HOPE for the person who is dishonest by choice. Sooner or later, his deeds will catch up with him, and he will pay by loss of reputation, and perhaps even loss of liberty.

First, a special message to Bob Proctor: You see that, Bob Proctor? Your biggest hero and favorite role model condemns you for your intentional dishonesty in telling countless (tens of thousands? millions?) of people that Vemma/Verve is a great company and legitimate business opportunity. By the same token, Hill condemns you for your intentional dishonesty in bastardizing his words, "a winner never quits," in order to brainwash the Vemma/Verve victims to think that eventually they will get rich if only they keep allowing Vemma/Verve to rob them blind month after month and year after year.

You, Bob Proctor, have said in your own seminars, and in The Secret movie, things like, "whatever you put out to the universe is going to come back to you, whether good or bad." If you really believe that, then you know that your shilling for the illegal pyramid scheme/scam Vemma/Verve is destined to cause the universe to repay you with negative consequences for your evil behavior. Your reputation is already ruined, just as Hill predicted it would be. Was some more money - in the form of ill-gotten gains that BK Boreyko pays to you - really worth forever throwing away your [former] good name and legacy for, Bob?

MLM Commentary: Think VERY HARD If You Want To Pivot to MLM

United States Census Bureau.
 (Photo credit: Wikipedia)

Generally speaking, network marketing (or multi-level marketing) is a niche that grows, but the rate is hardly noticeable against inflation, despite having been around for decades. Most products are launched through traditional retail channels, and only a few very niche products are launched with network marketing.

Consider this: According to US Department of Commerce, Census Bureau, 2011 total retail is

4,136,352  million dollars (not counting auto sales or auto parts)

According to Direct Selling Associasion (DSA), estimated direct sales to retail 2011 is...

29,870  million (i.e. 29.87 billion)

That's 0.72% of all US retail (again, not counting auto sales or auto parts)

DSA (US) Logo
(Photo credit: Wikipedia)

Not much of a niche, is it?

How much did it grow? Let's take a look at 2010's data (2012 data will be published in March or April 2014, according to Census Bureau).

3,841,454  million dollars

That's 7.6% growth from 2010 to 2011.

How did direct sales do in the same period?

28,560 million

That's 0.74% of all US retail, only a 4.6% growth from 2010 to 2011.

If a company can't make it in regular retail, how do they expect to make it in network marketing?

Thus, if a company that was originally launched as retail business want to switch to direct sales... That company should consider ALL the angles, lest it end up with a disastrous pivot.

What to Do If You're Being Recruited: Ask for Schedule C

Dave Ritchie over at RealScam.com had an excellent suggestion for a very quick "due diligence" test: ask for their "IRS Schedule C", which is where their sole proprietor income will be reported, and most MLM income will be reported as schedule C. (Corp or partnership income are reported slightly differently, but if they are serious they should have equivalent documentation)

Once it becomes apparent your encounter with anyone is or will be taking place in the context of their role as an MLM business opportunity seller, control of your part in the encounter is completely in your hands. Simply ask the seller to defer their pitch (interrupt if you must) and inform them that it’s your practice to require reliable and objective evidence of a business opportunity’s viability before you invest your time listening to an entire presentation. 

The evidence you will request is a true copy of your seller’s most recently filed IRS Schedule C for their MLM business. Line 31 shows their “Net profit or (loss)”. If this figure is positive, the proposition may merit further investigation, although you’re not necessarily safe. If on the other hand, line 31 shows a net loss, you’d be wise to assume that you too would sustain net losses in the same business. 

This test is so simple, you can remember it easily. The penalty of filing fake tax return should make most people hesitant to pass you a fake document.

Go read the full suggestion as it goes into a bit more detail on how to follow up when your recruiter start to hem and haw, or have his/her jaw drop as s/he tries to find the relevant counter in his/her sales script.

http://www.realscam.com/blogs/dave-ritchie/375-simple-strategy-distinguish-between-mlm-business-opportunities-bankruptcy-opportunities.html

MLM Absurdities: Yes, Your Family Doctor Could Be Selling MLM stuff too

I was reading updates on Tracy Coenan's Sequence Inc. files when I came across a company called Metagenics, which seem to be nutritional supplements sold through doctor's offices (including doctor of chiropractics, i.e. chiropractors).

As most doctors are not nutritionists, one wonders if they are really qualified to do so... or is this just some sort of network marketing that had reached doctor's offices?

You'd think doctors, with proper health education (and I do mean M.D.s, not D.C's  doctor of chiropractics), would know enough to not do something questionable, but there's evidence of even HOSPITALS trying out devices based on pseudo-science.

But it's always possible they know something that we don't. So what can be found by Google?

A quick check revealed that they've been warned by the FDA to stop falsely advertising their product as "good for" (condition), and all there nutritonal supplements, normally classified as "food", had made sufficient claims to be considered DRUGS instead, and that's ILLEGAL!  (Drugs have MUCH more stringent testing criteria).

Here's the first two paragraphs:

WARNING LETTER

English: Logo of the FDA . (Photo credit: Wikipedia)

Dear Dr. Troup:

This is to advise you that the Food and Drug Administration (FDA) reviewed your website at the internet address www.metagenics.com in August 2013, and has determined that you take orders there for the products UltraClear®, UltraClear® Plus, UltraClear® Plus pH, UltraClear RENEW™, GI Sustain, UltraMeal® Plus, UltraMeal® Plus 360, UltraInflamX®, UltraInflamX® Plus 360, UltraGlycemX®, GlycemX™ 360, Ultracare for Kids®, BariatrX Essentials Bariatric Meal, and ArginCor. These products are labeled as “medical foods,” and the labeling claims on your website represent these products as medical foods for the dietary management of a variety of medical conditions.

Based on our review, we have determined that these products are misbranded under section 403(a)(1) of the Federal Food, Drug, and Cosmetic Act (the Act) [21 U.S.C. § 343(a)(1)], because the labeling is false and misleading in that the products are labeled and marketed as medical foods but do not meet the statutory definition of a medical food in the Orphan Drug Act [21 U.S.C. § 360ee(b)(3)] or the criteria set forth in 21 CFR 101.9(j)(8). Furthermore, because these products are labeled and marketed as medical foods, but do not meet the statutory definition of a medical food, FDA has determined that these products are promoted for conditions that cause them to be drugs under section 201(g)(1)(B) of the Act [21 U.S.C. § 321(g)(1)(B)]. You can find the Act and its implementing regulations on FDA’s website at http://www.fda.gov.

Ouch, this is bad, having your product slapped by no less than the FDA for making irresponsible claims.  But wait, it gets worse:

BREAKING NEWS: Dawn Wright-Olivares and Dan Olivares to appear in Charlotte NC Federal Court Wednesday Feb 5th 2014

WXII-TV (Photo credit: Wikipedia)

According to WXII TV Channel 12 report, Dawn Wright-Olivares, former CMO of Zeek Rewards Ponzi, and her stepson Dan Olivares, former CTO of Zeek Rewards will be appearing at the Charlotte North Carolina Federal Court to plead guilty to criminal conspiracy to commit fraud, coming Wednesday, Feb 5th, 2014.

Zeek Rewards is the largest Ponzi scheme in the US in terms of victims involved, with up to 1 million victims all over the world, and current figures puts it at $850 million, primarily middle-class victims.

Both Dawn and Dan had already plead guilty to the civil charges by SEC and agreed to cough up almost 11 million dollars, the amount they got from Zeek during its run, as a part of the plea deal.

US Attorney's office has no comment on the case, citing ongoing investigation.

Why Is DSA Trying to Destroy Network Marketing Through Denial? (Redemption is still possible!)

Previously, MLM Skeptic has asked a hypothetical question: why does DSA ignore the threat of 'product-based pyramid scheme' to network marketing?   By pushing 3 myths that are not reality, DSA has basically denied there is a problem with network marketing.

While browsing through some documents related to Omnitrition case and self-consumption (aka internal consumption) I found a document that proved DSA's denial is much deeper, and that may lead to total destruction of network marketing as we know it. It's quite alarming... but if they persist in this denial, it is quite possible.

The denial is the threat of Omnitrition case to the current state of network marketing, which is nothing like the way network marketing was back in 1979, when Amway settled with FTC and created the "network marketing industry".

Seal of the United States Court of Appeals for the Ninth Circuit. (Photo credit: Wikipedia)

DSA's official position is that everybody should just FORGET that Omnitrition lost the case in the Court of Appeals, Ninth Circuit. It doesn't mean anything, they said.

Omnitrition case was not a final adjudication of the case but instead remanded the case to the trial court for final resolution. The decision was interlocutory in nature, and its dictum cannot be cited as law or even as a statement of generally accepted
opinion.

and self-consumption is perfectly legal.

...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. 

Both interpretations are problematic at best, totally illogical at worst. Let's see why.