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Pyramid Schemes, like Fake News, Poised to get "Normalized"
Dear Colleagues
,
Following the Nov. 8 presidential and congressional election, a realistic assessment of the state of MLM and pyramid schemes is that consumer protection and public awareness appear poised for a historic setback. Much of the progress in law enforcement and public understanding may be stalled and possibly attacked. Just as toxic "fake news" is now affecting public opinion, individual actions and even elections, the pyramid scheme is being politically promoted as "normal" business.
Pyramid Scheme Alert has warned for years about the infiltration of MLM promoters into state and federal government and their influence-buying among corrupt or irresponsible legislators and congresspeople.
The incoming Donald Trump administration exhibits MLM influence at a level far beyond anything found in previous administrations:
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President-elect Donald Trump himself owned an MLM. It was called
Trump Network. It collapsed and
 assets were sold in less than two years. This is in addition to his ownership of the MLM-like "Trump University" (a close cousin to Herbalife's Latino-targeting "Universidad del Exito", Success University). For Trump University's deceptions and consumer losses, Donald Trump agreed
in a court settlement to pay over $20 million in restitution to victims
(Herbalife was required to pay $200 million for deceiving its victims). Donald Trump was also the world's most visible and highest paid (over a million dollars)
MLM pitchman
, fronting for the North Carolina-based MLM, ACN. There is also the matter of
President-elect Trump's close association with the top shareholder of Herbalife, Carl Icahn, whom Trump has considered for a cabinet post.
- Betsy Devos, appointed by Trump to head the Dept. of Education, is the wife of the CEO of the largest and most notorious of all MLMs, Amway (she is also the sister of Erik Prince, founder of the military mercenary company, Blackwater).
- Dr. Ben Carson, appointed by Donald Trump to head the Dept. of Housing (HUD), has been a promoter of the MLM, Mannatech, a company sued by the state of Texas for making false claims that its dietary supplements could cure and treat Down Syndrome, cystic fibrosis, cancer and other serious illnesses.
- With MLM promoters in and near the White House, the chances are increased that the MLM-backed bill, HR5230, to legalize business-style pyramid schemes (MLMs) could pass in Congress. Congress now has a "MLM caucus" pushing this bill and pressuring regulators to give MLMs exemption from law enforcement against pyramid fraud.
MLM influence-buying is not restricted by political party. The MLM caucus in Congress includes Democratic party lawmakers. To fight off prosecution and exposure, Herbalife has hired some high-profile Democrats including the former
chief of staff of VP, Joe Biden, Alan Hoffman, the former mayor of LA,
Antonio Villaraigosa,
the former Clinton Administration Sec. of State, Madeleine Albright and the former Obama-appointed Chair of the FTC, Jon Leibowitz.
These political realities make consumer education and advocacy groups within civil society, such as Pyramid Scheme Alert and others, all the more important. Laws can be enacted or changed; enforcement can be prevented through influence-buying and government corruption; yet the truth about MLMs cannot be un-told and reality is not altered by such tactics. The films, books, websites, blogs, reports, whistle-blower testimonies, analysis and statistics, and the personal experiences of millions of people cannot be washed away.
For the last 30 years, MLMs have hidden behind a false argument about "good" and "bad" MLMs, legal and illegal ones. In reality, no one, even at the FTC, has been able to explain the difference. In actual operation, all MLMs exhibit the same defining characteristics, which turn out to be the defining characteristics of pyramid schemes (1) the unsustainable and deceptive "endless chain," in the form of ever-expanding "levels" (2) pay-to-play funding, in the form required product purchases and payments of fees by people inside the chain to qualify for rewards (3) rewards tied to recruiting, camouflaged as "commissions" on recruits' purchases and structural (recruiting) that are required (4) extreme and continuous money transfer from later participants to earlier ones, under a pay plan and policies that allocate most rewards to the top 1% of recruiters and (5) a closed market, with constant influx of the "distributors'" (participants in the pay plan) own money necessary for the scheme to prevent collapse. MLM is called "direct selling" but only top recruiters make money. MLM has been called an "income opportunity" though more than 99% of participants earn no profit.
In the last four years, there has been more exposure of MLM reality than ever before, as the news updates below about a globally popular HBO satire, a documentary film and an important certified class action lawsuit illustrate. In addition to an increasing understanding of how MLMs actually operate, the facts of MLM's virtual 100% loss rates for new recruits each year and 50-80% annual churn rates are also now much better known. Millions of people are now seeing through the MLM disguise.
This will not stop, regardless of politics or the suppression of law enforcement and consumer protection.
To colleagues around the world, on Main Street and Wall Street, in academia and government, attorneys, journalists, researchers and analysts, writers, courageous bloggers and website publishers, whistle-blowers, and inquiring consumers, I offer my best wishes for 2017. As always, I welcome your calls, emails, collaboration and friendship.
Robert FitzPatrick, Pres.
PYRAMID SCHEME ALERT
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John Oliver Dares to Say It: MLM is a "Pyramid Scheme"
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The popular and trend-setting HBO show,
Last Week Tonight with John Oliver
took direct aim at "multi-level marketing". In a remarkable and hilarious 30-minute segment that aired on Nov. 6, 2018, satirist John Oliver told the dead-honest truth, the one that the media is so fearful of saying. It is that "multi-level marketing," and any company that goes by that name, is a pyramid scheme, meaning a financial trap, a scam in which nearly all will lose their money. He zeroes in on Herbalife but others are also named. This is the most important media expose' of MLM ever! And it is hilariously funny!
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Over 8 million views on YouTube of John Oliver's exposé of multi-level marketing.
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The Story of Herbalife's Pyramid Scheme, the Wall Street Exposé and MLM's Attack on Latinos
Will Soon Be in Major Theaters
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Since MLM was given political protection, starting about 1980, it has operated in a self-generated fog of myths, disinformation, outright lies, and "industry" PR, including fake statistics and testimonials about success and income averages, and hype of worthless or dangerous "pills, potions and lotions" touted as miracle cures for lethal illnesses and remedies to stop aging!
But, now a full-length, powerful documentary that presents true experiences and expert analysis of MLM is coming to major theaters. This is a cultural and informational breakthrough. The movie is also an entertaining and gripping tale of Wall Street hedge fund manager, William Ackman's long campaign, backed by a billion-dollar short stock position, to expose Herbalife as a fraudulent pyramid scheme. It is also an unflinching view into Herbalife's targeting of millions of vulnerable Latinos, with its fraudulent promises of income opportunity.
The movie is Betting on Zero, directed by Ted Braun. The film was recently cited by NY Times columnist, Andrew Sorkin, for his own reconsideration of the fraud charges against Herbalife, based on verifiable facts, not Wall Street rivalries. See "The Activist and Herbalife: Just Maybe Ackman's Right". The film has been previewed at prestigious film festivals including Tribeca in New York City. Herbalife has sought to suppress the film by making false claims about the film's funding and even buying up tickets at one film festival showing to prevent people from viewing the film.
In July, 2016, when the FTC validated the charges leveled against Herbalife in a federal Complaint and Settlement agreement, the film updated its ending, but the drama is far from over. Herbalife launched a dis-information campaign to claim it was exonerated instead of prosecuted. Now, it is questionable that the FTC, under the incoming Trump presidency, will enforce the court-approved settlement that requires sweeping structural changes to end Herbalife's deception and harm to consumers. Currently, Herbalife's stock is in decline.
Whatever the outcome of the stock fight or the FTC prosecution, the truth has been revealed in Betting on Zero. The film gets the facts right about law, deceptive MLM claims, and pyramid economics but, more importantly, it puts a human face on the tragedy of this $4 billion, worldwide pyramid scheme fleecing millions of vulnerable people with false promises of delivering the American Dream.
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MLM Racketeering and "Inherent" Fraudulence Charged in Important Class Action Lawsuit, Federal Court-Certified
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At this writing, December 2016, attention is focused on the MLM company, Herbalife (NYSE:
HLF
), now operating under a FTC prosecution settlement for running a deceptive recruiting scam, not "direct selling." However, in addressing the "inherent" fraudulence of MLM pyramid schemes, a recent US Fifth Circuit Appeals court ruling granting class action status to a lawsuit brought against another MLM, called Stream/Ignite, (Juan Ramon Torres; Eugene Robison, v. SGE Management, LLC. et al.,) may have greater and longer-term impact.
This important lawsuit, originated and driven by Houston attorney, Scott Clearman, charges that the MLM, Stream/Ignite is engaged in "racketeering," under the Racketeer Influenced and Corrupt Organizations Act, generally known as RICO. The racket's purpose, the case argues, is to perpetrate a pyramid scheme. To do this, it engages in mail and wire fraud. The RICO charge hinges on the underlying charge that the MLM, Stream, is a disguised pyramid scheme. If a jury agrees with Clearman, penalties are tripled under the RICO law.
The court ruling certifying Scott Clearman's RICO suit as "class action" to represent about 200,000 victims of Stream/Ignite, may put all other MLMs at risk for similar RICO/Pyramid scheme charges and lawsuits. The federal court's positive ruling on class certification on the case will be cited in other cases against MLMs.
Supporting the view that Stream's true business is a pyramid recruiting scheme, the class action lawsuit offers evidence - the very same type of evidence is often presented in other MLM cases - that profitable "retail selling" is not feasible for the participants and the pay plan does not support retailing, aka "direct selling" and none of the participants are or can be profitable from personal selling.
What gives the Stream lawsuit special significance is the charge - now included in the certified class action status - of racketeering. RICO is usually associated with prosecutions of organized crime, especially the Mafia. It can also be applied in civil suits, as it is in this case. The racketeering charge has been brought against other MLMs. In fact, the author of the RICO statute, Professor G. Robert Blakey, wrote a famous expert report in a lawsuit brought against the largest of all MLMs, Amway, in which he showed how Amway mirrored a Mafia organization, exhibiting the defining characteristics of a racket.
The Stream case argued, and the court agreed, that injury to victims is not subject to the classic MLM defense that the causes for losses are specific to each "loser," e.g., dropped out, did not follow the plan, did not try hard enough, did not want to make money in the first place or that the victim must prove specific misrepresentations by the company. The court accepted the lawsuit's claim that "it is enough to show that a 'foreseeable and natural consequence' of the allegedly unlawful pyramid scheme is "that the vast majority of the unwitting IAs (participants) would lose money."
As the court stated, "
Pyramid schemes are 'inherently fraudulent' and are per se mail fraud, a RICO predicate act. And, by design, a pyramid scheme's fraud inheres in its concealment of the deceptive nature of the "robbing Peter to pay Paul" payment structure."
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Pyramid Scheme Alert
Tel: 704-334-2047
Fax: 888-334-1944
Email: info@pyramidschemealert.org
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