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).

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

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.

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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:

https://archive.org/stream/Think_and_Grow_Rich/think-and-grow-rich-napoleon-hill_djvu.txt

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.

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

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!

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...

BREAKING NEWS: Herbalife may also be under investigation in China

When reports of NuSkin representative's alleged misconduct surfaced in Chinese media back in June and July 2013 in China it received little western media attention. However, when the Chinese Communist Party media People's Daily repeated the allegations, and called for local authorities to investigate and stamp out pyramid schemes and pyramid selling, western media noticed, and NuSkin stock took a dive, and Herbalife stock also took a dive because it's already under attack in the US. 

Turns out, Herbalife may be under more direct threat than people realized, as NYPost managed to find a report in August 2013 in First Financial Daily (of China) that Herbalife reps in China encouraged front-loading and thus is in violation of anti-pyramid-selling laws in China, among other potential law-breaking.  Quoting from the report... 

Recently, First Financial Daily discovered through private investigation that, while Herbalife is fast growing in the China market, its sales model is suspicious in five respects: collection of "recruitment fees" in disguised form, suspected exaggeration of  product effects, possible windfall profit derived from products, fast growing clubs absent of strict supervision and control, and product purchase overly dependent on sales representatives or potential sales representatives…… A series of issues have deviated the direct selling model of this company, and have contradicted with certain provisions in the "Regulations on the Prohibition of Pyramid Selling" promulgated and implemented by the State Council in 2005. As a result, suspicion has been brought up that Herbalife's sales model is a pyramid scheme. 

The specific offense mentioned first in the report is reps are required to buy $2000 USD worth of Herbalife products to join. They're told that 1) it's easy to sell, 2) it demonstrates that they are serious about this opportunity, and 3) there are plenty of people who want to join and only limited positions available.

There's a lot more.

Bad Propaganda: Perpetuating Myths and Misunderstandings to Deflect Criticism

Editor's Note: This is start of a new segment 'Bad Propaganda' where I will analyze bad propaganda used by various MLM promoters who, whether intentionally, or by accident, or perhaps, even ignorance, perpetuate myths, misunderstandings, half-truths, and "spin" to promote their MLM when they don't have to. I've done this several times before, but usually as some sort of rebuttal (for Wazzub, Zeek, TVI Express, and other scams). This will make it a new 'regular feature'.

When a new MLM recruit wants to express their enthusiasm for their new venture, one of the things they do now is create a web page, esp. if they wish to market online. And one of the frequently asked questions asked about many MLMs is "isn't it just a pyramid scheme?"  There's the right way to answer it (explain the Koscot test and why MLM does NOT fit the Koscot test... if done correctly)... and then there is this way... done by a Vemma Rep.

In order not to embarrass him too badly, his name will not be used, and URL will NOT be included (don't want to give him any LinkJuice), but you can see a picture of his web page below...

The title is "Vemma : Scam or a legitimate opportunity for you and your friends" by "Nick".

From here on, his stuff is in blue, and my counterpoints will be in red.

You might be wondering if there is an opportunity to make money with Vemma, or if the Vemma scam allegations are true. Don't worry you have come to the right place seeking answers so look no further.

Wow, he claims to be the ONLY place on the web to offer answers about Vemma, look no further! This guy is full of himself, isn't he?

Nick (censored) is a 21 year old adventure seeker, who went from scrubbing dishes at an old hospital for minimum wage to traveling the Northwest and has built a distribution network of close to 1,000 people in the past 12 months. He has inspired young entrepreneurs into taking charge of their lives, and isn't afraid to challenge the status quo. CLICK HERE to learn about how you can become one of the next success stories on his team, and work personally with Nick and the other leaders of Treasure (censored) Vemma.

The standard rags-to-riches underdog story that appeals to the "rebel youth" crowd. 

   There are many Vemma reviews on the internet that make claims about the company, and for someone who wants to cut straight through the BS you need answers. So lets get to the bread and butter, but know that multi level marketing scams are hard to detect so in this article I will help you swim through the sludge of information on the web.

    In order to confirm or deny if Vemma is a scam you need to understand what the company is. They are a health and wellness business based out of Scottsdale Arizona. Founded in 2004 by Bk Boreyko, Vemma has done over 1 billion dollars in sales over the past nine years. Pretty big for a scam i'de say.

First paragraph is a completely waste of space, as it said nothing. Second paragraph started off wrong. To know whether Vemma is a scam, you need to define what a scam is, not what Vemma is. That comes second.

That was segued into a "too big/old to be a scam" myth, though he did couched it as a personal opinion, bad spelling and all.  Go look up FHTM should tell you it lasted 11 years before being shut down by the FTC as a pyramid scheme. Bernie Madoff's ponzi scheme took even longer. Both are much bigger than Vemma. Clearly, Nick had NO IDEA what he was talking about. 

But wait, there's more! Lots more!