Tuesday 26 September 2017

Christine Richard reports 'Herbalife (HLF)' racketeering lawsuit.



Statutory Warning

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.
  • 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 rigged-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.).
David Brear (copyright 2017)
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Herbalife's Events System Might Violate The FTC Consent Order

By Christine Richard

Summary

A lawsuit filed in Florida last week accuses Herbalife and its top distributors of racketeering.
Plaintiffs say they spent and lost thousands of dollars attending events described as “the guaranteed pathway to attaining life-changing financial success”.
The event system, as revealed in the complaint, also violates the FTC Order in numerous ways – we start with three: Subsections II.D, I.F.1, and I.F.2.
These violations occur even before distributors walk through the door.
Every month, Herbalife Ltd.’s (HLF) top distributors organize events called Success Training Seminars (STSs). Held in airport hotel ballrooms and convention centers across the US, STSs bring distributors together for what top recruiters claim is training, mentoring and motivation. These monthly events are part of a continuous series of events – called "the Circle of Success" – which includes weekly Herbalife Opportunity Meetings (HOMS), quarterly Leadership Development Weekends (LDWs) and annual Extravaganzas.
The Circle of Success became the subject of a racketeering lawsuit filed in Florida last week, which you can read here. Rodgers v. Herbalife describes what it says is “a corrupt organization of individuals and entities who act together, using misrepresentation and deceit, to sell access to a series of emotionally manipulative live events.”
The message from top recruiters is consistent, according to the lawsuit: Attendance at events is critical for any distributor who expects to succeed at Herbalife.
“For those of you serious Herbalife Distributors in Miami, I’ll tell you like we tell our team; Events/Trainings are non-negotiable!” defendants Jorge and Disney de la Concepcion are quoted in the lawsuit as saying on their popular Instagram feed, ahead of the May 2017 STS.
Plaintiffs include former Florida distributors Jeff and Patricia Rodgers: “The Rodgers rarely missed an event for the duration of their four-year involvement with Herbalife; attending more than fifty events, sometimes at a rate of two a week, and doing everything President’s Team members told them was necessary to achieve financial independence. Even though they were losing money every month, Jeff and Patti continued to attend monthly Herbalife events where they were exhorted to double down their efforts with the guarantee that the pot of gold at the end of the rainbow was just within reach.”
Here’s where the problems begin.
Event Costs Not Disclosed
A Consent Order imposed by the Federal Trade Commission on Herbalife’s business in July 2016 requires Herbalife to disclose all information material to participants concerning the business opportunity, such as “the total costs to participate, including trainings, brochures, and sales aids; any material restrictions, limitations, or conditions on operating the Business Venture; or any material aspect of its performance, efficacy, nature, or central characteristics.” (Subsection II.D)
Yet, Herbalife doesn’t disclose that Circle of Success event attendance is a critical part of the business nor does it provide an estimate of the cost of attending these events.
In fact, Herbalife’s contract with distributors states: “To become an Herbalife distributor, succeed in the business, advance in the Sales and Marketing Plan, or receive upline training or support, you are NOT required to buy any amount of materials, products, or services, either those produced by Herbalife or by a party other than Herbalife, or to attend any seminars, meetings, or events.”
All eight plaintiffs describe a constant push by their uplines to attend events.
Plaintiffs Mike LaVigne, a veteran of the U.S. Army and the IT director for an Ohio county, and Jen LaVigne, an emergency services worker attended every scheduled event over one and a half years; the lawsuit lists 19 events in total.
"At every event, Mike and Jen were told that they must attend every event. Business opportunity participants who wanted to be successful were instructed to plan their lives around the Circle of Success event schedule."
Minimum Purchases Imposed
Rodgers v. Herbalife also alleges that event expenses go beyond ticket purchases and travel costs. According to the complaint, distributors buy Herbalife products ahead of events in order to qualify for special training and visibility at the event.
STSs frequently include special training or mentoring sessions – but only for those who can show that they or their immediate downline distributors have purchased a minimum level of volume over a period of months. "Supervisor School," for example, is typically limited to distributors who can prove they or their immediate downline distributors have purchased 2,500 volume points a month for the last three months. That's more than $3,000 worth of Herbalife products.
Distributors also are pressured to qualify for VIP treatment at events. Sitting in the VIP section sends a message to a distributor’s downline and to any potential recruits he may have brought to the event that they are following a winner into the Herbalife business. VIP treatment also requires proof of minimum purchases; this month's STS in Miami, for example, requires proof of 9,000 volume points, or more than $4,000 of Herbalife products purchases, in August.
The FTC Consent Order specifically prohibits Herbalife from imposing minimum purchase requirements. Under “Limitations on Thresholds, Targets and Requirements,” the Order states: “Business Opportunity participants shall not be required to purchase a minimum quantity of products, except that Defendants may require Business Opportunity Participants to purchase an initial start-up package or its equivalent, provided that no Multi-Level Compensation is generated or paid on the Purchase.” (Subsection I.F.1)
Yet, the complaint alleges a pervasive scheme to tie product purchases to event attendance and to promote event attendance as the road to success, and it does so with Herbalife’s complicity.
Plaintiff Cody Pyle, who attempted the Herbalife business in Oklahoma, spent thousands of dollars a month to qualify for full participation in these events: “Diligent attendance at every event was not delivering any success for Cody Pyle. And at each of these events, speaker after speaker touted the necessity of qualifying VIP for events if one truly wanted to have life changing success with the Herbalife business opportunity. Attendees were told that there would be a direct correlation between VIP qualifications and the size of their Herbalife paychecks. Over Cody’s two-year involvement with Herbalife he averaged 2451 in personally purchased volume points per month. But for three consecutive months beginning February 2016, Mr. Pyle purchased almost triple that amount of volume in a conscious effort to ‘qualify for everything’ at events as per instructed.”
Payment of Commissions on Ineligible Volume
It’s not surprising that top distributors push their organizations to qualify for everything, given that all this qualification volume stands to benefit them in the form of commissions, bonuses, and advancement in the marketing plan.
The complaint describes a President’s Team member urging her downline to go to the Extravaganza: “On that call, Defendant Dani Edwards states that Extravaganza attendance ‘completely transformed’ her life, allowing her to build up what she called ‘legacy’ wealth in just five years. She says she knows many people are ‘putting together every single penny that they have,’ to be able to attend the event. She claims it will be worth overcoming any ‘excuse’ not to attend, including; insufficient funds, an unsupportive spouse, a job, or the need to take care of children. Whatever a person’s financial or emotional position, Defendant Dani Edwards claims that, `it is vital that you do whatever you have to do to get to this event.’ ”
This do-whatever-it-takes message from the top may contribute to another violation of the FTC Order by encouraging distributors to falsify the purchases they make as “Documented Volume.”
One of the conditions of the FTC settlement requires Herbalife distributors to specify whether their purchases from the company are “Documented Volume” or “Undocumented Volume.” Documented volume, which counts toward figuring commissions and other benefits, is volume purchased by “Preferred Customers,” individuals who sign up with Herbalife just to get a discount on the products for their own consumption, and volume purchased by a distributor that is later sold in a profitable transaction to a retail customer. Distributors must show proof of these retail sales by sending receipts, with identifying customer information, to Herbalife.
But how does a struggling distributor – who lacks Preferred Customers and Retail Customers – manage to qualify for training and VIP treatment to jumpstart his business? He’s not eligible for success training because he doesn’t have enough volume. He doesn’t have enough volume because he has not been to success training. It’s a Catch-22.
The Circle of Success system, as described in Rodgers v. Herbalife, appears to encourage distributors to buy the necessary qualification volume themselves and then to falsify receipts. If distributors are doing this, then Herbalife’s business violates the FTC Order by rewarding upline distributors based on ineligible volume.
The Order states“To the extent the [marketing] Program requires that a Participant meet a threshold or target in order to (A) obtain or maintain a level or designation necessary to receive any particular type or amount of Multi-Level Compensation; (B) qualify or become eligible to receive Multi-Level Compensation; (C) otherwise increase the Participant’s amount of Multi-Level Compensation; or (D) obtain, maintain, increase, or qualify for a discount or rebate on Product purchased for resale; such threshold or target shall be met exclusively through Profitable Retail Sales and Sales to Preferred Customers.” (Subsection I.F.2)
Qualify for Everything
According to the complaint, Herbalife ceded much of the operation of the STS system to top distributors in 2009. Yet, it continues to control the events behind the scenes – by providing a standardized itinerary, approving speaker comments in advance and receiving summaries of every event.
The complaint suggests Herbalife knows or should have known that its distributors were being bombarded with messages about the importance of event attendance. It is easy enough to find distributors pushing the “never miss an event” creed and the “qualify for everything” mantra across the Internet. It seems unlikely that Herbalife’s compliance department has missed these messages.
To summarize: Herbalife’s events system, as presented in Rodgers v. Herbalife, raises questions about Herbalife’s and its top distributors’ compliance under the FTC Order. These include:
  • Is Herbalife failing to disclose upfront that regular event attendance is treated as a “non-negotiable” part of the business by its top recruiters? Is it then failing to disclose an estimate of the cost of attending these events?
  • Is Herbalife allowing its top recruiters to impose minimum purchase requirements as a condition of obtaining training?
  • Are these minimum purchase requirements resulting in the payment of commissions on ineligible volume?
If the answer to these questions is “yes,” then Herbalife’s Circle of Success may be violating FTC Order in at least three ways – and it's doing so before distributors even walk through the door.

Christine Richard (copyright 2017)

14 comments:

  1. David

    About time someone filed a RICO suit against the top HLF shills.

    I hope you get some credit here, because his latest lawsuit contains exactly what you've been saying not just about Herbalife, but about all MLM rackets!

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    1. Thanks Anonymous.

      I have to say that the authors of this lawsuit have not really explained the insidious blame-the-victim nature of the 'Herbalife' racket.

      i.e. 'Herbalife' victims are led to believe that only persons who believe 100% that they will achieve success in 'MLM' and who never quit: can achieve success. Therefore, all those who fail to achieve success and quit cannot have believed totally, and only have themselves to blame.

      That said, this suit can only scratch the surface of what is undoubtedly an ongoing criminogenic phenomenon of historic significance.

      Like all blame-the-victim 'MLM' cultic rackets, the one labelled 'Herbalife' can be described as a form of cleverly-disguised protection racket, in which victims are offered a stark choice between doom (poverty in the traditional world of employment) and salvation (in the parallel pay-through-the-nose make-believe world of 'MLM').

      If I was marking this particularly lawsuit out of 10, I would give it 4, but we'll see what happens.

      I'll try to post a full and frank analysis/critique of this lawsuit later this week.

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    2. http://saltydroid.info/the-people-vs-herbalife/

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    3. Thanks Anonymous - The feisty article you linked explains how American attorney, Jason Jones, came to look at 'Herbalife' and then file a lawsuit on behalf of 'Herbalife' victims. However, the article (like the lawsuit) does not inspire confidence in me, because it demonstrates that its author might not yet have sufficient understanding of the co-ordinated devious techniques of social, psychological and physical persuasion which have been used inside cultic groups like 'Herbalife' to defraud millions of victims and prevent them from complaining.

      Having said all that, I could be underestimating Jason Jones, whilst his courageous challenge to these rackets is to be commended and I support his efforts.

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  2. David --

    This is the first time I have seen someone go after these "after-market" products. It seems like a great step, as these shills have utilized these seminars to manipulate millions of people into staying in the scheme for far longer. It has also forced people to spend millions on unnecessary purchases because of the premise that nirvana awaits after attending a meeting. This seems to be a great way to attack MLM as a whole, in my opinion, and appears to be something that anti-MLM lawsuits have failed to identify.

    Am I off base here?

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    1. No John, you are not off base here. Call me cynical, but 'MLM' rackets have been set up to fend off all but the most well-informed, and determined, challenge.

      The usual tactic of 'MLM' racketeers 'when faced with a limited challenge to the advance fee frauds lurking behind their dissimulated rigged-market swindles), has been to excommunicate the offending shill(s) and then pretend that they had absolutely no idea what had been happening.

      RICO legislation was originally formulated in order to identify an overall pattern of racketeering activity.

      Classically, the 'Herbalife' racket comprises two related blame the victim cultic frauds .

      1. The dissimulated rigged-market swindle - peddled as a viable and lawful direct selling opportunity, but from which it has been effectively impossible to generate an overall net-profit.

      2. The advance fee fraud - peddled as training, motivation, etc., but which is actually a totalistic thought reform program designed to shut down victims' critical and evaluative faculties without their fully-informed consent and, thus, temporarily exploit them as de facto slaves.

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    2. David --

      Based on the two frauds you listed, from my experience nobody has ever gone after the second one. It is almost as though it has been hidden away in some sort of impenetrable fortress of cognitive dissonance. I would have thought the second fraud would be easier to prosecute based on the resounding failure rates, the outlandish claims of success, and the inability to provide any quantifiable proof or test on its efficacy.

      It doesn't require training to identify the second fraud is a thinly veiled mind-manipulating criminal enterprise, and yet people have refused to go after it. It would make sense that the MLM would tumble if the second fraud was fully prosecuted for two reasons.

      1. It would ruin their ability to generate consistent, new, revenue sources. The old tactics of recruiting don't work in this current climate, and I believe shutting down the psychological manipulation network would result in a near-certain death to the MLM.

      2. They could prosecute the MLM for allowing the second fraud groups to function in a symbiotic relationship. Clearly the second fraud can't exist without the first, and therefore, if the second is considered a fraud, then that should mean the first is also a fraud by perpetuating the second fraud. At least that would be my logic.

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    3. John - The classic, twin blame-the-victim 'MLM' frauds (and their mutually dependent relationship on one another) aren't that difficult to comprehend (although internationally, criminal prosecutors have never gone after them). What has become almost unthinkable, is the scale of the overall pattern of ongoing major racketeering activity lurking behind the wider 'MLM' phenomenon. This cannot be fully-exposed in an isolated 'MLM' related court case, but such a case could be the start of its exposure.

      Even in the isolated case of the 'Herbalife' racket, this pattern of ongoing major racketeering activity includes corruption on a scale which almost beggars belief.

      All the evidence demonstrates that 'Herbalife' has been the legally-registered corporate-front for a global criminal enterprise - the bosses of which have been allowed unlawfully to raise billions of $ of capital on Wall St. against outrageous false-declarations of billions of $ of (non-existent) 'lawful retail sales based entirely on value and demand.' They have used stolen funds to finance charities and to buy association with Madeleine Albright, two former senior FTC officials, LA Galaxy and various famous soccer/sports teams, and stars, internationally, etc. etc., and thus make it appear impossible that their activities could have been in any way criminal.

      The underlying reason why the 'Herbalife' racketeers have been using stolen funds to infiltrate traditional culture has been to prevent their victims from facing reality and complaining. These tactics have also shut down the critical faculties of many casual observers (including journalists).

      In reality, every step the bosses of 'Herbalife' have taken, has fitted into a pattern of ongoing major racketeering activity. Their hidden criminal objectives have always been to commit fraud and to prevent/obstruct all independent rigorous investigation of their activities. The fact that it has taken decades (and millions of $ of private capital) for this titanic cultic swindle to begin to come to light, is actually a key-part of the evidence of its existence.

      Years back, I posed the following question:

      Given the global scale of 'MLM' phenomenon, its duration and the widespread financial/psychological/social damage it has caused, coupled with the fact that 'MLM' cultic racketeering has involved:

      infiltration and corruption of the US government to a level which makes the Mafia look like a bunch amateurs;

      the use of brutal economic, and psychological, warfare tactics against millions of ill-informed citizens of the USA and her allies;

      apart from racketeering, what crime would it be appropriate to charge the bosses of the 'MLM 'crime syndicate with?

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  3. David, do you have a view on the realistic chances of this lawsuit? have you seen a legal opinion or spoken to any lawyers about this? would be great to hear the opinion of a lawyer not involved in this case. I am skeptical as most MLM lawsuits seem to get thrown out or settled. Perhaps there will be a different outcome given Mr Jones' legal expertise and passion in fighting scams. I'd guess there is a strong legal foundation, as opposed to just throwing something against the wall.

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    1. ShakeOilSalesman - I am of the opinion that these ongoing matters have long-since travelled well-beyond the limited reach of the law in the USA.

      I suppose the precedent for Jason Jones' lawsuit is: Pokorny vs 'Quixtar (Amway).'

      http://pyramidschemealert.org/PSAMain/news/AmwayPyramidSuit.pdf

      This isolated racketeering suit (which was drawn up in 2007 by Boies, Flexner and Shiller) dragged on for years before it was sort of settled in the plaintiffs' favour, but the 'Amway' racket still exists.

      Although Boies, Flexner and Shiller got a big pay-day (agreeing not to file a similar suit), this amoral law firm was employed by 'Herbalife' in the wake of Ackman's challenge, in 2012.

      The 'MLM' cultic racketeering phenomenon has become so vast, and has infiltrated so deeply into traditional culture (particularly in the USA), that I don't believe that any American Judge yet dare face the full truth about it publicly. The truth being that too many greedy little pigs from both of the main American political factions (including Madeleine Albright and the current occupant of the White House and various members of his cabinet) have had their snouts in the stinking 'MLM' trough. The 'MLM' phenomenon continues to transfer piles of stolen cash to various amoral/ill-informed third parties (particularly, attorneys, politicians, celebrities, bankers, accountants, etc.)

      It's the USA (its system of government and law enforcement) which should really be on trial here, and the fact that an isolated racketeering case against the 'Herbalife' bosses has so far only been brought in the form of a private lawsuit (rather than a full-blown federal criminal prosecution under the Racketeer Influenced and Corrupt Organisations Act) demonstrates that, in respect of the 'MLM' phenomenon, the USA remains a de facto kleptocracy.

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    2. Aren't these MLM attorneys just doing their job and defending their clients?

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    3. Personally Anonymous, I am sick to death of all these amoral intellectual prostitutes being paid stolen money to pretend that so-called 'MLM income opportunities' are viable and legal.

      It is particularly scandalous that various legally-qualified former senior US federal regulators (like Pamela Jones Harbour) have gone to work for 'MLM' racketeers (tempted by multi-million $ salaries).


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    4. Everyone has the right to a defence! or perhaps you don't believe that?

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    5. Anonymous - Perhaps you are just playing Devil's Advocate, but are you supporting the dangerous premise that any crook should have the right to buy senior law enforcement agents using cash from crimes which the same senior law enforcement agents have failed to identify, let alone halt?

      This type of corruption, and infiltration of government/justice system, is part of what RICO legislation was supposed to bring under control. Clearly, the employing of persons like Pamela Jones Harbour by the bosses of 'Herbalife' forms part of a pattern of ongoing major racketeering activity, because this move is designed to obstruct justice in order to continue to commit fraud.

      You also conveniently forget that this is an ongoing problem and that many real people continue to be damaged by 'MLM' rackets, not only in the USA, but also all around the world.

      In the final analysis, there is no defence to blame-the-victim 'MLM' cultic racketeering, because the defence has been part of the racket.

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