Herbalife settled with the FTC in 2016 in exchange for FTC not calling the company a pyramid scheme outright. The settlement included a long series of accommodations and required disclosures, and the first of which was just published, and it included some interesting statistics. The document is called "Statement of Average Gross Compensation" for 2016, and here's a link to it from myHerbalife.com
It's parsing the numbers that make things interesting and reveals what's between the lines (and behind the numbers).
Note the following tidbits:
"In 2016... 86% of US Distributors (466926) did not receive earnings from Herbalife"
If you do some math, that says 14% of distributors, or about 76000, did receive earnings in 2016.
"In a typical month from June to September 2017, about 45000 US distributors order products for resale from Herbalife and about 40000 of them earned money from their sales and the sales of those they sponsored."
This disclosure statement contrasts HEAVILY with what the president of Herbalife, Des Walsh, said during the November 2 3rd quarter earnings call, where he said
"Today, we've got about 470000 preferred members. We've got about roughly 215000 distributors." (source)
How did Herbalife go from 215000 distributors in June to September 2017 (3rd quarter) to "45000 distributors (who) ordered products" between June and September? If it were only 10-20% variance, we'd say oops, and let them fudge. But we're talking about a 478% variance (45000 vs 215000). 170000 distributors went missing between the President's statement and FTC-required disclosure.
Clearly, the two are using some VERY VERY different definition of "distributor"
Which really makes you wonder... What ELSE is Herbalife not telling us?
a blog about Skepticism, MLM, Scams, and Critical Thinking
Showing posts with label FTC. Show all posts
Showing posts with label FTC. Show all posts
Monday, January 29, 2018
Sunday, November 12, 2017
How Paris Hilton and celebrities made SEC, FTC, and FDA see red: possibly illegal endorsements and reviews are exploding; how to spot them and avoid them
What do actor Jamie Foxx, ex-Boxer Floyd Mayweather, rapper DJ Khaled, soccer player Luis Suarez, and hotel heiress Paris Hilton have in common?
They all endorsed an initial coin offering (ICO), either publicly or online. Jamie Foxx tweeted about anticipating Cobinhood, Floyd Mayweather and DJ Khaled endorsed Centra, Luis Suarez endorsed Stox. Paris Hilton tweeted that she supported ICO of Lydian. only to delete the tweet 3 weeks later.
New York Times wrote an expose on how boxer Floyd Mayweather and rapper DJ Khaled endorsed an ICO called Centra, despite many questions about the head of the company and the business model. And that is when Security Exchange Commission (SEC), the regulatory body of investments in the US, started to see red.
SEC had already issued an investor bulletin in July specifically on ICOs, warning that some ICOs may be considered securities in the US, and promotion of such may violate security laws because they are not registered with the SEC.
SEC in September 2017 closed two fraudulent ICOs and alleged Maksim Zaslavskiy of fraudulently promoting two ICOs, REcoin and DRCoin, which were advertised as being backed by real estate and diamonds. SEC alleged that Zaslavskiy raised only 1/10th of the money he actually did, and never hired any experts nor purchased any diamonds or real estate as it claimed it did or will do. SEC obtained a court order to freeze all assets of companies related to these two ICOs.
SEC on November 1st issued a directive to all people, but specifically, celebrities who promote/endorse ICOs.
Any celebrity or other individual who promotes a virtual token or coin that is a security must disclose the nature, scope, and amount of compensation received in exchange for the promotion. A failure to disclose this information is a violation of the anti-touting provisions of the federal securities laws. Persons making these endorsements may also be liable for potential violations of the anti-fraud provisions of the federal securities laws, for participating in an unregistered offer and sale of securities, and for acting as unregistered brokers.Paris Hilton seems to be the only celebrity who had walked back on his or her ICO endorsements as of 11/11/2017.
But SEC wasn't the only US Federal agency out looking for misleading and possibly illegal endorsements. Federal Trade Commission (FTC), and Federal Drug Administration (FDA) are also clamping down on such illegal behavior that may be misleading consumers.
Saturday, October 28, 2017
Scam Psychology: The Secret's real secret is victim-blaming and reckless thinking
Recently, I came across MLM "inspirational" propaganda that permeated social media. An example is embeded below, along with my reply:
The original tweet is an attempt to reframe sunk cost fallacy as a virtue, when it's really a cognitive bias that leads you into making irrational decisions.
Think about it... Why is "working through" the pain is preferred way to resolve the pain, when it is just as easy to stop the pain altogether? Yet that is clearly the implication of the original tweet... by implying that your setbacks are only temporary, and as long as you dedicate sufficient effort you will succeed.
This is unrealistic, dangerous and utterly reckless thinking, yet what MLMers call "positive thinking". Positive thinking was repopularized recently because some author copied a 1910 book and added some pseudoscience to unproven pop psychology. And MLMers ate it up.
Yes, I am talking about "The Secret".
First of all, the Secret is not new. As I said, it's a rewrite of a 1910 book with some new pseudo-science references to quantum physics that really made no sense. It is basically magical think: if you ask and believe, you shall receive. It's a rephrase of Bible Matthew 21:22, yet somehow this was generalized to anything in life.
Yet there are a lot of stuff you don't know that's in The Secret... And they are things you won't hear about from the MLMers who don't want to read about "negativity", even if it's in the book that taught them about positivity.
“But all the love in the world won't save a sinking ship. You have to either bail or jump overboard.” -- Sarah Dessen— Kasey Chang (@kschang777) October 28, 2017
The original tweet is an attempt to reframe sunk cost fallacy as a virtue, when it's really a cognitive bias that leads you into making irrational decisions.
Think about it... Why is "working through" the pain is preferred way to resolve the pain, when it is just as easy to stop the pain altogether? Yet that is clearly the implication of the original tweet... by implying that your setbacks are only temporary, and as long as you dedicate sufficient effort you will succeed.
This is unrealistic, dangerous and utterly reckless thinking, yet what MLMers call "positive thinking". Positive thinking was repopularized recently because some author copied a 1910 book and added some pseudoscience to unproven pop psychology. And MLMers ate it up.
Yes, I am talking about "The Secret".
First of all, the Secret is not new. As I said, it's a rewrite of a 1910 book with some new pseudo-science references to quantum physics that really made no sense. It is basically magical think: if you ask and believe, you shall receive. It's a rephrase of Bible Matthew 21:22, yet somehow this was generalized to anything in life.
Yet there are a lot of stuff you don't know that's in The Secret... And they are things you won't hear about from the MLMers who don't want to read about "negativity", even if it's in the book that taught them about positivity.
Friday, September 29, 2017
Less than 1/4 of all pyramid scheme victims ever file a complaint, says FTC survey
Some recent surfing brought me to an interesting bit of information:
Here it is important to note that FTC questions were actually 1) Did you purchase an opportunity to operate (your) own business 2) Were you lead to believe most of the money earned from this business would be from recruiting others to join the business, rather than sale of products and 3) Were you deceived by the offer of business opportunity with false income claims or false offers of assistance? (Not exact wording, but you can find the questions in the linked PDF)
It is worth noting that in MLM...
A) Almost all MLM claim you are "owning your own business", follow by a derisive attitude toward a job ("just over broke" is often uttered).
B) You almost always get some lecture that you are NOT in a pyramid scheme, yet you are told to "build your team", which is just euphemism for recruiting.
C) Many questionable "leaders" of MLMs will resort to false income claims and false offers of assistance to get you to join, then blame you for your failure. "You must be doing it wrong", they'll point fingers, "because it worked for me."
But there is a hidden statistic that is not obvious until you read the fine print...
But think about it. If there are so few reported incidents for them to even calculate the odds of underreporting...
Either there are so few instances of fraud in business opportunities...
Or there are so many instances of underreporting in business opportunities that it's like an iceberg...
Let's consider a real ponzi case... Zeek Rewards.
...consumers who had purchased a [membership in] pyramid scheme were the least likely to complain – less than one-quarter indicated that they had complained. -- FTC fraud survey (2004)This is a fascinating statistic. The FTC definition of pyramid scheme specifically means "pyramid marketing schemes", as in MLMs that went over to the dark side.
Here it is important to note that FTC questions were actually 1) Did you purchase an opportunity to operate (your) own business 2) Were you lead to believe most of the money earned from this business would be from recruiting others to join the business, rather than sale of products and 3) Were you deceived by the offer of business opportunity with false income claims or false offers of assistance? (Not exact wording, but you can find the questions in the linked PDF)
It is worth noting that in MLM...
A) Almost all MLM claim you are "owning your own business", follow by a derisive attitude toward a job ("just over broke" is often uttered).
B) You almost always get some lecture that you are NOT in a pyramid scheme, yet you are told to "build your team", which is just euphemism for recruiting.
C) Many questionable "leaders" of MLMs will resort to false income claims and false offers of assistance to get you to join, then blame you for your failure. "You must be doing it wrong", they'll point fingers, "because it worked for me."
But there is a hidden statistic that is not obvious until you read the fine print...
... In conducting this test it was necessary to drop the government jobs and business opportunities categories because there are too few consumers who experienced these types of frauds to meet the necessary statistical properties to conduct a Chi-square test.The "government jobs" fraud is victim paid for false promises of government jobs. And business opportunities... needs no introduction.
But think about it. If there are so few reported incidents for them to even calculate the odds of underreporting...
Either there are so few instances of fraud in business opportunities...
Or there are so many instances of underreporting in business opportunities that it's like an iceberg...
Let's consider a real ponzi case... Zeek Rewards.
Monday, July 31, 2017
DSA's latest attempt to destroy direct selling: Moolenaar Amendment
Direct Selling Association is supposed to be promoting direct selling. Instead, for the past several decades, DSA has been trying to destroy direct selling by killing legislation that would have promoted retail, and promoting legislation that discouraged retail. This is actually not a surprise as DSA is really a lobbying group by the largest MLM companies like Amway, Avon, Herbalife, and so on.
In July 2017, DSA launched its latest attempt to destroy direct selling by trying to attach a rider to the current budget appropriations bill for FY18, known as the Moolenaar Amendment. It claimed that there is no Federal law that defined a pyramid scheme, and this bill would define one. The problem is, this is at best, a half-truth.
The US courts and FTC already have an existing definition of a pyramid scheme: The Koscot Test. MLM attorney Jeff Babener called it "a twenty-year standard", back in 2001. So by now, it's a 36-year-old standard. DSA, in its "selective blindness", pretended this standard does not exist so it can substitute a LOOSER definition instead.
DSA's previous attempt to pass a bill, deceptively titled "Anti-Pyramid Promotional Scheme Act of 2016", never made it out of committee. This time, by attaching the failed legislation to the appropriations bill, DSA hope it will sail through until various consumer organizations called them out.
But what is wrong with this piece of legislation, vs. the existing standard?
While on the surface the bill sounds rather clear, it contains several interesting bits of language designed to erode the definition over all.
But first, let us go back to the Koscot Test, and how it stood for 36 years (and counting).
In July 2017, DSA launched its latest attempt to destroy direct selling by trying to attach a rider to the current budget appropriations bill for FY18, known as the Moolenaar Amendment. It claimed that there is no Federal law that defined a pyramid scheme, and this bill would define one. The problem is, this is at best, a half-truth.
The US courts and FTC already have an existing definition of a pyramid scheme: The Koscot Test. MLM attorney Jeff Babener called it "a twenty-year standard", back in 2001. So by now, it's a 36-year-old standard. DSA, in its "selective blindness", pretended this standard does not exist so it can substitute a LOOSER definition instead.
DSA's previous attempt to pass a bill, deceptively titled "Anti-Pyramid Promotional Scheme Act of 2016", never made it out of committee. This time, by attaching the failed legislation to the appropriations bill, DSA hope it will sail through until various consumer organizations called them out.
But what is wrong with this piece of legislation, vs. the existing standard?
While on the surface the bill sounds rather clear, it contains several interesting bits of language designed to erode the definition over all.
But first, let us go back to the Koscot Test, and how it stood for 36 years (and counting).
Friday, September 25, 2015
Scam Tactic: Speak in Half-truths, or how Vemma is trying to create value out of bull****.
Speaking in half truths is the best way to scam. You sound as if you are telling the truth, esp. if that's all the truth you know. You can't be lying if you don't even know the other half, right?
That's why you should fact-check any PR claims, esp. those without any links for you to verify the claims, and if the evidence themselves need to be fact-checked.
Let's take one recent example, when a Vemma fan (what I'd refer to as a Vembot) posted basically a cut-n-paste PR speech "how dare you compare Verve to Red Bull". Okay, I made up that title, but that is accurate. His words in blue, my comment will be in red.
That's why you should fact-check any PR claims, esp. those without any links for you to verify the claims, and if the evidence themselves need to be fact-checked.
Let's take one recent example, when a Vemma fan (what I'd refer to as a Vembot) posted basically a cut-n-paste PR speech "how dare you compare Verve to Red Bull". Okay, I made up that title, but that is accurate. His words in blue, my comment will be in red.
For those trying to do a cost comparison with Red Bull, you are obviously missing the entire concept of Vemma.
Oh, I think we understand you all too well. It is you who don't understand Vemma...
The clinically studied nutritional supplement Vemma cost about $2.00 per serving, if you purchased the stand alone Vemma product.
But did you actually read the two "clinical studies"? (NOTE 1)
Verve has the same 2 ounces of Vemma, plus the components of the energy drink. Yes the price is about $2.80 a can, but $2.00 is the Vemma supplement. So the energy drink component is really only $.83.
You set your own prices. You can say it's worth $1000 if you'd like. There's nothing to compare it to. In fact, there's not even any proof that mangosteen has any benefit on the body. But more on that later. (NOTE 2)
You show me where red bull has 12 vitamins, 63 minerals, mangosteen, aloe vera and green tea. Show me where Red Bull paid 250000 to run full clinical studies to see exactly what happened in your blood after drinking it.
You show me what those "63 minerals" are, and what effect they have on the body. Show me how ECGC is not harmful to the body. Show me how two little studies in China, on self-reported results prove "what happened in blood". (NOTE 3 again)
Until you can show me that trying to compare the to is like comparing a Ford Fiesta to a Ford Mustang. They are both Fords (energy drinks), but they are not the same thing and they dont cost the same thing.
Vemma is no-name energy drink with an unproven secret ingredient. The analogy is bull****.Now let's look at the footnotes...
Thursday, December 11, 2014
MLM Mythbusting: Is MLM really a growth industry? (The Numbers May Surprise You)
When you listen to MLMers / Network Marketers, you're often told that MLM is the big thing, it's "experiencing record growth", it's "amassing fortunes for millions of people each year", it's "#1 millionaire producing industry", big companies are going MLM, and so on and so forth. They'll dazzle you with numbers such as
- Every week 150000 people join network marketing around the world (but how many quit?)
- Worldwide sales of MLM is estimated to be 90 billion (still less than 1% of world economy)
- DSA estimates 200 million new distributors in next 10 years (again, how many quit?)
Is MLM actually growing that much, when compared to other industries? Let's look a little closer.
Is MLM the "next big thing"?
Claims have been made since the 1990's that MLM is the next big thing. Back in 1990, Richard Poe wrote in Success magazine that network marketing is "the most powerful way to reach consumers in the 90s". He also wrote a few books, specifically, Wave 4. This quote was reproduced ad infinitum by various MLMers trying to legitimize their own little niche. You can see this example where the author changed it to "21st century economy".
Basically, they've been saying it for THREE DECADES (going into FOURTH) and it STILL haven't come true.
Basically, they've been saying it for THREE DECADES (going into FOURTH) and it STILL haven't come true.
Those claims had not come true. Internet soon surpassed network marketing as the way to reach consumers, with online shopping, and ready access to review sites, peer reviews, and more. E-Commerce is a 289 BILLION dollar industry in 2012. For comparison, direct sales and network marketing is a 31.6 Billion industry in 2012, as per DSA. (see below)
One more point of comparison... Total US retail for 2012 is $4.9 TRILLION. That makes direct sales 0.64% of stuff sold. It's a niche market, and it's not growing much, and hadn't done so for decades.
One more point of comparison... Total US retail for 2012 is $4.9 TRILLION. That makes direct sales 0.64% of stuff sold. It's a niche market, and it's not growing much, and hadn't done so for decades.
Is MLM "experiencing record growth"?
A lot of places repeat big words like "record growth"...
The problem is... relative to what? DSA itself reports that sales has been down since 2006 and only just recovered in 2013 or 2014 (not counting inflation). See for yourself (all graphs courtesy of DSA.org):
1991 to 2000
2000 to 2008
2008 to 2012 (latest data from DSA)
So "record growth"... In relation to what, exactly? It's now 2014 and they probably did break their old 2006 record... but that just means they are not as recession proof as they claimed to be...
Also, is 31 billion a lot? Again, in relation to what? Franchising is a 740 billion industry as of 2011, according to a PricewaterhouseCoopers analysis. And franchising started at about the same time as network marketing. In fact, franchising may have success rate of up to 95% (the stats are old, per 1991, and no new data had been compiled since)
"Record growth" statement is meaningless.
"Record growth" statement is meaningless.
Sunday, August 17, 2014
MLM Basics: Why are there so many names for MLM?
Have you ever wondered why are there so many different names for multi-level marketing? Here are most of them:
Any way, why are there so many fancy names for the same thing? Fraud experts, such as Tracy Coenen say this is an attempt to obfuscate and distract from the bad reputation multi-level marketing had picked up over the decades it had been in existence. However, I think this is also a symptom of how the decentralized nature of MLM became a sin, not a virtue. People are just appropriating terms that sounds SOMEWHAT similar to multi-level marketing, and in some cases, inventing them out of thin air.
First, let us define multi-level marketing... a marketing strategy where the sales force is compensated on multiple levels... direct sales profit, and portion of sales profit achieved by other salespeople they recruited (downlines). Remember, MLM = direct sales + commission based on downline sales.
But first, we have to clear up a few myths...
Multi-level marketing, the main term
Network marketing? Multi-level marketing?
Home-based Franchising? Direct Sales?
Concentric Marketing? Affiliate Marketing?
Referral Marketing? Inline Marketing?
WTFIsIt Marketing?
(Photo credit: Wikipedia)- Network marketing (most often used alternative)
- Home-based Business Franchising -- WARNING: franchising is NOT multi-level marketing
- Direct sales -- selling direct to consumers, related to but NOT equivalent to MLM
- Affiliate Marketing -- now used by Vemma, often plagued by fraud
- Seller-Assisted Marketing -- mostly a "business opportunity" scam
- Referral Marketing / sales -- marketing via word of mouth; some forms may be illegal
- Dual Marketing / Dual-Level Marketing -- mainly used by Mary Kay, still MLM
- Concentric Marketing -- used by convicted pyramid scheme Burnlounge, replaced "levels" with "circles", but otherwise, the same as MLM
- Consumer Direct Marketing -- the consumer is doing the marketing, potentially illegal if recruitment heavy, as it becomes recruiters recruiting more recruiters.
- Inline Marketing -- trademarked by "Nutraceuticals Inc", it's still MLM
Any way, why are there so many fancy names for the same thing? Fraud experts, such as Tracy Coenen say this is an attempt to obfuscate and distract from the bad reputation multi-level marketing had picked up over the decades it had been in existence. However, I think this is also a symptom of how the decentralized nature of MLM became a sin, not a virtue. People are just appropriating terms that sounds SOMEWHAT similar to multi-level marketing, and in some cases, inventing them out of thin air.
First, let us define multi-level marketing... a marketing strategy where the sales force is compensated on multiple levels... direct sales profit, and portion of sales profit achieved by other salespeople they recruited (downlines). Remember, MLM = direct sales + commission based on downline sales.
But first, we have to clear up a few myths...
Tuesday, July 15, 2014
News Update 15-JUL-2014: Trivita Settle with FTC; SEC oppose Merrill access to 4 million; TelexFree Trustee issued more subpoenas
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| Seal of the United States Federal Trade Commission. (Photo credit: Wikipedia) |
Trivita Settle with FTC?
According to leaked letter to its affiliates, Trivita has settled a demand from Federal Trade Commission against its alleged false health claims regarding its Nopalea related products. Nopalea, also known as prickly pear (a type of cactus), is reputed to have some healing properties and is often pushed by so-called alternative medicine proponents in the same manner as prior fads such as noni, mangosteen, and acai berry products.
Report by Courthouse news showed that FTC filed the demand on July 11th. However, this did not seem to have received any news coverage. http://www.courthousenews.com/2014/07/11/69432.htm
According to leaked letter as published on BehindMLM (and thus far, unverified), the settlement involves stop making false claims, and paying a large fine with no admission of wrongdoing and no stop of sales of such products (provided no further misleading claims are made). All affiliates must acknowledge the new restrictions or their commission will be withheld pending acknowledgement.
EDIT: FTC's own press release just dropped:
http://www.ftc.gov/news-events/press-releases/2014/07/cactus-juice-marketers-pay-35-million-refunds-consumers-deceptive
SEC opposes Merrill's "motion" to release 4 million for "expenses"
James Merrill, co-owner of TelexFree, out on bail, had previously filed a motion to release over 4 million dollars in one of the frozen accounts to pay for his legal defense. And SEC has filed an answer to that, explaining that James Merrill have plenty of assets available including accounts of several hundred thousand dollars, not to mention possible other sources (one of which is the house he used as bond to get himself out of jail). Why was he asking for 4 million in possibly tainted funds from alleged Ponzi scheme TelexFree? And since he haven't been indicted (merely charged), how much is his lawyers charging to require that much money, beyond what he has now?
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