NCL Urges FTC For True MLM Reforms With Herbalife0
NCL Urges FTC For True MLM Reforms With Herbalife
In the world of business opportunity scams it is frustrating because once a scam is shutdown another 10 popup doing the same thing with just a new name. True reform is needed to provide protection for business opportunity seekers. In the past, Herbalife has paid out settlements without meaningful changes to how they do business.
The National Consumers League is urging the Federal Trade Commission to ensure that any potential settlement of its investigation of multi-level marketing company Herbalife requires meaningful reform. Let’s hope that actually is what happens this time.
In March 2013, the NCL was the first national consumer group to call for an FTC investigation of allegations of pyramid scheme behavior at Herbalife.
Here is an overview of what they had to say to the FTC:
Far too many Americans lose billions of dollars every year to fraudulent business opportunities or other scams offering promises of easy riches, but whose real aims are to drain consumers of their money.
Last week, news reports based on Herbalife’s quarterly results suggested that the Commission and Herbalife might be nearing a settlement of the ongoing investigation. If this is indeed the case, we want to encourage the Commission to ensure that if wrongdoing is found, any settlement leads to serious penalties and real reform. We believe this is an opportunity for the Commission to put a stop to illegal business practices if those activities are uncovered at Herbalife or elsewhere in the multi-level marketing (MLM) industry.
As the Commission has found time and again in enforcement actions against MLM companies such as Vemma, Fortune Hi-Tech Marketing, BurnLounge, and others, the threat of pyramid scheme behavior in the MLM industry is significant and persistent. Any potential settlement of the FTC’s investigation will be critical to ensuring that legitimate MLMs are readily distinguishable from illegal pyramid schemes.
Specifically, any meaningful settlement must include injunctive relief that addresses any persistent structural concerns the FTC has uncovered about Herbalife’s business model by, at the very least:
- Requiring that at least 51% of total product sales by a distributor’s organization be made to customers outside the organization before Herbalife provides bonuses or other compensation to a distributor, as proposed in the FTC’s enforcement actions against Vemma;
- Eliminating any personal or group inventory-purchasing qualification requirements that reward inventory loading;
- Requiring the tracking and public disclosure of all costs associated with starting and maintaining a distributorship or Nutrition Club;
- Providing up front and in large font the actual churn rates at all levels of the business and the percentage of distributors that actually make money, less
- Expenses, in a given year and for the past five years to enable potential distributors to ascertain the cumulative likelihood of making money over a longer period of investment;
- Requiring Herbalife to verifiably document and publicly disclose the percentage of sales of their product to distributors inside its network versus consumers outside its network;
- Prohibiting testimonials from distributors claiming they have had great success unless those testimonials can be documented through a tax return or other valid evidence and made available to the distributor being recruited;
- Requiring Herbalife to abide by both the spirit and letter of the Commission’s Business Opportunity Rule, notwithstanding any exemptions from compliance that MLMs are provided; and
- Requiring public, prominent and ongoing disclosure of the names and addresses of all existing distributors and Nutrition Clubs to prospective distributors in specific markets.
In addition, if wrongdoing is found, any potential settlement must include substantial consumer redress that provides meaningful compensation to all of the company’s distributors who may have been defrauded; which reflects the egregiousness of the company’s conduct; is likely to result in significant and lasting change at a company with a $5.8 billion market capitalization; and is consistent with past FTC precedent for enforcement actions against companies of Herbalife’s size.
We recognize the Commission’s long-standing practice of avoiding comment on pending law enforcement investigations. Nonetheless, we urge the Commission to consider our concerns — which are shared by a diverse coalition of voices in the consumer, civil rights and low-income advocacy communities. If a settlement is indeed likely, the Commission must ensure that it provides real and meaningful relief from any illegal business practices that are uncovered, imposes appropriate consumer redress commensurate with the size of the company, and delivers real relief for consumers.
– Source NCL Letter To The Honorable Edith Ramirez Chairwoman Federal Trade Commission
I thank the National Consumers League for laying out a framework for change. In my opinion, it is time for the FTC to stop listening to the promoters of these scams and start looking out for the countless victims that are taken advantage of each year. These victims do not speak out because to succeed in a MLM scam requires you to victimize your friends and family to make money. To admit this to your friends, family, and others is too hard to do for the vast majority of people. This is how the scam is designed to silence people. It is time for this to end.
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