Monday, 25 July 2016

'Herbalife (HLF)' racketeers still stealing from Africans

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The following article which attempts to educate the public about 'MLM' rackets, was posted on the Consumer Watchdog Site in Botswana July 22nd 2016. It should be standard reading for senior US regulators and law enforcement agents, because it begins to reveal what their chronic failure has produced internationally. Botswana is a southern African country with a population of approximately 2 millions. The average per capita income of Botswana, is  just over $7000. The currency is the Botswana pula.


Herbalife Need Your Money

They might talk about supplementing your income, adding a little extra money on the side or even that it’s a full-time, wage-earning job but it’s simply not true. Their own figures prove this.

For instance, the latest data for Amway that I’ve seen was from Amway’s UK business for 2013 and it makes rather poor reading. It shows that in September 2013 they had 30,415 Retail Consultants, 13,141 Certified Retail Consultants and 81 Business Consultants in the UK. The average income figures for these groups were, I’m afraid, rather pathetic.

Retail Consultants had an average income of a mere £42 per month which is about P7,000 per year. Certified Retail Consultants averaged only about P18,000 per year and the very rare (fewer than one-fifth of one percent) Business Consultants brought in about P300,000.

None of these people came even close to the UK’s average national income, not even the top earners. Most importantly, these figures are income, not profits. They don’t take account of the costs involved in running their little business, recruiting people beneath them, electricity and their phone and internet costs.
It’s the same with Herbalife. The figures for their U.S business in 2015 are just as miserable but they show how a MLM scheme really works. 80% of the members, over 400,000, are just people who buy their products and don’t have a “downline”. These are the people on the bottom rung of the pyramid. They buy stuff from Herbalife, but there’s no evidence they sell it to other people.
The most interesting group is those people who earned commission from their downline sales. These are the “Sales Leaders With a Downline” and in 2015 there were 68,768 of them in the USA. These are the people that Herbalife offer as examples of the riches you can earn from joining Herbalife.

But there are no riches. In fact, the 10% at the top of the pyramid take nearly 90% of all the money. At the other end of the scale, the bottom 90% earn just over 10% of the money. The group earning between $1 and $1,000 in 2015 (that’s 62.5% of the entire group) actually earned an average of just $303.
And again that’s their income, not their profit. That’s before they paid their expenses, all the bills necessary to recruit all the people below them.
So yet again it’s the same old story. If you want to make money from either Amway or Herbalife you need to be at the top of the pyramid and all the money you’ll earn will come directly from the people beneath you in the pyramid.
Now there comes some more news. Just last week the US Federal Trade Commission concluded a lengthy investigation of Herbalife and reported that Herbalife “have agreed to fully restructure their U.S. business operations and pay $200 million to compensate consumers to settle Federal Trade Commission charges that the companies deceived consumers into believing they could earn substantial money selling diet, nutritional supplement, and personal care products.”

That’s right,Herbalife will be paying $200 million to the distributors who fell for the sales hype that seduced them.

The investigation found a number of things wrong with the Herbalife business model. The report observed that the “overwhelming majority of Herbalife Distributors who pursue the business opportunity make little or no money, and a substantial percentage lose money” and that Herbalife “does not offer participants a viable retail-based business opportunity.

Defendants’ compensation programme incentivises not retail sales, but the recruiting of additional participants who will fuel the enterprise by making wholesale purchases of product.”

The report also gives examples of how absurd the Herbalife model can be. It reports that “during the years 2009–14, one top Distributor paid over $8 million for product (with a total Suggested Retail Price of over $16 million) which the Distributor purchased in the names of various downline members, thereby generating additional rewards and qualifying for higher payments from Defendants.

This Distributor then donated all of this product to charity, rather than attempting to sell it. The Distributor generated enough rewards through these purchases to make a net profit, without even selling the products.”
The difference between a Multi-Level Marketing scheme and a pyramid scheme is usually explained by the absence of products in a pyramid scheme.
The FTC report shows that even with Herbalife the products can be irrelevant. If you can give the products away to charity and still make a profit then you have to ask which of the two Herbalife really is.

The Chair of the FTC, Edith Ramirez said: “This settlement will require Herbalife to fundamentally restructure its business so that participants are rewarded for what they sell, not how many people they recruit [...] Herbalife is going to have to start operating legitimately, making only truthful claims about how much money its members are likely to make, and it will have to compensate consumers for the losses they have suffered as a result of what we charge are unfair and deceptive practices.”

This ruling from the FTC is yet further proof that Herbalife, like many other Multi-Level Marketing schemes, are a very good way for some people to make a vast amount of money. The few at the top do very nicely but only at the expense of the many lower down the pyramid.

Unfortunately, this ruling only relates to Herbalife’s operations in the USA but I bet we’ll still see the effects here in Botswana. They’re going to have to find that $200 million somewhere and I suspect it’ll be the victims elsewhere in the world who’ll be pressurised to raise it. Expect to see Herbalife pushing its bogus business in your direction soon.

Hopefully you have a door that you can show them? 

Friday, 22 July 2016

'MLM' shill, Michelle Van Etten, supports 'MLM' pitchman, Donald Trump.

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Michell Van Etten is a shill for a particularly absurd 'Amway' copy-cat 'MLM / Prosperity Gospel' cultic racket known as  'Youngevity.'

Last Sunday, Michelle Van Etten made a reality-inverting appearance in support of Donald Trump at the Republican National Covention where she was introduced as 'a businesswoman.' 

Ms. Van Etten made the deeply-ironic claim that over-regulation is killing the 'American Dream.'

The 'Youngevity' racketeers have also been using the fog-horn-voiced conspiracy theorist (and Donald Trump supporter), Alex Jones, as a pitchman.

David Brear (copyright 2016)

Thursday, 21 July 2016

'MLM' racketeer, Paul Burks, convicted of fraud and conspiracy.

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From January 2010 through August 2012, Paul Burks was the owner of Rex Venture Group, LLC (RVG), through which he owned and operated Zeekler, a sham Internet-based penny auction company, and its purported advertising division, ZeekRewards (collectively “Zeek”). Burks and his conspirators induced more than 900,000 victims – including over 1,500 victims in the Charlotte area – to invest in their fraudulent scheme, by falsely representing that Zeekler was generating massive retail profits from its penny auctions, and that the public could share in such profits through investment in ZeekRewards. Burks and his conspirators, including Zeek’s former Chief Operating Officer Dawn Wright Olivares and her step-son and Zeek’s Senior Technology Officer Daniel C. Olivares, claimed at one point that investors would be guaranteed a 125 percent return on their investment.
Burks and his conspirators represented that victim-investors in ZeekRewards could participate in the Retail Profit Pool (RPP), which supposedly allowed victims collectively to share 50 percent of Zeek’s daily net profits. Burks and his conspirators did not keep books and records needed to calculate such daily figures. Instead, Burks simply made up the daily “profit” numbers. Contrary to the conspirators’ claims, the true revenue from the scheme did not come from the penny auction’s “massive profits.” Instead, approximately 98 percent of all incoming funds came from victim-investors, which were then used to make Ponzi-style payments to earlier victim investors.
In addition to promising massive returns on investments, Burks and his conspirators used a number of ways to promote Zeek to current and potential investors. For example, the conspirators hosted weekly conference calls and leadership calls, where participants could call in listen to Burks and others make false representations intended to encourage victim-investors to continue to invest money and to recruit others to invest in Zeek. Burks also organized and attended “red carpet events,” where victim investors came to hear details of the scheme in person. During these events, Burks and his conspirators made false representations about the massive retail profits generated by Zeek. They also used electronic and print media, including websites, emails and journals, to make false and misleading statements about the success of Zeekler to recruit victim investors.
As the Ponzi scheme grew in size and scope it became unsustainable and it eventually began to unravel as the outstanding liability resulting from the bogus 125 percent return on investment continued to rise beyond control. By August 2012, Burks and his conspirators fraudulently represented to the collective victims that their investments were worth nearly $3 billion, but had no accurate books and records to even determine how much cash on hand was available to pay such liability. Contrary to representations made to victim investors, at that time, Burks and his conspirators had only $340 million available to pay out investors. Over the course of the scheme, Burks diverted approximately $10.1 million to himself.
Burks also failed to file corporate tax returns or to make corporate tax payments for his companies, among other things. In addition, for tax year 2011, Burks issued fraudulent IRS Forms 1099s, causing victim-investors to file inaccurate tax returns for phantom income they never actually received.
Burks will remain free on bond. A sentencing date has not been set yet. The wire and mail fraud conspiracy charge, the mail fraud charge and wire fraud charge each carry a maximum prison term of 20 years and a $250,000 fine. The tax fraud conspiracy charge carries a maximum prison term of five years and a $250,000 fine.
Burks’ co-conspirators, Dawn Wright Olivares, Zeek’s chief operating officer, and her step-son and Zeek’s senior technology officer, Daniel C. Olivares, pleaded guilty in December 2013 to investment fraud conspiracy. Dawn Wright Olivares also pleaded guilty to tax fraud conspiracy. Both defendants currently await sentencing.
In making today’s announcement, U.S. Attorney Rose thanked the U.S. Secret Service and IRS-CI for investigating the case and the U.S. Securities & Exchange Commission, Division of Enforcement for its assistance with the investigation.
The prosecution is handled by Assistant United States Attorneys Jenny Grus Sugar and Corey Ellis of the U.S. Attorney’s Office in Charlotte.

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Mastermind of massive Ponzi scheme convicted of fraud and other charges

Paul Burks of Lexington was accused of bilking some 1 million investors worldwide
He was convicted Thursday after a trial that lasted more than 2 weeks
Burks, who faces up to 65 years in prison and a $1 million fine, will be sentenced later

Senior FTC attorney explains the dodgy FTC vs 'Herbalife (HLF)' deal.

The 'Herbalife' mob and countless other gangs of 'Amway' copy-cat, US-based, blame-the-victim 'MLM / Prosperity Gospel' cultic racketeers have been, and are still being, allowed to rob from tens of millions of people - not just in America, but also around the globe. Unfortunately, US law enforcement agents and prosecutors still don't fully-grasp the true nature of the historically-significant criminogenic phenomenon which has been eluding them since the 1940s.

Although it can appear to be accurate, the following jargon-laced article by FTC attorney Lesley Fair, ignores the wider picture. More than half a century of quantifiable evidence, proves beyond all reasonable doubt that what has become popularly known as 'Multi-Level Marketing' is nothing more than an absurd, cultic, economic pseudo-science, and that the impressive-sounding made-up term 'MLM,' is, therefore, part of an extensive, thought-stopping, non-traditional jargon which has been developed, and constantly-repeated, by the instigators, and associates, of various, copy-cat, major, and minor, ongoing organised crime groups (hiding behind labyrinths of legally-registered corporate structures) to shut-down the critical, and evaluative, faculties of victims, and of casual observers, in order to perpetrate, and dissimulate, a series of blame-the-victim closed-market swindles or pyramid scams (dressed up as 'legitimate direct selling income opportunites'), and related advance-fee frauds (dressed up as 'legitimate training and motivation, self-betterment, programs, recruitment leads, lead generation systems,' etc.).

It is important to note that Lesley Fair was not one of the attorneys involved in the FTC investigation of, and settlement with, 'Herbalife,' she has merely tried to write a plain explanation of these matters, but from the point of view of the FTC.

David Brear (copyright 2016)


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It’s no longer business as usual at Herbalife: An inside look at the $200 million FTC settlement

Multi-level marketer Herbalife will pay $200 million back to people who were taken in by what the FTC alleges were misleading moneymaking claims. But when it comes to protecting consumers, that may not be the most important part of the just-announced settlement. What could matter more than $200 million? An order that requires Herbalife to restructure its business from top to bottom – and to start complying with the law.
Advertising in English and Spanish, Herbalife pitched its business opportunity as a way for people to quit their jobs and make the big bucks. Other ads promoted Herbalife as a means for already hard-working people to provide a little more for their families: “When we worked in factories our earnings could only pay for basic needs, but now we can take our 12 grandkids on vacations.”
But don’t start packing the kids’ bags because according to the FTC, it’s virtually impossible to make money selling Herbalife products. As explained in the complaint, our analysis shows that half of Herbalife “Sales Leaders” earned on average less than $5 a month from product sales. For folks who invested the most to build an actual retail business – a brick-and-mortar store that Herbalife called a Nutrition Club – the majority made nothing or even lost money. 
Which brings us to the inconvenient little secret about Herbalife that the FTC’s complaint alleges: The small number of distributors who actually made money made it not by selling products to people who wanted the company’s powders, pills, and potions, but rather by recruiting others to serve as distributors – and encouraging them to buy Herbalife products.
The lawsuit alleges that Herbalife deceived consumers into believing they could earn substantial income from the business opportunity or big money from the retail sale of the company’s products. In addition, the complaint charges that one of the fundamental principles of Herbalife’s business model – incentivizing distributors to buy products and to recruit others to join and buy products so they could advance in the company’s marketing program, rather than in response to actual consumer demand – is an unfair practice in violation of the FTC Act.
Under the settlement, that all has to change. The order requires Herbalife to drop its current system of rewarding distributors primarily for recruiting a “downline” of people who will buy the product at wholesale, without regard to whether there are customers out there who really want the merchandise. Under the new compensation structure, success in the Herbalife marketing program must depend on whether participants sell products, not on whether they can recruit additional distributors to buy products.
You’ll want to read the order for the detailed dos and don’ts, but they’re all closely tied to the law violations alleged in the complaint. Here’s just one example: The order requires a clear differentiation between people who join just to buy discounted products for their own use and those who join the business opportunity. For people in the bizopp, 2/3 of rewards must be based on verifiable retail sales, with no more than 1/3 coming from product designated as “personal consumption.”
And it’s not a “we’ll take your word for it” thing. The order includes teeth that will put a financial bite on non-compliance. To make sure everyone at Herbalife is on board with the new set-up, 80% of the company’s net sales will have to be real sales to real buyers. If that doesn’t happen, the rewards that high-level distributors pocket will be cut. What’s more, for the next seven years, Herbalife has to hire an Independent Compliance Auditor to monitor what the company is doing to comply with the new compensation plan. The Auditor will report to the FTC, who will have the authority to replace that person should it become necessary.
We’re glad to be returning $200 million to consumers. (Details about the refund program will be available soon.) But another key goal is to dismantle the alleged deception and unfairness built into how Herbalife does business. As the company rewrites its advertising claims and restructures its compensation system, we’ll be watching. The Auditor will be watching. And consumers should be watching, too.

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Lesley Fair

 Bureau of Consumer Protection


 Lesley Fair is a Senior Attorney with the Federal Trade Commission’s Bureau of Consumer Protection, where she has represented the Commission in numerous investigations of false advertising. A recipient of the Paul Rand Dixon Award for Law Enforcement and the FTC’s Award for Outstanding Scholarship, she now specializes in business compliance with the Bureau’s Division of Consumer & Business Education. Ms. Fair is a Vice-Chair of the Consumer Protection Committee of the American Bar Association’s Section of Antitrust Law and is co-editor of Consumer Protection Update. In addition to writing a monthly column for Electronic Retailer magazine, Ms. Fair is the author or co-author of FTC Regulation of Advertising in FOOD AND DRUG LAW AND REGULATION (2009); The FTC’s Approach to Health Claims in Advertising in REGULATION OF FUNCTIONAL FOODS AND NUTRACEUTICALS (2005); Regulation of Marketing Claims by the Federal Trade Commission and States in COSMETIC REGULATION IN A COMPETITIVE ENVIRONMENT (1999); and Infomercials in ENCYCLOPEDIA OF THE CONSUMER MOVEMENT (1997). Ms. Fair attended T.C. Williams High School in Alexandria, Virginia, during the time depicted in the movie Remember the Titans; graduated from the University of Notre Dame; and received a J.D. from the University of Texas School of Law. She was law clerk to United States District Judge Fred Shannon of the Western District of Texas and served as staff counsel to the United States Court of Appeals for the Fifth Circuit in New Orleans. Before coming to the FTC, she practiced criminal law with Georgetown University Law Center’s Appellate Litigation Clinical Program and appeared before the Supreme Court of the United States in Murray v. Carrier. On the adjunct faculty of the Catholic University School of Law since 1984, Ms. Fair holds the title of Distinguished Lecturer. The Student Bar Association named her Outstanding Adjunct Professor in 2007 and 2009. Ms. Fair recently joined the adjunct faculty of George Washington University Law School as a Professorial Lecturer, where she teaches Consumer Protection Law.

Wednesday, 20 July 2016

LA Times asks why has 'Herbalife (HLF)' survived when its twin, 'Vemma,' was axed?

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The following is perhaps the most thoughtful mainstream article to be published about the recent dodgy FTC 'Herbalife' deal. It appeared in the LA Times July 18th.


FTC moves against Herbalife, but leaves a question: Why is this company still allowed in business?

The legal complaint and settlement with Herbalife unveiled Friday by the Federal Trade Commission answers several questions about the Los Angeles-based nutritional supplement marketing company, but leaves the most important question wide open.
The answered questions involve Herbalife’s business model. The FTC says in its complaint, filed Friday in Los Angeles Federal Court: Yes, Herbalife’s business model is deceitful. Yes, the company has misrepresented itself as a nutritional supplements company, when what it’s really selling are business opportunities, the value of which it has consistently and grossly exaggerated. And yes, it’s a ripoff; or to put it in the FTC’s language: “Consumers have suffered and will continue to suffer substantial monetary loss as a result of [Herbalife’s] violations of Section 5(a) of the FTC Act.”

That section outlaws “unfair or deceptive acts or practices in or affecting commerce.”
The FTC’s findings about Herbalife, in other words, couldn’t be clearer. The agency extracted a $200-million settlement from the company, along with a promise to straighten up and fly right. (The sum is a pittance, compared to Herbalife’s revenue and profits.)
Herbalife is going to have to start operating legitimately,” FTC Chair Edith Ramirez said Friday, “making only truthful claims about how much money its members are likely to make, and it will have to compensate consumers for the losses they have suffered as a result of what we charge are unfair and deceptive practices.”
So here’s the unanswered question: Why is the FTC allowing Herbalife to remain in business? The answer, sadly enough, looks to be money. Reading between the lines, Herbalife has become too rich to shut down.
It’s not as though the agency is powerless to act against pyramid schemes, which is what Herbalife has been alleged to be. Last August, the FTC shut down Vemma Nutrition Company, a Phoenix multilevel marketing outfit it said was targeting college students and recent college graduates. The agency froze Vemma’s financial accounts and got it placed in receivership. 

The FTC alleged in its lawsuit that Vemma’s business model “depends upon recruiting individuals to participate in Vemma as Affiliates and encouraging them to purchase Vemma products in connection with such participation, rather than selling products to ultimate-user consumers.” 
Here’s how the FTC described Herbalife’s model: “[Herbalife’s] compensation program incentivizes not retail sales, but the recruiting of additional participants who will fuel the enterprise by making wholesale purchases of product.” The FTC said that Herbalife’s “program does not offer participants a viable retail-based opportunity.”
Is there a material difference between these two assertions? Not that we can tell. Yet the FTC called Vemma “an unlawful pyramid” and Herbalife merely as a “multi-level marketing company.” 
The details in the FTC’s complaint against Herbalife are damning. It enticed individuals to sign up as “distributors” of its products by plying them with testimonials from previous recruits who talked about transforming themselves from near-bankrupts to earners of six figures or more a year hawking Herbalife inventory. Its promotional material bristled with “pictures of big houses, fancy cars, cash, and boats.”
In truth, the FTC observed, the vast majority of Herbalife distributors don’t make “anything approaching full-time or even part-time minimum wage.” Of the more than 680,000 distributors counted by Herbalife in 2014, only 205, or 0.03%, earned more than $600,000. And they earned most of their money by recruiting new distributors, not by selling product.

In 2013, shortly after hedge fund manager Bill Ackman launched a painstakingly detailed attack on Herbalife’s business model, paired with a $1-billion short bet on the company’s stock, Herbalife changed its pitch. Rather than promoting itself as a business opportunity for the little guy, Herbalife began asserting that some three-fourths of its distributors weren’t in it for the career, but merely to get a chance to buy Herbalife products at a distributor’s discount. The FTC didn’t fall for it. It says that many recruits start out as wanna-be business successes, but fail, and that more than 75% of Herbalife’s products are bought by people “clearly pursuing a business opportunity.” Just not a good one.  (Ackman has been proved mostly right about Herbalife, though he’s lost as much as $500 million on his short bet, according to some observers; he was counting on the company’s stock falling to zero, but it closed Monday at $64.78.)
One striking difference between Vemma and Herbalife is size: Vemma was collecting about $200 million a year in revenue when the FTC went after it. Herbalife, which has been treated indulgently by government regulators almost since its founding in 1980, last year reported profit of $339 million on net sales of $4.5 billion.
That sort of wealth buys a lot of influence. Enough to keep the words “pyramid scheme” out of a federal regulator’s lawsuit, for example.
Herbalife has not been shy about putting its connections on public display. For years it boasted of its close connections with UCLA Medical School, which as we reported in 2013it exploited to give its nutritional shakes and other products the veneer of scientific credibility. The company kept medical school faculty members on its payroll and promoted its ostensibly altruistic contributions toward the school’s Mark Hughes Cellular and Molecular Nutrition Lab at the medical school's Center for Human Nutrition. Herbalife contributed $1.5 million in cash, equipment and software to the lab from 2002 to 2013. (The lab is named after Herbalife's founder, who died in 2000 after a four-day drinking binge — not the greatest advertisement for the healthful, active living Herbalife claims to promote.)
The FTC’s complaint implies that the luminaries who have been trotted out by Herbalife to attest to its integrity should hang their heads in shame. Among them is former Secretary of State Madeleine Albright, who seems to have sold her soul to lobby for Herbalife internationally. 
“I wouldn’t be here if I weren’t proud to be associated with Herbalife,” Albright told a company gathering in Europe in 2013, “and Herbalife wouldn’t be operating in more than 80 countries if it weren’t satisfying customers wherever it goes.” (See video.) Albright touted Herbalife as a paragon of “corporate responsibility and community service,” and as an “ethics-driven company.” 
What does she think now? We queried Albright’s consulting firm, Albright Stonebridge Group, but haven’t received an answer.

In addition to the $200-million penalty the FTC extracted from Herbalife, it’s forcing the company to restructure its marketing pitch, its distributor compensation, and its treatment of the lowest level of aspirants. Herbalife will have to knock off the intimations that joining up will result in a “lavish lifestyle” and drop the images of opulent mansions and personal helicopters that beckoned to the unwary. It will have to connect the compensation of top-tier agents — those tiny few who make big money from lower-level distributors — to retail sales, not to potentially bogus purchases, especially by the distributors themselves. Recruits will be allowed to get their money back from purchases of products or distributor promotional packages for up to a year.
Will this hurt Herbalife? It’s questionable. Some say that forcing the company to make its money from actually selling its nutritional supplements to retail buyers will be its death knell, since a small percentage of the product actually goes to such customers. 
It’s also possible that Herbalife will cry all the way to the bank. The stock market treated the $200-million settlement as a triumph for the company, sending its shares up nearly 10% Friday after the FTC settlement; they also gained about 9% in May, after the company disclosed the pending penalty in a quarterly report. The company already has pointed out that the FTC settlement applies only to its activities in the U.S., and those account for only 20% of its net sales. So it’s free to continue its old model in the rest of the world.
Its chairman and chief executive, Michael O. Johnson, said in a release that the FTC settlement, along with a second deal with the state of Illinois, “are an acknowledgment that our business model is sound.” If that’s not thumbing his nose at government regulators, what is it?