Alert #216: 2/25/2013

Pyramid Scheme or Legitimate MLM
What’s The Difference?

Due to the recent well publicized attacks on Herbalife by short seller Bill Ackman (who has made hundreds of millions of dollars by getting their stock price to drop), as well as the FTC’s recent closure of Fortune Hi-Tech Marketing, there is an abundance of misinformation within the media regarding what the delineation is between a legitimate, legal network marketing program and an illegal pyramid scheme. The mainstream press, such as CNBC, CNN, Forbes, and the Wall Street Journal, all seem to be relaying on completely inaccurate and long debunked definitions typically presented by a very few, but very prolific anti-MLM critics.

For example, that the “70% Rule” requires that at least 70% of all multilevel marketed products be sold to retail customers, not purchased by distributors.

Or that sales to distributors are not legally commissionable at all.

Or that distributors making more money from their downline commissions than from their own retail sales is indicative of an illegal pyramid scheme.

Some ignorant industry critics have even suggested the FTC’s legal criteria for shutting down FHTM precisely applies to Herbalife, and practically all MLM operations, as well.

And, of course, they’re wrong.

There also appears to be a renewed confusion as to the distinctions between a pyramid scheme and a Ponzi scheme. They are fundamentally different.

There’s also been a lot of chatter about what defines an “illegal security” as it pertains to MLM programs, likely due to the recent SEC action against Zeek Rewards and the Montana Commissioner of Securities & Insurance’s fining of Funky Shark for selling founders positions.

Over the next several days I will be posting a series of video blog entries defining in clear, laymen’s terms what the current legal definitions are for each of these types of schemes: Pyramid, Ponzi and Security. The fourth installment will use Zeek Rewards as a case study. ZR is a perfect subject considering they hit the legal trifecta. They were declared a Pyramid Scheme, a Ponzi Scheme, and an illegal security (although I personally question the Ponzi accusation).

The first installment, “What’s a Pyramid Scheme?” can be viewed now at:

For those of you who have been following the Battle Royal between Ackman and Herbalife, and now Ackman and several other reasonable, well informed Wall Street gurus, my rebuttal/exposé of Ackman’s case against Herbalife is now posted in the Articles Library here:

Part two, “What’s a Ponzi Scheme” will be posted by the end of the week, so stay tuned.

Len Clements
MarketWave, Inc.


About Len Clements

Based in Las Vegas and Founder and CEO of MarketWave, Inc., Len Clements provides consulting, training & expert witness services for the network marketing industry. Since 1989, he has been a top producer, trainer, and consultant for multiple network marketing companies. As a well-respected icon in the MLM industry today, Len conducts Inside Network Marketing seminars throughout the world and is the author of several best-selling books and audio tapes including Inside Network Marketing (Random House), Case Closed, The Whole Truth About Network Marketing and The Coming Network Marketing Boom.