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.

MLM Basics: Why is MLM so... addicting?

Many people who are NOT in MLM wonder WHY MLM seems to be so addicting to its participants, and even as members lose money month after month. After all, an "entrepreneur" is supposed to be making money, right?

MLMSkeptic has studied the issues, and it is clear that the participants are not merely valuing the economic benefits from MLM (for there is minimal evidence of such enrichment except for a few near the top), but actually SOCIAL and MENTAL benefits that came with the MLM participation. It is the social and mental benefits, not the financial, that keeps the members in despite their minimal economic gains.

Those social and mental benefits can be divided roughly into three types:

• Sense of belonging (family and group dynamic)
• Sense of being something greater than oneself
• Sense of accomplishment  (recognition)

Let's discuss each one.

Sense of belonging (family and group dynamic)

Many of the articles that tout the benefits of MLM emphasize the camaraderie of the group and team. There are even articles that tout "come for the opportunity; stay for the relationship".

One such leader asked the question:

Have Your “Why” Established. This is very important. This is your major driving force, your reason WHY you decided to make a move and become a network marketer. It could be family, financial freedom or even time freedom.  

It's not an accident that the author talk about family being a driving force, but have you ever wondered which family did he mean?

He probably doesn't mean YOUR family. Not your wife/husband/partner, not your father/mother, not your children.

He probably means your SALES/NETWORK family: your upline, your downlines, your lateral marketing folks.

But doublespeak is a standard tactic in unethical network marketing.

So how do you know if your specific network marketing is ethical or not? You don't.

There were plenty of examples where families have been torn apart because half of the partnership saw and recognized the hidden dangers, but the other half was already in too deep to see the forest for the trees. It will take a huge jolt for someone to recognize the threat to one's family from cultish-MLMs and some just sank deeper and deeper.

One example was when a wife, who's in MLM was talking with her MLM female friends, and the topic drifted to the husband, who was not in MLM.  One of the so-called female friends suddenly suggested that the husband is such a loser for not joining the MLM and the wife should leave that loser of a husband. Clearly, the husband is what's holding the wife back from true success. Wife was shocked into silence. WHICH does she value more... her family (husband and children)... or her personal success for a few dollars? And what sort of people are around her that would suggest NOT placing her family first?

Scam Psychology: The "Hard Work" Narrative vs. the Luck Factor

The words "hard work" often appears in the MLM supporter's arguments or narrative trying to discredit their "opponents". Any one who failed can be explained away as "they didn't work hard enough".

The problem is technology has shrunk the required competence in skills that makes a difference. It has "leveled the playing field", so luck now plays a much larger factor than any one realizes.

This is total anathema to network marketing / MLM, whichever name they choose to go by. Indeed, luck and success are almost opposites in the MLM mindset. Those who are successful and "self-made" never want to talk about luck, or even want to HEAR about luck.  This is a cognitive bias known as luck blindness. And MLM feeds into the self-made narrative directly. Most MLM pitches involves "entrepreneurial spirit" "be your own boss" "get away from the J.O.B. (just over broke)" and so on. These people are taught that any success they had is due to their "hard work" and the brilliance of the system (despite the same system, in another breath, claimed "anyone can do it")

This sort of mentality leads to some truly amazing (in a slow train wreck sort of way) claims. One of such claim is how some net winners in the ZeekRewards ponzi scheme are claiming they provided "value" to the business, and thus they are entitled to their ill-gotten gains and thus not have to hand them back to the receiver to be redistributed to the victims.

Let's forget for a moment that ZeekRewards ponzi scheme head Paul Burks was just judged guilty on all four counts in July 2016. How did these ZeekRewards Ponzi net winners claim they are working hard and thus entitled to be compensated, according to their brief, worth $50K to 80K a year? They are pasting 10 short text ads per day on anywhere they can get away with it (i.e. "spamming"). For the record, while they are required to copy the URL where they posted the ads back to ZeekRewards for "verification", no such verification was ever done. In other words, they don't even have to be done. Their work were worthless. It can be done in minutes. For this simple work, they they claim such to be worth 50-80K a year...

Right, and pigs can fly.

Cognitive Bias: Sunk Cost Fallacy

Answer this following question to yourself, truthfully please. Remember, it's for you and you alone. Only you would know the answer.

Q: Do you make rational decisions based on the best-estimate future value of objects, investments, and experience? 

Your answer to yourself is probably going to be: Yes, of course.

You are wrong. In reality, your decisions are based on your EMOTIONAL investment you already made and accumulated, and the more you invest, the less likely you can let it go. 

This is a cognitive bias known as "sunk cost fallacy".  In short, you are basing your decision on what has been invested, rather than what it's worth NOW (or in the future).

And it's very simple to make you feel you've invested time and effort... by making you do trivial tasks that amounts of zero importance. Zookeepers (and pet owners) know this principle well... it's called "contra-freeloading".

Contrafreeloading is a term coined in 1963 by animal psychologist Glen Jensen, who created an experiment where 200 albino rats were given a choice: unlimited food pellets in little bowl, or a mechanism where they have to learn to press a lever to release a food pellet. Logically, rats should simply gorge on the effortless food and never touch the lever. However, the opposite happened... rats actually prefer the food source where they had to press a lever, by a large margin. This was since repeated in gerbils, mice, birds, fish, monkeys, chimps... and more. (The only exception is the domestic cat). In short, animals prefer doing a little work (but not too much) for their food, rather than just take a handout.

A great example of contra-freeloading in a scam is ZeekRewards ponzi scheme (as accused by SEC and USSS), an $850 million scheme will soon go to trial. In ZeekRewards, one supposedly buy bids in the Zeekler penny auction, give away the bids to random strangers as promotion, and gets rewarded with certain amount of daily profit based on the bids purchased for the next 90 days. One also needs to post ads to random places on the Internet, and then post the URL on the ZeekRewards website as "verification" to be rewarded. In reality the vast majority of the bids were never used (i.e. the participants simply put money into the system) and expect daily "profit share" of up to 1.8% of the money they put in. The daily posting of ads were never tracked and verified, and indeed some people started a blog just to post ads... that nobody will ever read or see. It's rather obvious, in hindsight, that the "posting the ad" must be contrafreeloading... to make the participant feel they "worked" for and "earned" their share of "profit" amounting to as high as 1.8% DAILY, when the trivial task can literally be done in a few minutes, and be outsourced to some kids for pennies a day.

Yet when all these facts were pointed out to the ZeekRewards affiliates, their answers often are "you work for a competitor", "you work for the 1% to oppress us", "why don't you want us to succeed", and so on. After Zeek was shut down, several members even outright claimed "there were no victims until the government came along."

Curt Miller, on FB, soon after Zeek was closed by USSS and SEC, claiming that
"there were no victims (in ZeekRewards) until the government came along". 

They are so emotionally (and financially) invested into ZeekRewards, they can longer think rationally and see reason, even when there is NO REASON to continue to behave irrationally.

It is illogical to continue to support an alleged scam AFTER the owner made a plea deal with the government. However, hundreds of people donated money to a organization that promised to put the money toward "defending" ZeekRewards from the SEC. The owner of such organization was later jailed for defrauding the US government in an unrelated matter. The so-called defense ended up being an attorney who attended the receivership meetings, and filed several motions that was denied. He accomplished nothing useful except delay the process for the rest of the victims, and it was widely rumored (but never confirmed) that the rest of the money went to the organizer's private plane's upkeep.

They are the embodiment of sunk cost fallacy.

OPINION: With HLF consenting to reforms, and Burks of ZeekRewards Guilty, justice prevailed, but work is never done

July 2016 has been a busy month.

On July 15, 2016, news was released that Herbalife has reached a settlement with the Federal Trade Commission where HLF agreed to a LONG list of reforms and pay a $200 million fine / reimbursement to the victims.

Then on July 22, 2016 Federal Court in North Carolina passed down the verdict... a Federal jury has convicted Paul Burks of ZeekRewards of all four counts of fraud and conspiracy to commit fraud.

MLMSkeptic has long criticized both schemes, both here on the blog, and on BehindMLM.com.

MLMSkeptic had analyzed the various comments, retorts, criticisms, and cheers of Ackman's epic short of Herbalife at end of 2012 and the subsequent PR war, and pointed out problems with such arguments.  Most of the critics of Ackman then believed that HLF was "too big to fail", or perhaps "not egregious enough to die, maybe fined".

So it is with much amusement and facepalming when "journalists" loudly proclaimed "FTC says Herbalife not a pyramid", when FTC said no such thing.

How did CNNMoney got it so wrong?
FTC never said HLF is not a pyramid scheme... 

You are welcome to search the actual FTC complaint and stipulation agreed to by HLF. "Pyramid scheme" was nowhere in the documents. Furthermore, when questioned by the press at the news conference, FTC Chairwoman Edith Ramirez was asked at least FOUR SEPARATE TIMES whether HLF is a pyramid scheme, and Ramirez repeatedly dodged the question (probably as a part of the settlement).

Q: I know that you’re not going to put any labels on this, but it seems to me if we look at the BurnLounge case, that while this complaint does not use the words “pyramid scheme”, would you agree that a prima facie case of a pyramid scheme is alleged with the allegations within the complaint?

A:  Again, I will leave it up to you to draw that conclusion. Our focus in this complaint was in addressing the core issues

When asked outright about HLF's own announcement... That FTC have determined HLF to be NOT a pyramid scheme...

Q: Did you review the language in their (Herbalife’s) press-release that sort of affirmatively said that they were not declared to be a pyramid scheme? Because they’re sort of having that as an outright headline.

A: I do not agree with that statement. The word “pyramid” does not appear in our complaint that is true, but um again the core facts that we’ve alleged, that we consider to be problematic with their compensation structure, are set forth in detail in our complaint. And again, I will leave it to readers to draw their own conclusions. But that they were determined to not be a pyramid… that would be inaccurate.

And indeed, checking the HLF website no longer shows any sort of language that claimed "FTC determined HLF not pyramid scheme"...

So you know which way the CNNMoney article was written... They were written from HLF's press release, not the FTC press release. It is... biased.  Shame, CNN. Shame on you for lazy reporting.

I am not listing all the changes that FTC managed to squeeze out of HLF. You can read the documents linked above yourself. It is a LONG list of reforms, and it will likely become a new standard much as Amway's settlement with FTC created the modern MLM back in 1979.  And that pretty much tells you the fact: HLF was a scam that required reforms so it is no longer operating as a scam. Any one who argues otherwise is simply denying reality.

I may do my own analysis later on these changes, but HLF is no longer the same company. They believe they can continue to thrive (or else they would not agreed to these changes), but we shall see.

Then we come to Zeek Rewards, and Paul Burks.

Scam Tactics: Indignantly imply everybody else is wrong i.e. Nerium Proponent's Comment Dissected

skepticism, skeptical inquiry, critical thinking,
critical inquiry, and truth-seeking. (Photo credit: Wikipedia)

When you see a random claim, do you simply accept it as is, or do you adopt the Reagan doctrine: "Trust, but verify"?  A skeptic uses the latter.

Indeed, scam tactics often simply deny everything, randomly make some claims, and claimed to be outraged at the lack of facts presented.

Recently I came across this comment by a Nerium proponent. I am going to number the claims (i.e. sentences that appear to be factual, not merely an opinion), and let's verify each one.

Get your facts correct please. Nerium sold at Sears was counterfeit. (1) You will no longer find it there. (2)
The extract itself, NAE-8 is patented. (3) Look it up. Do a tiny bit of research on Jeff Olson (4) (you’ll kick yourself for your ignorance).
The before & afters are from its distributors. (5) One bad apple doesn’t spoil the bunch & that apple was taken care of (6) – & others warned.
Most importantly, results from the night treatment are published in the peer-reviewed literature. (7) Try looking up the Journal of Aging, Science, Jr of Clinical & Investigative Dermatology, etc…… (8)
The patented extract is the first superantioxidant on the planet. Look it up. (9)
Please don’t confuse searching with research! Try it, you might just learn something new!

Claim 1: Was Nerium sold at Sears counterfeit?

As we have not seen this listed ANYWHERE (search for Nerium + Sears just brings up similar night creams) we'll have to say "unverifiable", as we have nothing to show either true, or false.

UNSUPPORTED CLAIM, BUSTED

Claim 2: Is Nerium sold at Sears?

Nope, nothing there.

TRUE (but inconsequential, how often have you seen MLM products in retail? Never!)

Claim 3: Is NAE-8 patented?

Nope, NAE-8 is a registered trademark, not a patent. Nerium appears to hold at least two patents on how to extract oleander and aloe, but NAE-8 is not "patented", just trademarked as "non-medicated skin care preparation ingredient" under cosmetics.

BUSTED!

Claim 4: Is there anything surprising on Jeff Olson?

Searching for Jeff Olson shows that he used to ran People's Network, a Self-Improvement TV Channel, that got bought by Prepaid Legal in 1997ish, and he became Prepaid Legal's CEO in 1999. In 2001 PL was hit by Wyoming Attorney General with charges of illegal income claims, then SEC also hit Prepaid Legal for misclaiming expenses as assets (i.e. inflating its financial situation). PL was sued hundreds of times in Missouri, won a few, lost more, decided to settle the remaining 400+ cases. Then things were quite until 2009, when both FTC and SEC subpoenaed some documents for fact-finding missions. In 2011 PL was bought out and reorganized, and Olson left (or was forced out) and started Nerium.

Nothing too surprising, or worthy of emulation, IMHO. Got lucky and got acquired, had to wield whip on sales force to keep them in line, and got forced out during corporate shuffle.

HALF-TRUE

Vemma update: Vemma / BK Boreyko / Tom Alkazin said it's ALL affiliate's fault

Vemma, BK Boreyko, and Tom Alkazin each had filed response to FTC's case. From here on, it's clear what their strategy is:

To all the YPR Vemma affiliates...

IT IS ALL YOUR FAULT! (you deserved to be scammed)

Why, you thought I was kidding? 

Excerpt from Vemma's official response:

...Consumers represented by the FTC knowingly and voluntarily, and possibly unreasonably, exposed themselves to any claimed losses with knowledge or appreciation of the risk involved...

BK Boreyko's response also contained this section. 

Tom Alkazin's response is slightly shorter, but said the same thing:

...Any consumers represented by the FTC knowingly and voluntarily assumed the risk of losses.

In other words, if you lost money, it's because you are stupid, not because they tricked you. 

But this attitude of victim blaming is hardly unique.  It is a frequent defense by scammers, who basically said "the victims deserved to be fleeced". 

Vemma Lost Injunction Fight. Now What?

If you haven't heard, Vemma lost its attempt to reverse the temporary restraining order put in by FTC when it was shut down. The judge found that the claims and evidence supporting such as put forth by FTC to have merit  and Vemma's counter-argument and evidence insufficient to counterbalance such evidence.

As a result, Vemma will have to change:

...prohibition of the sale of Affiliate Packs, and the linking or tying of an affiliate’s eligibility for bonuses or accumulation of qualifying points to their own purchases of Vemma product, whether through participation in the auto-delivery program or otherwise. 

The injunction will also encompass the “Two & Go” Program, which falls under the above prohibition.

In other words, buying drinks no longer counts as qualifying criteria.

What are the points to take away from this decision?

1. Affiliates are not customers

Affiliates' job are to FIND customers, and be compensated for doing so. They should not be customers themselves, who want product for product's value.

Yet there's no doubt that affiliates are making the purchases in Vemma. That leads us to the next item...

FTC shuts down Vemma for being a $200 million pyramid scheme...

It brings me no joy to see this news, which was a surprise even to me... I expect action, but not this fast. 

But to summarize, Vemma's assets has been frozen and operation stopped based on temporary restraining order as issued by court based on lawsuit brought by the Federal Trade Commission.

Quoting AP / CNBC story:

The Federal Trade Commission said Wednesday that Vemma Nutrition has been temporarily shut down for operating a pyramid scheme that promised college students riches if they sold its nutritional drinks, but most ended up losing money. 

The consumer protection agency said that Vemma told recruits that they could make as much as $50,000 per week selling its nutritional beverage Vemma, energy drink Verge or protein shake Bod-e. An initial investment of $600 was paid for products and business tools and $150 in Vemma products had to be bought each month to receive bonuses. The FTC said Vemma provided little help on how to sell its products and instead rewarded them for recruiting more people. 

Vemma earned $200 million a year in 2013 and 2014, according to the FTC.
A representative from Vemma, which is based in Tempe, Arizona, did not immediately respond to a request for comment.

A full copy of the complaint and the 5 summary points are available at BehindMLM.com:

Count 1 – Vemma is an “illegal pyramid” scheme 

Defendants promote participation in Vemma, which has a compensation program based primarily on providing payments to participants for the recruitment of new participants, not on the retail sale of products or services. 

Defendants’ promotion of this type of scheme, often referred to as a pyramid scheme, constitutes a deceptive act or practice. 

Count 2 – Income Claims 

In numerous instances in connection with the advertising, marketing, promotion, offering for sale, or sale of the right to participate in the Vemma program, Defendants have represented … that consumers who become Vemma affiliates are likely to earn substantial income. 

In truth and fact … consumers who become Vemma affiliates are not likely to earn substantial income. 

Count 3 – Failure to Disclose 

In numerous instances … defendants have represented … that individuals have earned substantial income from participation in the Vemma program, and that any consumer who becomes a Vemma affiliate has the ability to earn substantial income. 

In numerous instances … Defendants have failed to disclose, or disclose adequately, that Vemma’s structure ensures that most consumers who become Vemma affiliates will not earn substantial income. 

This additional information would be material to consumers in deciding whether to participate in the Vemma program. 

Count 4 – Means and Instrumentalities 

By furnishing Vemma affiliates with promotional materials to be used in recruiting new participants that contain false and misleading representations, (Vemma) have provided the means and instrumentalities for the commission of deceptive acts and practices. 

Count 5 – Relief Defendant 

Relief Defendant Bethany Alkazin, has received … funds or other assets from (Vemma) that are traceable to funds obtained from (Vemma’s) customers through the deceptive acts or practices described herein. 

Relief Defendant will be unjustly enriched if she is not required to disgorge the funds or the value of the benefit she received as a result of (Vemma’s) deceptive acts or practices.

But what does this mean to you, the Vemma affiliate, other MLM participants, and so on? What will happen on the hearing on September 3rd?

Here's a few layman's speculations. Remember, I'm not a lawyer, and I have no insider information. (Lack of such, however, has not stopped various Vemma "leaders" from issuing feelings, such as "Vemma doesn't deserve to be shut down" "It's just a complaint, not a lawsuit" "The lawsuit is a joke", "FTC bit off more than it can chew" and so on)

But let's be realistic here... If you want people to lie to you and tell you everything will be alright, go read whatever verbiage your upline put out. You're here for some real analysis.

The More Things Change, the More They Stay The Same: Scammer Joined More Scams

Apparently once you joined the seedier side of MLM (i.e. the pyramid and Ponzi scheme side), you get addicted to the easy money and you can't get out.

Kevin Trudeau apparently started cheating his way through life right after he finished high school, and quickly got into bank and credit card fraud.

Paul "ZeekRewards" Burks apparently operated multiple MLM businesses before shifting over to Ponzi scheme business model.

And this is hardly a Western practice, as apparently scammers are the same world over: it apparently is the only thing they know, once they had a taste of easy money.

Meet Yoshio Matsuura (松浦良夫), of Japan, and his link to at least two scams: Skybiz... and Interush.

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. 

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. 

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. 

News Update 15-JUL-2014: Trivita Settle with FTC; SEC oppose Merrill access to 4 million; TelexFree Trustee issued more subpoenas

Seal of the United States
Federal Trade Commission.
(Photo credit: Wikipedia)

Remember, readers: VERIFY the information for yourself. If they don't include links, their news probably cannot be trusted. Even if they include links, make sure it's to a reputable website like news websites and such.


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?

BREAKING NEWS: Department of Justice and Federal Bureau of Investigations (DOJ and FBI) are investigating Herbalife

According to an Federal official, and reported by multiple sources such as Financial Times and Los Angeles Times, FBI and DOJ had opened a criminal investigation into Herbalife several MONTHS ago, before FTC announced their own investigation.

With SEC and FTC also investigating the company, this may be bad news for Herbalife.

See LA Times Link: http://www.latimes.com/business/la-fi-herbalife-fbi-20140412,0,5064592.story

BREAKING NEWS: Herbalife confirmed it is under investigation by FTC

In a webcast, Herbalife confirmed that it is indeed under investigation by FTC.

http://www.marketwatch.com/story/federal-probe-is-latest-twist-in-herbalife-saga-2014-03-12

BREAKING NEWS: FTC responds to Senator Markey's Letter... with nothing

FTC just made public their response to Senator Markey's letter regarding Herbalife and its investigation.

They took 3 pages to get to the point, which can be roughly summarized as

"We're looking into it, and we can't answer your questions without giving ourselves away. Stay tuned."

Here's Kevin "The MLM Attorney" Thompson of Thompson-Burton discussing the response.

http://thompsonburton.com/mlmattorney/2014/03/01/ftc-responds-to-senator-markeys-letter/

Bad Propaganda: Avon was NOT a sterling example of MLM success

 u

Avon logo  (Photo credit: Wikipedia)

When trolling for new members, the recruiters for MLM often cite Avon, Amway, and until recently, Herbalife as sterling examples of network marketing. But are they really?

Since Amway is a private company, I have no stock data to show you, and Herbalife prices are crazy because some hedge fund managers are having an ego trip by playing with HLF stock. That's not a good indicator of the confidence in the company.

But Avon, that company had been around for over 100 years. How did it do?

If you enter AVP into Google, you'd find that Avon had been in STEADY DECLINE for the last ten years... since it adopted MLM. That's right, Avon did NOT adopt multi-level marketing until 2005. And it had been FAILING every year.

Avon Products, as of 18-FEB-2014

The stock chart is clear: for the last 10 years, S&P 500 had gone up 71%, while Avon stock price had gone DOWN 52%.

And one of the MAJOR change during that decade is Avon adopting MLM in 2005.

Please recall that MLM was started in 1979 when Amway survived an FTC challenge in court.

It took 25 years for Avon to go MLM, after MLM was created, and 100+ years AFTER the company was founded.

And it had done steadily WORSE every year, ever since.

Think about that. What do the stockholders know that we don't?

(And why would MLM defenders cite Herbalife's stock price rise since Ackman's challenge as proof that MLM is thriving, while ignoring Avon's price drop?)

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.

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.