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  1. #1
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    The Herbalife FTC Investigation Could Affect The MLM Industry

    http://www.theverge.com/2014/3/18/55...from-herbalife

    Nearly 15 months ago, Wall Street hedge fund manager Bill Ackman placed a billion dollar Wall Street bet that Herbalife, the nutritional supplement company, was an illegal pyramid scheme. Despite a major publicity and lobbying campaign, the company continued to operate and Ackman’s fund lost as much as a half-billion dollars on the bet.

    But last week, the Federal Trade Commission announced it was opening an investigation into Herbalife. This was a watershed moment for Ackman and others who followed his lead. The announcement of an FTC investigation seemed to show that his claims about Herbalife had merit, and that one of the biggest players in an often-criticized industry wasn’t merely in the sights of a hedge fund manager; it was also in the sights of the nation’s foremost consumer protection agency.

    "A LOT COULD CHANGE IN THE NEXT 90 DAYS."

    Details about the investigation are scarce thus far. Herbalife issued a press release stating that the company had received a "Civil Investigative Demand" from the Federal Trade Commission — a formal request for documents. But so far the FTC, which has confirmed the investigation, has been mum about which documents it is seeking.

    "This is like two people going into a room — FTC and Herbalife — to have a conversation, and everyone trying to listen in through a keyhole," says Bill Keep, dean of the School of Business at The College of New Jersey, who co-wrote an often-cited paper on pyramid schemes.

    But picking through the FTC’s docket of historical pyramid scheme cases and recent decisions, a clear trend emerges: an increasingly aggressive FTC, which is beginning to assert itself after more than 30 years of relative passivity.

    "A lot could change — about this industry, and certainly about Herbalife — in the next 90 days or so," Keep says.

    THE AMWAY DECISION
    To understand what the FTC is looking for in its Herbalife probe, one has to look back at the FTC’s relationship with multi-level marketing schemes (MLMs). Way back in 1975, the FTC went after Amway — the biggest MLM player in the country at the time, with a sales structure virtually indistinguishable from Herbalife’s today. As the FTC saw it, Amway had two main problems in 1975: its distributors focused on recruiting new people into the sales structure rather than selling products, and distributors made dishonest promises about the riches that new distributors might earn by selling Amway.

    The FTC’s eventual decision in 1979 kept Amway in business and set some basic MLM guidelines: the "70 percent rule" requires that a distributor must sell "at least 70 percent of the total amount of products he bought during a given month" at wholesale or retail price; the "10 customer" rule requires that distributors "must make not less than one sale at retail to each of 10 different customers that month"; and the "hypothetical" profit rule requires that MLMs must conspicuously disclose the amount of money distributors might actually make when they sign up.

    But those guidelines are vague. They don’t stipulate, for example, who actually enforces the rules. A 2004 FTC Staff Advisory Opinion was ostensibly meant to clarify things, but it failed to; it implied, among other things, that the 70 percent rule doesn’t really matter. So companies such as Amway, Nu Skin, Avon — and Herbalife — have been free to adhere to the FTC’s rules in whatever way they see fit.

    THE BIG SHIFT
    But the era of vague MLM guidelines may be changing. In just over the past year, the FTC has made three major declarations about the importance of sales to customers outside the distribution networks of MLMs.

    The first declaration came in January 2013, when a US district judge issued a restraining order in a pyramid scheme case brought by the FTC against Fortune Hi-Tech Marketing (FHTM). That restraining order prohibited the firm from paying compensation to participants "unless the majority of such compensation is derived from sales to persons who are not members" of FHTM’s distributor network.

    Then, in April last year, in a case against BurnLounge, the FTC noted that compensation unrelated to retail sales was "the sine qua non" — the essential ingredient — "of a pyramid scheme."

    And in December, in a case against an MLM called the Global Information Network, the FTC argues the company is a pyramid scheme because, "There are no sales of product or service to people outside GIN's network, so there cannot be any relation between retail (or external) sales and financial rewards paid in connection with recruitment."

    Keep explains: "Whatever confusion the 2004 FTC Staff Advisory caused regarding internal consumption, FTC actions in 2013 make clear that MLMs need to have substantial retail sales … outside of the marketing program." He continues: "MLMs with unenforced policies regarding retail sales, those who fail to document retail sales, and those who conveniently try to redefine members of the marketing program as retail customers despite the fact that they joined under the twin offering of discounted products and a business opportunity are vulnerable to a pyramid scheme charge."

    For that reason, Keep and others argue that the FTC’s Civil Investigative Demand last week likely demands that Herbalife come clean about its retail sales. While Herbalife’s promotional materials claim that the company "offers compensation that is directly linked to the generation of product sales," it hasn’t bothered to prove as much; it has, in fact, declined to publicly disclose information about retail sales.

    The FTC, shut in a room with Herbalife, is likely asking why.
    Originally Posted by nomaxim
    Sorry there ''ohein56', but it appears that 'Joecool44' does not have the position that you envision on this topic.

    'Joecool44' has, as a matter of routine, refuted most of your accusations
    Quote Originally Posted by Jax74 View Post
    Some people have the ability to think critically, some do not. ohein obviously doesn't.

  2. #2
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    Re: The Herbalife FTC Investigation Could Affect The MLM Industry

    It certainly could, in a positive way, IMO.
    As long as it is acceptable for a person to beLIEve that he knows how god wants everyone on Earth to live, we will continue to murder one another on account of our myths. ~ Sam Harris, 'The End Of Faith'
    ~~~~~
    Christianity demands the crucifixion of the intellect.
    ~ Susan Kierkegaard

  3. #3
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    Re: The Herbalife FTC Investigation Could Affect The MLM Industry

    Yet again the "70% rule" is misunderstood. It doesn't say that 70% should be sold, it states that 70% should sold or consumed. This covers internal consumption.
    Keep trying jokey......you might get it right one day.
    "People are not interested in your product or your business; they are interested in solving their own problems." -- James Dillehay, Entrepreneur and Author

  4. #4
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    Re: The Herbalife FTC Investigation Could Affect The MLM Industry

    Quote Originally Posted by ChrisDoyle View Post
    Yet again the "70% rule" is misunderstood. It doesn't say that 70% should be sold, it states that 70% should sold or consumed. This covers internal consumption.
    Keep trying jokey......you might get it right one day.
    It's not misunderstood. The FTC did not clearly define the parameters. Thus, as the article says, the rule is used however the MLM companies want to use it.
    Originally Posted by nomaxim
    Sorry there ''ohein56', but it appears that 'Joecool44' does not have the position that you envision on this topic.

    'Joecool44' has, as a matter of routine, refuted most of your accusations
    Quote Originally Posted by Jax74 View Post
    Some people have the ability to think critically, some do not. ohein obviously doesn't.

  5. #5
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    Re: The Herbalife FTC Investigation Could Affect The MLM Industry

    If people actually bothered to learn what the heck a "retail sale" was in law, things would be a lot less complicated.

    New to scam.com? This is what you can expect from MLM critics in support of their claims ....


    Why the f-u-c-k do you need evidence all the time? - Zapticon
    You know that I don't provide proof of my claims - Once Upon A Time
    I have the information but I'm not posting it - Joecool


  6. #6
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    Re: The Herbalife FTC Investigation Could Affect The MLM Industry

    Quote Originally Posted by IBOFightBack View Post
    If people actually bothered to learn what the heck a "retail sale" was in law, things would be a lot less complicated.
    Maybe jokey could help us out......what's your definition of a retail sale jokey?
    "People are not interested in your product or your business; they are interested in solving their own problems." -- James Dillehay, Entrepreneur and Author

  7. #7
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    Re: The Herbalife FTC Investigation Could Affect The MLM Industry

    Quote Originally Posted by ChrisDoyle View Post
    Maybe jokey could help us out......what's your definition of a retail sale jokey?
    Lets see if I can get him to answer that for you Chris...

    Jokey's run home to lick his wounds from yesterday...:rasta:
    As long as it is acceptable for a person to beLIEve that he knows how god wants everyone on Earth to live, we will continue to murder one another on account of our myths. ~ Sam Harris, 'The End Of Faith'
    ~~~~~
    Christianity demands the crucifixion of the intellect.
    ~ Susan Kierkegaard

  8. #8
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    Re: The Herbalife FTC Investigation Could Affect The MLM Industry

    Quote Originally Posted by IBOFightBack View Post
    If people actually bothered to learn what the heck a "retail sale" was in law, things would be a lot less complicated.
    What happens when retail sales are only to people participating in the compensation plan?
    Originally Posted by nomaxim
    Sorry there ''ohein56', but it appears that 'Joecool44' does not have the position that you envision on this topic.

    'Joecool44' has, as a matter of routine, refuted most of your accusations
    Quote Originally Posted by Jax74 View Post
    Some people have the ability to think critically, some do not. ohein obviously doesn't.

  9. #9
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    Re: The Herbalife FTC Investigation Could Affect The MLM Industry

    Quote Originally Posted by Joecool44 View Post
    What happens when retail sales are only to people participating in the compensation plan?
    They become the end user. The definition of a retail sale is a sale to an end user (not for resale).

    The question you should be asking is ''are they buying those products to qualify for bonuses or because they want them? That's the question the FTC would ask.
    "People are not interested in your product or your business; they are interested in solving their own problems." -- James Dillehay, Entrepreneur and Author

  10. #10
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    Re: The Herbalife FTC Investigation Could Affect The MLM Industry

    Quote Originally Posted by ChrisDoyle View Post
    They become the end user. The definition of a retail sale is a sale to an end user (not for resale).

    The question you should be asking is ''are they buying those products to qualify for bonuses or because they want them? That's the question the FTC would ask.
    And what happens when the "end users" are nearly exclusively people who are distributors?
    Originally Posted by nomaxim
    Sorry there ''ohein56', but it appears that 'Joecool44' does not have the position that you envision on this topic.

    'Joecool44' has, as a matter of routine, refuted most of your accusations
    Quote Originally Posted by Jax74 View Post
    Some people have the ability to think critically, some do not. ohein obviously doesn't.

  11. #11
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    Re: The Herbalife FTC Investigation Could Affect The MLM Industry

    Quote Originally Posted by Joecool44 View Post
    And what happens when the "end users" are nearly exclusively people who are distributors?
    The question is asked ''are they buying because they want them, or are they buying to qualify for bonuses?'' If there is a large number of distributors not earning bonuses, but still buying products every month it doesn't take a genius to conclude that they want the products.
    "People are not interested in your product or your business; they are interested in solving their own problems." -- James Dillehay, Entrepreneur and Author

  12. #12

    Re: The Herbalife FTC Investigation Could Affect The MLM Industry

    Quote Originally Posted by ChrisDoyle View Post
    The question is asked ''are they buying because they want them, or are they buying to qualify for bonuses?'' If there is a large number of distributors not earning bonuses, but still buying products every month it doesn't take a genius to conclude that they want the products.
    It seems to me that the FTC will insist on clear delineation and documentation of personal use versus resale. At least I think that's the direction its going. Once they do that you may find that state franchise tax boards will want their share. Its been a grey area for too long.

  13. #13
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    Re: The Herbalife FTC Investigation Could Affect The MLM Industry

    Quote Originally Posted by noagenda View Post
    It seems to me that the FTC will insist on clear delineation and documentation of personal use versus resale. At least I think that's the direction its going. Once they do that you may find that state franchise tax boards will want their share. Its been a grey area for too long.
    At them moment its just guesswork from everyone, the FTC haven't given any indications about anything, unless someone can prove me wrong.
    "People are not interested in your product or your business; they are interested in solving their own problems." -- James Dillehay, Entrepreneur and Author

  14. #14
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    Re: The Herbalife FTC Investigation Could Affect The MLM Industry

    I think most people who understand the business, along with the FTC, will realise that its not comparable with retail type business where there is a thick line between retailer and customer. Customers have the opportunity to buy at wholesale for a very small or zero joining fee; people can use the products and refer them to others, again for a small joining fee and they can do this flexibly, one month telling a few others about the products, another month doing nothing and so on. There is no sense in passing laws that will stop this flexibility. As long as the industry, by law, has watertight refund policies, along with Something like we have in the UK..... maximum spend of £200 in the first 7 days, with a full refund if you change your mind, then I think people are joining something that is almost risk free.
    "People are not interested in your product or your business; they are interested in solving their own problems." -- James Dillehay, Entrepreneur and Author

  15. #15
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    Re: The Herbalife FTC Investigation Could Affect The MLM Industry

    http://www.sec.gov/investor/alerts/ia_pyramid.htm

    When considering joining an MLM program, beware of these hallmarks of a pyramid scheme:

    No genuine product or service. MLM programs involve selling a genuine product or service to people who are not in the program. Exercise caution if there is no underlying product or service being sold to others, or if what is being sold is speculative or appears inappropriately priced.

    Promises of high returns in a short time period. Be leery of pitches for exponential returns and "get rich quick" claims. High returns and fast cash in an MLM program may suggest that commissions are being paid out of money from new recruits rather than revenue generated by product sales.

    Easy money or passive income. Be wary if you are offered compensation in exchange for little work such as making payments, recruiting others, and placing advertisements.

    No demonstrated revenue from retail sales. Ask to see documents, such as financial statements audited by a certified public accountant (CPA), showing that the MLM company generates revenue from selling its products or services to people outside the program.

    Buy-in required. The goal of an MLM program is to sell products. Be careful if you are required to pay a buy-in to participate in the program, even if the buy-in is a nominal one-time or recurring fee (e.g., $10 or $10/month).

    Complex commission structure. Be concerned unless commissions are based on products or services that you or your recruits sell to people outside the program. If you do not understand how you will be compensated, be cautious.

    Emphasis on recruiting. If a program primarily focuses on recruiting others to join the program for a fee, it is likely a pyramid scheme. Be skeptical if you will receive more compensation for recruiting others than for product sales.

    The SEC has taken emergency enforcement action to stop alleged pyramid schemes that violate the federal securities laws, including schemes disguised as MLM programs.
    Originally Posted by nomaxim
    Sorry there ''ohein56', but it appears that 'Joecool44' does not have the position that you envision on this topic.

    'Joecool44' has, as a matter of routine, refuted most of your accusations
    Quote Originally Posted by Jax74 View Post
    Some people have the ability to think critically, some do not. ohein obviously doesn't.

  16. #16
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    Re: The Herbalife FTC Investigation Could Affect The MLM Industry

    Quote Originally Posted by Joecool44 View Post
    Yep, agree with that.
    Again:
    Retail sales = sales to an end user...... someone who wants the product for the products sake, not to qualify. Its irrelevant if that person is paying full retail price or is a registered distributor paying wholesale price.
    "People are not interested in your product or your business; they are interested in solving their own problems." -- James Dillehay, Entrepreneur and Author

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