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

Previously, MLM Skeptic has posed the question... Why had network marketing lost its will to retail?  It was more of a hypothetical question as network marketing should be all about retail, but it seems that many network marketing firms had morphed into "product-based pyramid scheme" (PBPS) that seem to be making a lot of sales, but has no proof that it was actually retailing (most if not all) products to the end consumers. Instead, they are selling products to their distributors... and from there, they don't care any more. They'd love to have the distributors to consume all of the products, and in fact, DSA had fought so, by getting several states to adopt anti-pyramid laws that specifically legalized self-consumption, and DSA said about internal consumption (i.e. self-consumption)

...compensation received by salespeople for products they themselves buy and use, and those bought and used by other salespeople within their organization, is a legitimate, legal and ethical practice and not evidence of illegal pyramid activity. 

http://www.dsa.org/ethics/internalconsumptionwhitepaper.pdf

DSA, by adopting the position, has undermined its own position that network marketing is about retail, by allowing distributors to take "shortcuts" to sales goals by buying products themselves. Without audits and limits, self-consumption leads to product-based pyramid schemes.

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

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

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

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

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

http://www2.gnb.ca/content/gnb/en/news/news_release.2014.01.0104.html

Please see WCM777 tag for other related updates.

http://amlmskeptic.blogspot.com/search/label/WCM777

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

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

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

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

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

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

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

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

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

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

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

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

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

MLM Dictionary: Omnitrition Case

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

Explaining the Case

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

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

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

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

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

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

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

BREAKING NEWS: Canada launches formal probe into Herbalife

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

CCB has no comment.

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

http://nypost.com/2014/01/28/canadian-regulator-probing-herbalife/