MLM gniniarT: Why Is It Provided Bass Ackwards?

February 25, 2013 1 Comment

By Len Clements © 2013

I knew in first grade that I wanted to be an entrepreneur. I didn’t just set up a lemonade stand, I also offered snow cones made from my Frosty Sno-Cone Maker as well as Incredible Edibles (made from a toy that produced gummy insects – you Boomers will remember). By the age of nine I didn’t just have a paper rout, I published my own newspaper! It was called “Neighborhood News Beat”, which I’d produce using the then very expensive copy machine at my dad’s office. Although both of these ventures lasted about as long as the attention span of any single-digit-year-old, there was never any doubt that someday I’d make a living by owning my own business. Indeed, the only job I’ve ever had that required me to “clock in” was a two-month Summer gig devouring free Taco Bell food – where I was inventing most of the items now on their menu (the double shelled taco with beans in the middle? I was making those in 1975!). So, of course, it was inevitable that I’d eventually go to college and get a business degree.

Learning how to do something before you begin doing it makes sense in most endeavors, especially when it involves one’s livelihood. If you know you want to own, operate, or at least manage a business someday, you’re likely going to get a degree in business, or somehow become well educated in the type of business you wish to operate, and how to operate it. Obviously. Right?

So, why do network marketers do exactly the opposite?

In fact, this profession is the only one where you’re asked, and we unquestionably agree, to start our business first, and only then begin the process of learning how to successfully operate it. Is it any wonder why this profession has such a high first-year failure rate?

The first, if only, objection to a get-trained-first approach is that we tend to be in a hurry to make money. I get that. My degree is only an Associates Degree (in Business Data Processing – circa 1984) for essentially the same reason. After two years of watching my fellow students fight for limited computer lab time, and with Kinko’s still a gleam in some future entrepreneur’s eye, I decided to start a computer time rental and training facility. While my fellow students spent two more years learning how to run a business, I was running a business. But I did spend two years learning how first. Most MLMers don’t spend two hours (alas, even after they start their business). To be clear, I’m not talking about spending two years studying network marketing before jumping in. Successfully operating a multilevel marketing distributorship is not easy, but it is relatively simple. In fact, I’ve produced a six part training series, totaling less than six hours, that covers practically everything you’ll ever need to know to succeed in this business. It’s not rocket science.

Based on an extensive 18 year survey, conducted by my company MarketWave, Inc., of over 7,700 reps and prospects, we know that at least 86% of those who join an MLM program to earn an income have a “primary goal” of making enough to quit their job and comfortably live of their MLM residuals. That is, it’s not to get rich! They intend for their MLM venture to be, hopefully, how they earn a living, and support their family. It’s essentially a career choice. Yet, not only do most networkers not spend the requisite four years to educate themselves on their chosen career, they devote little if any time at all preparing for it. What’s more, they typically spend nary a minute learning how to select a viable, safe, legal, MLM program that best suits their personality and product interests.

Ironically, the concept of building an organization of pre-trained distributors first, and then migrating them into a specific MLM opportunity, was developed by a college business professor. Prof. David Frost heads the only fully accredited MLM degree program in the United States and, to my knowledge, the world. This program is offered by Bethany College (http://online.bethanylb.edu/programs/). Unrelated to the college itself is “The Networking Project” (http://www.NetworkingProject.net). This project was co-produced by Prof. Frost and myself to fulfill the need for basic training, and to facilitate the quick and easy formation of a downline of what are essentially well qualified, and educated, prospects. Think funded proposal, with participants placed in a 2×2 structure, and no commissions. The cost of entry is a mere $9.95, one time, which not only gets you access to an online facility to build and track your team, but an audio and book library stocked with well over $100 worth of training and educational material. For example, my “Inside Network Marketing” eBook and “Case Closed: The Whole Truth About Network Marketing” audio CD, John Fogg’s “Greatest Networker in the World” and “It’s Time… For Network Marketing” eBooks, and Daren Falter’s “How to Select a Network Marketing Company”, which accounts for about $60.00 in materials already, not counting the three other audios, ten other books and reports, and the afore mentioned six part audio training series. Everything on the site is completely generic by default, but we do license the program out to anyone, within any opportunity, as an open source, fully customizable system.

Yes, learning how to build a profitable MLM business first will take some time, and delay those profits. But if it were to substantially increase those profits, and cause them to occur sooner once you’ve started, might it be worth the wait?

Think of it this way: If someone offered to pay you $1 million to swim across the Hudson River, and if you don’t make it you’ll drown, wouldn’t it make sense to delay the effort for a week or two in lieu of a few swimming lessons?

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Is Bill Ackman the Next Barry Minkow?

February 25, 2013 Leave a Comment

Herbalife Victim of Yet Another Bogus Short Seller Attack
By Len Clements © 2012

A “short seller” is someone who makes money by the price of a company’s stock going down, rather than up.[1] The two methods to accomplish this are “shorting” the stock or buying “put options”, but the mechanics are not relevant to the issue here. Bottom line: If you can convince enough other shareholders to sell their shares, and the stock’s value drops, you make money.

For the record, I’m not anti-short selling. I’ve shorted stocks in the past. Most of them right before their stocks increased in value. I’m not saying I’m good at it, just saying I’m not against it. Also, I do not own Herbalife stock, nor that of any MLM company.

There are basically two classes of short sellers: One who analyzes a company, genuinely believes it’s share price is overvalued, and bets on other investors eventually realizing this, and the price of its stock going down. These more honorable short sellers investigate all aspects of a company, the positive and the negative, and if they have questions or concerns they at least attempt to contact the company and/or others with an objective expertise in the area of concern. They would go into an analysis of a public MLM company by asking the question, Is this a legitimate MLM company, or an illegal pyramid scheme disguised as one? Do their products have intrinsic value? Are they reporting their financials accurately?

Then there’s the dishonorable, deceptive short seller who doesn’t care about things like facts, fairness, objectivity, or balance. If they find what they believe might be a flaw with some aspect of a company they have shorted, or intend to short, they will never contact the company and allow them to address it. They will never contact any other experts or authorities who may explain away the concern. They never include as part of their due-diligence things like, touring the company’s headquarters or manufacturing plant, meeting with the senior management, or interviewing happy customers or successful distributors. Instead, they deliberately seek out only those “experts” who will fully support their “short thesis”, and interview exclusively disgruntled customers and reps. They go into an investigation not with the goal of discovering the truth about a company, but rather with a deliberate agenda to destroy its credibility, and thus its value, and thus its share price. They would go into an analysis of a public MLM company by asking the question, How can I make this company look like an illegal pyramid scheme? How do I devalue their products? How can I make it appear as if there are improprieties in their financial reporting?

David Einhorn is an example of an honorable short seller. He was looking into Herbalife, had some concerns, and brought them up to senior management on a public investor call. He merely asked a couple of what should have been innocuous questions about Herbalife’s tracking of retail sales to outside customers, and rank reporting, but even the suspicion among investors that Mr. Einhorn was working on a short thesis regarding Herbalife caused it’s stock to plummet 20% that day. The anticipation of him presenting his short case at an upcoming Ira Sohn investors conference caused it to drop even more. Mr. Einhorn never mentioned Herbalife at the conference, not another word about Herbalife since, nor has he even confirmed he had a short position – and the stock recovered less than a third of its losses. That’s an example of how powerful and influential these high profile stock gurus can be in effecting the share price of companies they are even suspected of investigating.

Barry Minkow[2] is an, albeit extreme, example of a dishonorable short seller. He not only entirely met the above definition, he extorted the companies he attacked. Back in 2007 and 2008 he produced prolific amounts of propaganda against USANA, Nu Skin, Medifast, PrePaid Legal (now Legal Shield) and Herbalife, then got at least two of these companies to pay him a low six-digit sum to drop his attacks. In the case of Herbalife he went a step further by removing all of his online Herbalife attacks and retracted all of his negative assertions regarding their allegedly “deadly” products, and allegedly fraudulent business model. He went on to actually praise Herbalife’s products and business model.

Then he tried the same scheme on Lennar, a large, deep pocked home builder. Unlike an MLM company that requires its integrity, good will, and credibility to remain constantly high to survive (because, as a group, MLM reps are a fickle, flighty bunch who spook easily), Lennar could afford a prolonged bombardment and fought back. The end result was that Barry Minkow, who had already spent over seven years in prison for, among other things, stock fraud, was convicted of extortion and, once again, stock fraud and sent back to prison, where he now resides. For the full Minkow story, visit MinkowBelowTheIceberg.com.[3]

And then there’s Bill Ackman. In my opinion, based on how his activities appear to me, he is absolutely a dishonorable short seller. By his own admission he has made no attempt to contact Herbalife management, or any of their successful distributors or customers, or anyone from among the numerous objective legal authorities and industry experts available to him (instead citing only the findings of a couple devoutly anti-MLM critics). In other words, it appears he didn’t want any of his criticisms to be addressed before he had an opportunity to wreck Herbalife’s stock value, and cash in on the crash.

For example, when Ackman questions why Herbalife cites “Retail Sales” (the suggested retail price of the products), as a measure of revenue in their financial disclosures, then goes on to assume the most nefarious explanation (deception on the part of Herbalife), why didn’t he simply call Herbalife’s Investor Relations department, or get on an investor call like David Einhorn did, or call Herbalife CEO Michael Johnson directly (I bet he’d have taken his call), and ask, Why do you account for sales this way? But then Ackman would run the risk of getting a valid explanation. Like, the fact that two lines lower on Herbalife’s 10-Q (quarterly) and 10-K (annual) statements they openly and clearly disclose what the actual revenue was, based on the actual selling price of the products, which is the basis for practically all other ratios and financial calculations, including net profit.[4]

Regarding Herbalife, Ackman claims, “This company’s goal is to keep things hidden, as opposed to make things transparent.” I always shake my head when I hear this accusation made against a company that chose to be publicly traded. That is, they made the voluntary decision to open their books, management, products, and business model to detailed public scrutiny, and allowed their financials to be fully audited by an independent third party – and people like Bill Ackman.

If there’s any doubt as to what Ackman’s agenda was going in, none should remain after his declaration, “Everything that I have seen about this company has simply been an affirmation of what we believed at the very beginning. We had a supposition in the beginning that we’ve been able to prove over a long period of time.”

I spent over two months researching and producing a 30 page rebuttal to Minkow’s initial 86 page smear report against USANA (which, of course, he had shorted, and who’s stock dropped 15% the day his report was made public). Ackman’s “short thesis” against Herbalife is a 334 page PowerPoint presentation, plus a well stocked anti-Herbalife website. I’m only 150 pages into his presentation and already have amassed what would easily be over 30 pages of rebuttal points. The logical, mathematical, and legal inaccuracies in Ackman’s report are literally overwhelming. Writing novella length rebuttal reports doesn’t pay anything (if I could figure out a way to monetize such activity I’d be richer than Bill Ackman!), and we don’t seem to have any trade associations that are willing to, or are even capable of, supporting such industry defending activity. So, I’m going to focus on just three main points. At least for now. These aren’t even the three most damning rebuttal points, but rather the three that most go to Mr. Ackman’s true agenda, based on what I’ve discovered after having reviewed less than half of his case against Herbalife.

Point 1: Ackman’s Profit Motive

Much like Minkow, when Ackman is asked about his profit motive for shorting, and then attacking, Herbalife he dismisses it as a red herring. Minkow claimed his “puts” on USANA would probably not even cover his investigative costs. We eventually learned he made $61,000 on those puts – and was paid a quarter of a million dollars by three other short sellers to fund his USANA hit piece. Minkow’s anti-USANA campaign was primarily funded by fellow stock fraud felon Sam Antar, along with $10,000 from hedge fund manager Whitney Tilson (the same Whitney Tilson that just announced his short position in Herbalife, right before it regained 30% of it’s value). Ackman, on the other hand, dismisses any profit motive by proclaiming that any profit he makes from his “personal” short position, which he refers to as “blood money”, will go entirely to charity. He claims, “I don’t want to make money off of this”, and that, “by taking the economic part out of my investment by giving the money way…”, this should counter any speculation that he has a profit motive. As can be seen in recent CNBC[5] and Bloomberg[6] interviews, this claim is always accepted unchallenged, hook, line and sinker.

Fine. I’ll challenge it.

One of the only two charities that Ackman has identified as being the recipient of his “personal” profits is his own charity, the Pershing Square Foundation, which he formed in 2006 (the other being the Ira Sohn Research Conference Foundation). In the five years the Pershing Square Foundation filed a form 990-PF Mr. Ackman has personally contributed sums of $5.9 million (2006), $36,645,650 (2007), $6,975,000 (2008), $15,520,000 (2009), and $55 million (2010). Ackman’s investment company, Pershing Square Capital, has donated over $7.2 million during that time. The rest of the $127,388,713 contributed to the Pershing Square Foundation amounts to a total of $75,000 by three other private contributors. In other words, Ackman was already going to donate tens-of-millions of dollars to his own charity, and he’s simply funding this donation, at least in part, by his personal Herbalife short position.

What is most telling is the comment that begins Ackman’s Bloomberg interview where the interviewer states, “You will be donating your personal profits from this trade to charity including a minimum of $25 million regardless of whether you make money…” (emphasis mine). So, again, it’s $25 million Ackman is going to donate either way, it’s just a matter of where it comes from – his own pocket, or from his Herbalife short position, thus this $25 million can remain in his pocket.

Furthermore, Pershing Square Capital possesses over 20 million shares of shorted Herbalife stock, which is reportedly over 97% of all the stock available to short.[7] Ackman claims he shorted the stock back in May. Considering David Einhorn and Bill Ackman are friends, and both spoke at the Ira Sohn conference in May, we can be fairly certain Ackman shorted Herbalife just before Einhorn’s questions took it’s stock down. So assuming Ackman shorted the stock at around $70 a share, and its now trading at about $26, Ackman’s Pershing Square Capital has already made about $880 million. Even if he shorted Herbalife after the Einhorn induced drop to about $46 he’s still swimming in $400 million of “blood money”.

When asked by CNBC interviewer Andrew Sorkin about his “blood money” comment, Ackman explains, “I don’t want to make money off of this… It is not a happy thing.”[8] Although we don’t yet know what his “personal” stake is, we do know his investment firm has so far made four hundred to eight hundred million dollars! And I bet he’s just a little bit happy about that.

Keep in mind that for every single dollar that Herbalife’s stock rises, Mr. Ackman’s company loses $20 million, and he has less from his personal short interest to donate to his own charity, that he was already going to donate millions to anyway. But naw. He’s totally explained away his profit motive.

It deserves to be noted here that Ackman’s $25 million donation will be going to pediatric cancer research, and that both he and his wife, and his Pershing Square Foundation, have been extremely philanthropic with the focus of their generosity directed towards good causes that benefit children. For that Bill Ackman deserves recognition and praise.

If only he didn’t have to go to such effort to destroy the livelihoods of the over 6,500 Herbalife employees and the well being of their families and children, the 90,000-plus distributors who are earning significant, if not living income from their Herbalife business, and their families and children, and the $1.8 billion that he’s pretty much single handedly caused other innocent Herbalife shareholders to lose since he announced his short position on Dec. 19th. This is not even to mention the devastating effect this will have on all the support vendors employed by Herbalife around the world should Ackman succeed in his stated goal of taking Herbalife’s share value to “zero” – meaning completely destroying Herbalife.

Point 2: Market Saturation

Ackman claims Herbalife is about to reach a point of market saturation – that inevitable point where all pyramid schemes must collapse. Like, the “Dinner Party”, “Women Empowering Women”, all the countless “Gifting” schemes, and the granddaddy of all pyramid schemes, the “Airplane Game”.[9] Each of which rarely lasted more than one year.

I wonder, how many more years does a 32 year old company like Herbalife have to exist, and continue to grow, before this notion of MLM company’s succumbing to “inevitable market saturation” becomes folly? Ackman says his evidence that it’s about to happen now, as opposed to, say, after 10 years, or 20 years, or maybe 10 years from now, is that Herbalife is “running out of countries” to move into. He then cites small, recently opened countries like Guiana and Zambia as evidence. However, Herbalife is operating in a total of 79 countries, launched in 1980, and has reported a net gain in United States sales in the last 15 consecutive quarters (quarter over quarter), and 30 of the last 31 – all occurring after they were 25 years old and had amassed over 1 million distributors! Herbalife reported 2.7 million distributors worldwide at the end of 2011[10], and now has over 3.1 million distributors.[11] In fact, for the first three quarters of 2012 Herbalife’s average U.S. sales growth (21.2%) has exceeded their worldwide sales growth (17.7%). Furthermore, Amway was launched in 1959 (just a year after I was launched), and is now in over 100 countries and territories, currently has “over 3 million distributors”[12], and revenues of $10.9 billion in 2011 which project to over $12 billion for 2012[13] – and they just celebrated a record sales volume quarter.[14] Amway is still growing! Herbalife’s sales over the last four quarters (Q1 2011 through Q3 2012) was about $3.5 billion.

So if a company that’s almost 22 years older than Herbalife, and is in at least 21 more countries, and has over three times the sales revenue, hasn’t reached this mythical point of market saturation, for what possible reason does Bill Ackman believe Herbalife is on the verge of it? Are we really suppose to believe that with all of his resources, and with all of his investigative skills, and the proposed 18 months he and his “team” have had to research Herbalife, that he somehow missed all this information that I alone just uncovered with one malfunctioning Mac, in less than 45 minutes, while eating an Enchirito?

How many more MLM companies have to surpass their 40th anniversary? Apparently eight isn’t enough.[15] How many more years does the MLM industry have to grow? According to the DSA the entire MLM industry has had a net gain in distributorships in 17 or the last 18 years in the United States – after it had existed for over half-a-century! The entire MLM industry hasn’t even reached market saturation in only this one market, let alone any specific MLM company,  worldwide.

How is Ackman’s claim of Herbalife’s imminent market saturation not absurd on its face?

Point 3: Third Party Invalidation

If there was ever more smoke rising from a warm gun it would be the one appearing from under the “Third Party Investigative Reports” menu option on Ackman’s website, ironically titled “Facts About Herbalife”.[16] There you will find two links. One leads to a single article by über-anti-MLM critic Robert FitzPatrick, who’s case against MLM has been thoroughly discredited[17], as was his anti-USANA report which Barry Minkow paid him to create[18]. There’s one more link titled “Fraud Discovery Institute Reports”. Within the latter you will find four reports making a case for why Herbalife is a “doomed by design” pyramid scheme, is “cooking the books”, and is producing potentially deadly products with “dangerously high levels of lead” in them.

The Fraud Discovery Institute was Barry Minkow!

That’s right. All four of these “Third Party Investigative Reports” were penned by a twice convicted, and currently imprisoned, stock fraud felon and extortionist! They were part of Minkow’s attempt to manipulate Herbalife’s stock, which he had shorted back in 2007, that he later completely retracted! In August of 2008 Minkow declared Herbalife’s business model was, in fact, legitimate, and that its product are safe. A press release[19] jointly produced by Herbalife and Minkow declared:

“The Fraud Discovery Institute retracts its accusations against multi-level marketer Herbalife… Upon further investigation by FDI founder Barry Minkow, the Fraud Discovery Institute became convinced that Herbalife employs systematic internal controls, including the use of outside, independent laboratory testing, which ensures their products are manufactured safely and in compliance with California law. It is evident to the Fraud Discovery Institute that Herbalife produces products that are safe, and that the company strives for continuous improvement in product quality.

The Fraud Discovery Institute immediately withdraws all accusations against Herbalife, including any Proposition 65 allegation relating to any Herbalife product and any contentions against the Herbalife business model.”

In several books written by, or about, Barry Minkow he tells of his close friendship with a man – who he eventually steals $2,000 from and causes to lose his job – who joins Herbalife around the mid-80s. Not only does Minkow have nothing bad to say about Herbalife within this context, in his own book “Buyer Beware” (1997) he includes a section on MLM where he states:

“Companies such as Amway, Avon, Excel, Herbalife, Mary Kay, and Tupperware have opened the doors to hundreds of copycats, some legitimate and some that hide as pyramid schemes. In this chapter I address MLM companies that are not pyramid schemes.”[20]

“Multilevel marketing is often a lawful and legitimate business method that uses a network of independent distributors to sell consumer products.”[21]

So Minkow likes Herbalife, believes they are a “legitimate” company and “not a pyramid scheme”, goes to prison for perpetrating one of the largest stock frauds in U.S. history, gets out, becomes a credible “fraud buster” (which he actually was in the beginning), then shorts Herbalife’s stock, trashes them viciously, makes a reported $50,000 on his puts, then suddenly retracts every negative accusation and states Herbalife is all A-okay. Then gets busted for stock fraud and extortion and is sent back to prison.

That’s the source of Bill Ackman’s “Third Party Investigative Reports”!

Miscellaneous Mistaken and Misleading Mudslinging

I wish I could write another 30 pages about this, but alas, I have to make a living. Those Enchiritos don’t make themselves.

If I could, I’d also cover, in a lot more detail, Ackman’s other blunders and ludicrous logic, such as the tired, impotent accusation that MLM distributors “make more money from recruitment than from sales”. Of course they do! Just like Ray Kroc made more money from the sales of hamburgers via his McDonalds franchises than from the Big Macs he personally fried and wrapped. Just like every business owner on Earth, over the entire history of business, has made more money by getting other people to sell their products than from their own personal sales! Seriously, does this ridiculous argument still have weight with anyone? Apparently Mr. Ackman is hoping it does.

Ackman says “99.9%”[22] of Herbalife reps don’t make money, and that Herbalife is supposedly hiding this fact. That is, hiding it by openly disclosing a detailed breakdown of what percentage of active reps reach each rank, the percentage of reps that are active, and the average earnings at those ranks, within their annual “Statement of Average Gross Compensation of U.S. Supervisors”.[23] Indeed, this is where Ackman is obtaining his payout data that he claims Herbalife is not disclosing – from Herbalife’s public disclosures. This is a disclosure that Herbalife is not legally required to produce, but that they have chosen to provide. From this disclosure we can conclude that about 10% of “Active” Herbalife Supervisors earn a significant profit[24], which amounts to about 3.9% of all Herbalife reps, so the actual percentage who “don’t make money” is more like 96.1%, not 99.9%. A picked nit, perhaps, but if Ackman is so well armed with facts to support his case, why the need for any hyperbole at all?

The main point here is that even this 96% don’t make money because 96% don’t do what they are suppose to do, well enough, long enough, to make many. It’s directly analogous to those who enroll in gym memberships. Although there have been no studies to nail down the exact number, we can surely agree that at least 96% of all those who filled out a gym membership application did not come remotely close to meeting their fitness goals. Why? Because of bad treadmills, bad weight benches, bad trainers, bad saunas… or because they didn’t do what they were suppose to do well enough, long enough?

Ackman actually states that failed Herbalife reps, as a group, “spend an enormous [amount of] time and energy, and they’ve sucked in their friends and family …”. But, that describes what the successful distributors do! If they’ve spent a lot of time and energy successfully persuading their friends and family to join, and they’ve presumably all expelled the same time and energy getting their friends and family to join – then these would be the folks who are making money. Those that fail to make money are those that fail to enroll others, or acquire any customers. Or, perhaps they enroll one or two friends, who then fail to enroll anyone, who then all quit – usually within a few days or weeks. In Minkow’s case against USANA (published in early 2007) the claim was made that the large majority of reps did not make a profit, and the large majority quit within the first year. However, in USANA’s voluntarily reported 2006 “Average Earnings Chart”[25] they explicitly defined the lowest rank where at least some profits were virtually assured to take an average of 18 months to achieve. So of course the large majority won’t make a profit if the large majority quit within the first 12 months! And indeed this describes the behavior of the large majority of MLM participants in any MLM company. Yet, in spite of this Harlan Tunnel sized hole in Ackman’s They-all-work-hard-and-enroll-others-who-all-do-the-same-but-fail-to-make-money argument, apparently no one can see it from Wall Street.

Ackman, like Minkow, has a knack for misrepresenting otherwise insignificant information in an effort to form mushroom clouds out of small puffs of smoke. For example, Ackman insinuates deception on the part of Herbalife for their “Millionaire Team” rank’s title. “Despite the name, distributors only earn $97,000 per year”, he says. Mr. Ackman is the one hypocritically doing the deception here. Herbalife reports the “median” annual earnings at this rank is $97,303, which means if all annual incomes of every “Millionaire Team” member were listed in descending order, the one half way down the list would be $97,303. Therefore, there certainly can be, and likely are, annual million dollar earners among those at the very top of this list.

Another example is Ackman’s claim that “[Herbalife’s] 70% volume requirement can include sales to one’s downline. By definition, this does nothing to limit internal consumption”.[26] That’s because the 70% volume requirement is designed to limit the front loading and stock piling of product, not to limit internal consumption. A fact well known by MLM participants with even a modicum of experience. Ackman goes on to say that Herbalife has enforced the 70% volume restriction fewer than ten times from 2006 to 2009.[27] Continuing his obligatory glass-half-empty line of reasoning he suggests this is due to “lax enforcement”. No alternate explanation is even considered, such as – very few Herbalife distributors violate the policy.

When making his case for why Herbalife products sell so well in spite of their premium pricing Ackman tries to play ignorant by claiming it can’t be due to an exorbitant advertising budget because Herbalife reported “de minimis”[28] advertising costs to the SEC.[29] But, of course, multilevel marketing companies employ word-of-mouth advertising as their primary method of promotion, and the financial incentives paid to those who talk up the products are in lieu of any conventional advertising. Herbalife’s actual cost of advertising has averaged almost $328 million in each of the first three quarters of this year, and exceeds $8 billion just since 2000![30]

The best example might be Ackman’s response to Herbalife CEO Michael Johnson’s exclamation that “The United States will be better when Bill Ackman is gone.”[31] When the comment was reiterated, completely out of context, Ackman called it “scary” and said he was “obviously concerned about my personal safety [and for] other people’s personal safety”. He then asks rhetorically, “When the CEO of a public company makes threatening statements, you have to ask yourself, why would he possibly say something like that?’. Here’s Mr. Johnson’s comment placed back in its proper context:

“This is a legitimate company. Mr. Ackman’s proposition that the United States would be better when Herbalife was gone – The United States would be better when Bill Ackman’s gone.”

Mr. Johnson’s heated, off-the-cuff remark was simply an attempt to turn around a comment that Mr. Ackman had already made about Herbalife. He obviously was referring to Ackman being gone from commenting publicly, online and on television, about corporate valuations and stock analysis. And, possibly, he might even have meant gone from society. As in, imprisoned. But obviously he was not suggesting that Ackman be gone from the Earth!

Then there’s the “Former Distributor Testimonials” section of his “Facts About Herbalife” website where, out of what should be tens-of-millions of screwed, angry ex-distributors (if all he claims were even fractionally true) he’s managed to cherry pick a grand total of 57 complaints by failed, ex-Herbalife reps. At least, we can only assume that’s who they are since a large number of them are anonymously posted comments on anti-MLM message boards such as mlmsurvivorclub.com, mlmwatch.com, and the [sarcasm on] oh so reliable ripoffreport.com [sarcasm off]. More than half are at least seven years old, some going back almost 12 years. I have not perused them all, but the general theme seems to be their failure in Herbalife was always someone else’s fault, and that someone should have told them what all the expenses were going to be before they incurred them. I wonder, how does one first discover what costs are involved in operating a business only after they’ve incurred them? And rather than go after Herbalife, shouldn’t we be trying to track down those scoundrels who held a knife to the throat of all these disgruntled ex-Herbalife reps and forced them to buy thousands of dollars of allegedly unwanted inventory, useless sales tools, and ineffective training? Or, might this have been poor, but completely voluntary business decisions made entirely by the failed rep?

Here are a couple of the testimonials Ackman presents (quoted verbatim):

“That piece of sh*t ETeam Home Business System, associated with Herbalife International, screwed me over royal with their phoney training program and unscrupulous business practices! The sponsor’s are two-faced a**holes too!… Hey Herbalife / ETeam, Keep your crappy unsafe products, along with your so-called training program and shove ’em up your f*cking a**, you blow b*st*rds!”[32]

“How about HerbalLif’s “incomeathome” incomeathome.com what a scam

This has to be the biggest scam in the USA today, other than Obamo of course.”[33]

Here’s a telling side note to Ackman’s collection of deliberately one-sided testimonials. When asked during the CNBC interview, “Did you participate, or anyone on your team participate, as a distributor?” as part of his investigative process, Ackman responds, “No”. His spurious excuse was, “We wanted to, but we’d have to sign a distributor agreement. If you sign a distributor agreement you agree to a confidentiality stipulation. We obviously could not agree to that. So we did not.” Soooo… why not have one of his team members sign up, get on the products, review the support material, go through the training, and simply monitor their experience, and then freely comment on it? And let’s get this straight – a business based entirely on the word-of-mouth promotion of its products and opportunity has a clause in their distributor agreement that disallows their distributors to talk about any of it? And if there was such a strong prohibition in place preventing ex-Herbalife distributors from even commenting on Herbalife, let alone disparage them, then wouldn’t the authors of all 57 testimonials Ackman presents be in gross violation of that policy?

Ackman was asked during the Bloomberg interview the obvious question as to why, if all he says is true, and after having amassed, according to Ackman, “the 2.5 million distributors that exist today and maybe 10, 15 million over the passage of time”, there are so few complaints with legal authorities and only about 0.5% (one-half of one percent) of product is ever returned to Herbalife? If, indeed, 99.9% of these folks are victims of a scam that has cost them all “a few thousand dollars each”, Herbalife should be getting deluged with millions of dollars in product returns monthly, and complaints to state and federal regulators should be in the thousands per year. Ackman’s response? “You can’t return the product”, and these marks are all just “too ashamed” or embarrassed, and generally are part of a demographic that “doesn’t trust the government”. Seriously. That’s his explanation. He claims the products can’t be returned because of all the restrictive hoops Herbalife makes you go through. During the CNBC interview he explains, “The people that have any kind of meaningful amount of product are sales leaders.” So, that alleged fraction of one-percent that are sales leaders who have all this product they are not returning explains, at least in part, why 99.5% of all Herbalife product is never returned? Ackman also explains that Herbalife reps must assert that 70% of all product previously purchased has been sold or consumed before they are paid their commissions, and Herbalife won’t allow them to return what they claimed they’ve sold or consumed. Since, he continues, they all just rubber stamp this declaration each pay period, when it comes time to return their inventory for a refund Herbalife now has this clever little gotcha’. That is, they’ll refuse to pay a refund for all that product you claimed you had already sold or consumed. So let’s consider this. If an Herbalife distributor is found to have grossly violated the Policies & Procedures they agreed to, and has committed fraud against the company by declaring they’ve sold product they really hadn’t sold, Herbalife should just overlook it and say, “Ahh, don’t worry about it. Here’s a full refund for all that product you lied to us about having sold.” At least, it seems that’s what Mr. Ackman would have them do.

This 70% Rule employed by Herbalife is a safeguard against excessive inventory loading, which Ackman has asserted Herbalife does not adequate enforce. And now he has cleverly exploited it to place Herbalife in a damned if they enforce it and damned if they don’t position.

As for this “too ashamed”, or “can’t afford an attorney” explanation for not complaining, wouldn’t those poorest victims, who can least afford to lose “several thousand dollars” be the most motivated to try and get it back? Yet, a tiny fraction of one percent of them even complain to the Better Business Bureau – which rates Herbalife an A+.[34] Based on a 2010 MarketWave analysis of BBB complaints against the top 100 MLM companies Herbalife placed seventh in total number of complaints, but their complaints-to-distributor ratio was among the lowest. The BBB currently reports 34 closed complaints within the last year[35] with about half involving a refund request, all of which concluding with Herbalife agreeing to refund, or having “fully refunded”, the amount in question.[36]

Conclusion

So now we are left with only two options…

Did Mr. Ackman know all of this, and he’s just employing the old “If you can’t dazzle ‘em with brilliance baffle ‘em with BS” strategy in an effort to fool enough of the people enough of the time to make a few hundred million dollars in “blood money”?

Or is he genuinely unaware of Herbalife’s current growth in the United States, Amway’s comparative growth, the utter lack of even the slightest shred of evidence that market saturation has ever effected a single MLM company, as well as Barry Minkow’s background and his most recent position on Herbalife, etc. etc, etc.? Which, if true, would mean he’s a grossly incompetent researcher.

I see no evidence that would suggest Mr. Ackman has ever been, previous to his Herbalife position, a grossly incompetent researcher.

“We simply want the truth to come out”, says Mr. Ackman.

So do I, Bill

Len Clements
Founder & CEO
MarketWave, Inc.

[4] Ackman also points out that Herbalife applies this retail markup to their compensation plan’s alleged “73% payout”, which I agree is inappropriate. Herbalife’s payout, as a percentage of commissions to wholesale sales, runs about 38-39%.

[15] Shaklee, Amway, Avon, Mary Kay Cosmetics, Tupperware, Fuller Brush, Wachters, and NeoLife (now part of Diamite Corp.).

[20] Page 147

[21] Page 192

[22] This percentage is a direct quote from Bill Ackman during a CNBC interview.

[24] The highest earners at the Supervisor level earn several thousand dollars per year, although the “average” annual earnings is $901. I am conservatively counting 3.6% of this group towards this 10% estimate.

[26] Slide 125 of the PowerPoint presentation “Who Wants to be a Millionaire”.

[27] Slide 127 of the PowerPoint presentation “Who Wants to be a Millionaire”.

[28] Too small to be significant, trifling, or miniscule.

[29] Slide 24 of the PowerPoint presentation “Who Wants to be a Millionaire”.

[30] Royalty override expenses recorded from forms 10-Q and 10-K.

[32] This complaint, as was the case with several others, involves a training and/or promotional system developed by field distributors, not Herbalife.

[34] Although, to be fair, Herbalife is an accredited member of the BBB and high grades are routinely awarded companies who paid for BBB accreditation, regardless of number or disposition of complaints.

[35] To place this in perspective, in 2010 there were 105 complaints against ACN, 89 against Melaleuca, PrePaid Legal had 74, Primerica had 60, Avon 42 and Ameriplan 39.

Filed Under: Articles Tagged With: , ,

What’s a Pyramid Scheme? [V1-N2]

February 25, 2013 2 Comments

 

What defines an illegal pyramid scheme and how to differentiate between an illegal pyramid and a legitimate MLM opportunity.

Filed Under: Videos Tagged With: , ,

Alert #173: 3/25/2011

January 19, 2013 Leave a Comment

Barry Minkow Charged With Securities Fraud

Ex-Con to Plead Guilty to Charges Alert Subscribers Knew About Four Years Ago

Anti-MLM critic and so called “fraud buster” Barry Minkow, who was convicted of securities fraud in connection to his ZZZZ Best carpet cleaning business in the 1980s and served over seven years in prison, was accused today of conspiring to commit securities fraud on (non-MLM) homebuilder Lennar Corporation. This follows an earlier charge of insider trading.

Federal prosecutors are accusing Minkow of spreading false information about Lennar using online press releases, emails to the media, online videos, and his own “Fraud Discovery Institute” website between January of 2009 and April of 2010. Prosecutors believe Minkow was trying to decrease Lennar’s stock price for his own personal gain, and to compel Lennar to pay a coconspirator which had previously lost a lawsuit against Lennar. The conspirator, believed to be real estate developer Nicolas Marsch, hired Minkow to beat up on Lennar allegedly to extort a cash payment from them.

According to court documents, Minkow’s statements “alleged widespread improprieties in Lennar’s financial reporting and business structure, and attacked the personal character of Lennar’s management,” with “reckless regard for their truth.”

Lennar’s stock dropped 19.9% percent after Minkow’s first Lennar report, which was followed by 12 more public hits on Lennar, either by way of a press release, new investigative reports, or online videos. Lennar’s stock dropped after 10 of the 13 total attacks possibly costing innocent Lennar shareholders over $861 million[1].

In an earlier and separate civil action Minkow was sued by Lennar for libel and extortion and was ordered by a Florida State Court judge to pay sanctions that could amount to “hundreds of millions of dollars” for a variety of acts designed to fool or mislead the court. You can read more about this action here:

http://blogs.laweekly.com/informer/2010/12/barry_minkow_destroys_evidence.php

The actual order can be viewed here:

http://www.marketwaveinc.com/docs/minkowlennarsanctions.pdf

This new federal charge is a criminal action that could send Minkow back to prison for up to five years. You can read a recent news report about this action here:

WSJ: http://tinyurl.com/WSJMinkow

Bloomberg (video): http://www.bloomberg.com/video/67984062/

Minkow has recently resigned as lead pastor for the San Diego based Community Bible Church. The church’s website states Minkow “has informed the church that he will plead guilty to one criminal count related to a lawsuit with which he was associated”.

Commentary:

Barry Minkow and his “Fraud Discovery Institute” began attacking M.L.M. companies in March of 2007. You can read the whole story in the comments section of Alert #165. Basically Minkow would hire uber-anti-MLM critics Robert FitzPatrick and Tracy Coenen to help him create smear campaigns against public M.L.M. companies which he would take short positions in (he purchased put options which allowed him to profit by the company’s stock going down). His tactic would be to do exactly what federal prosecutors are now accusing him of doing with Lennar. That is, use his media bestowed credibility to trash publicly traded companies so he could make money when their stock would go down. He’d accomplish this by making false statements about the company’s legality, ethics and financial viability. In some cases, such as his attack on Usana Health Sciences, Minkow was also paid by other short sellers so they could profit from the stock drop, too. In Usana’s case Minkow was paid $200,000[2] by fellow stock-fraud felon Sam Antar and another $50,000 by two hedge fund managers.

Of course, MarketWave Alert subscribers knew of Minkow’s bash-n-cash scheme four years ago. You can read my various rebuttals to Minkow’s M.L.M. company attacks HERE (see the documents listed in red).

What’s most sad about this is that the over $2.8 billion in total losses Minkow may have caused the innocent shareholders of his victims[3] might have been avoided had the mainstream media taken these rebuttals seriously rather than ignoring them. Instead, they kept on promoting Minkow as a credible, reformed scam buster. In fact, the Wall Street Journal would routinely report on Minkow’s attacks, giving them that much more credibility. After Minkow first turned his crosshairs on public M.L.M. companies with his Usana hit piece I contacted the WSJ reporter who was, at least inadvertently, supporting Minkow’s attacks. I made him aware of all the evidence I had that Minkow and his cohorts, FitzPatrick and Coenen, were unjustly attacking this and other companies based on bogus information. It was not until about a year later, after a Minkow induced SEC investigation of Usana and three separate class action lawsuits (one shareholder, one derivative, and one distributor) were all dropped with no finding of wrongdoing on Usana’s part[4], that this writer confided in me that he had only just then went back to read my rebuttals and “really wished I had read them back when you first sent them”. His supportive Minkow article he claimed he was working on never appeared in The Wall Street Journal, and he never wrote about any of Minkow’s attacks again.

Even more evidence that Minkow is still not telling the truth occurred during an interview with a local ABC news affiliate in San Diego last February. According to the 10News.com article, Minkow claimed “We had 24 cases, 23 led to convictions” and that the Lennar case was “number 24”. I guess Barry’s now infamous selective memory must have been engaged during this interview, and he just forgot about Usana. Or Herbalife. Or Prepaid Legal. Or Medifast. Or, for that matter, the non-MLM company InterOil (IOC) that he shorted and trashed. Not only did none of these cases involve any “convictions”, Minkow failed to get any legal authority to take any action against any of these companies of any kind! He just shorted them, bashed them, then cashed out.

It’s also interesting to note how Tracy Coenen unconditionally and obligatorily repeated, supported and defended each and every one of Minkow’s accusations against Lennar (as she did with Usana, Herbalife, Medifast, and others), going so far as to declare that their CEO “blatantly lied”, Lennar exhibited a “pattern of fraud and deception”, and Lennar was perpetrating a “giant Ponzi scheme”. She even titled one of her blog entries “Being right feels so good” when she thought her and Barry had proven one of their many accusations. Tracy is usually quite the chatterbox when it comes to defending her position and credibility, yet she doesn’t seem to have anything to say about Lennar right now (she’s removed all of her many blog posts about them, but I have copies). She also doesn’t seem too keen on defending Barry anymore. She hasn’t offered a word of support (and yes, Tracy, being right does feel good 🙂 

It’s also odd that Minkow has left his FraudDiscovery.net website online in spite of the fact he hasn’t updated it since June 4th, 2010, and it still defiantly showcases both his Lennar and Medifast smear campaigns, including his supposedly upcoming Lennar documentary called “Two Big To Go To Jail: The Lennar Story“, and his own autobiographical movie. Yes, there is a movie about Minkow’s life, titled simply “Minkow” (which was originally to be called “Redemption”), staring Minkow playing himself along with a great cast, including James Caan, Mark Hamill, Ving Rhames, Talia Shire, and Justin Baldoni (as a young Minkow). It was due to be released sometime this Spring, but due to recent events the director has suggested the ending may need to be revised.

I hope they allow cameras in prison.

Len Clements
Founder & CEO
MarketWave, Inc.

[1] Based on an analysis of change in Lennar’s closing share price the day previous to the Minkow attack and the day of the attack, and factoring out the change in the overall market (based on S&P 500 index) during that same period.

[2] Minkow claims Antar only paid him $100,000 for his Usana report, and the other $100,000 Antar paid him, right about the time Minkow first began his Usana investigation, was simply a gift due to Antar’s “admiration” for Barry.

[3] Based on the analysis described in footnote #1.

[4] The SEC “informal inquiry” was dropped with no action taken, two lawsuits were dropped by the plaintiff, and another was dismissed on summary with the judge declaring that the claims made against Usana, most taken directly from Minkow’s material, were not even “plausible”.

Filed Under: Alerts Tagged With: , , , , , ,

Alert #174: 4/4/2011

January 18, 2013 Leave a Comment

Minkow Pleads Guilty to Conspiracy/Fraud
Robert FitzPatrick to be Tried for Libel

Barry Minkow, who produced a series of elaborate, well funded attacks on a number of M.L.M. companies between 2007 and 2009, formally pled guilty last week to Conspiracy to Commit Securities Fraud related to his attacks on non-MLM real estate developer Lennar Corp. Although it’s been known for days that Minkow was to plead guilty, details of his offence have only now been made public.

According to numerous news reports and the FBI’s own press release, Minkow:

“…admitted that he abused his relationship with federal law enforcement agencies to report false allegations of criminal conduct purportedly committed by Lennar and its management. Once Minkow confirmed that his allegations had successfully induced law enforcement to open a criminal investigation, Minkow allegedly used that knowledge and information to trade Lennar securities for his own benefit.”

In other words, he convinced the FBI to investigate Lennar based on his false and misleading anti-Lennar reports, and once he learned of this inside information he then purchased put options on Lennar anticipating the FBI investigation would eventually go public and Lennar’s stock would plummet. Besides the fact this is “insider trading” (what put Martha Stewart in prison), Minkow also purchased his options secretly and denied under oath that he had ever “shorted” Lennar stock (that is, invested in such a way that he’d make money by their stock price dropping).

A great recap of the story can be found here:

http://blogs.laweekly.com/informer/2011/03/minkow_duped_fbi_hurt_lennar.php

Also, prolific anti-MLM critic Robert FitzPatrick, who is founder and chairman of the Pyramid Scheme Alert organization, had his SLAPP[1] motion denied in part related to Medifast’s libel suit against him. FitzPatrick was hired by Barry Minkow to assist in his production of anti-Medifast reports, a public M.L.M. company that Minkow had also shorted. Minkow and FitzPatrick claimed, among other things, that Medifast’s M.L.M. division, Take Shape for Life (TSFL) was an illegal pyramid scheme. The Medifast complaint alleged FitzPatrick had libeled both Medifast and TSFL as well as Medifast Executive Chairman and TSFL co-founder Bradley MacDonald. The court ruled in favor of Fitzpatrick and dismissed him from any libel charge against MacDonald personally, but did allow the libel charge to go forward related to FitzPatrick’s claim that TSFL violated California’s penal code 327 against “endless chain” pyramid schemes.

Also named in Medifast’s libel suit were Barry Minkow himself along with ex-IBizReporting.com partner William Lobdell and not quite as prolific anti-MLM blogger Tracy Coenen. Minkow’s, Lobdell’s and Coenen’s SLAPP motions were all granted.

Online reports to the contrary, fellow PSA co-founder and even more prolific anti-MLM critic Jon Taylor did not directly participated in Minkow’s Medifast or Lennar attacks and has not been named in either lawsuit.

Commentary:

There’s a lot of interesting twists and angles to this case. Minkow and Coenen both produced commentary that clearly implied Medifast was operating as an illegal pyramid or Madoff-like Ponzi scheme, but the court essentially said that’s their First Amendment right to say as long as its their opinion, based on how Medifast appears to them, and they don’t specifically declare Medifast to be operating illegally. Although Coenen did cleverly pose her accusations as questions, or indirectly by letting Minkow and FitzPatrick do her dirty work and then quoting them, Minkow was over the top in his numerous, matter-of-fact declarations that Medifast was operating an illegal pyramid or Ponzi scheme in violation of the law.

The same thing happened in Usana’s civil suit against Minkow (now settled). The court ruled in favor of Minkow’s SLAPP suit[2] in spite of him having publicly declared Usana to be an “evil”, “fraudulent”, “illegal pyramid” that was a “crime in progress” and “doomed to fail” — because it was his opinion, based on how they appeared to him. Which begs the question, what exactly does someone have to say about an M.L.M. company for it to be considered libel by a California judge? The legal definition of libel requires a statement that can be “proven false”. That is, someone’s opinion that your business operation “looks like” a pyramid scheme can’t be proven false. If someone says your business is, in fact, an “illegal” pyramid scheme and sites the specific law it is violating, that can be proven false. In FitzPatrick’s case his undoing involved his specific declaration that Medifast violated CA penal code 327 against “endless chain” schemes. It would seem that the rule all anti-MLM critics need to follow now is, say the MLM company is an “evil”, “fraudulent”, “illegal pyramid” that is a “crime in progress” and “doomed to fail” – just don’t specify what penal code they violated. But hold on. Barry Minkow did, in fact, directly and specifically accuse Usana of violating California’s code 327.[3] Yet, the same California court (although within a different judge’s courtroom) ruled in favor of Minkow’s SLAPP suit — for making the identical set of claims that FitzPatrick has made against Medifast!

Minkow hired FitzPatrick to write a report that focuses on the similarities between Medifast and Bernie Madoff’s Ponzi scheme. In that same report Minkow asserted that some of Medifast’s products had excessively high levels of lead in them and “were in clear violation of California’s Proposition 65”. The analysis was conducted by product liability attorney Christopher Grell, who also claimed to have found excessive levels of lead in the products of Minkow targets Herbalife, Usana and Nu Skin.[4] It was always curious how Minkow and Grell only found high levels of lead in publicly traded MLM companies that Minkow had a short position in. Mr. Grell also represented Robert FitzPatrick in defense of Medifast’s lawsuit against him.

So, besides the fact Minkow declared Medifast is violation of California’s Prop 65, he also claimed Medifast’s TSFL division was, like Usana, and just as FitzPatrick had claimed, an “endless chain scheme” in violation of California Penal Code 327:

http://www.marketwaveinc.com/audiolibrary/MinkowMedifastComments.mp3

Although Minkow does blunder by referring to California’s “endless chain” code “373”, we can be fairly certain he actually meant code 327. Code 373 is California’s “Noisy Neighbor” law. Of all the things Minkow accused Medifast of, being too loud was not one of them.

“For Medifast Inc. to defend endless chain pyramid allegations by stating its proud affiliation with the Direct Sellers Association would be the moral equivalent of Bernie Madoff saying that he attended the Charles Ponzi School of Investment Advisors.”

                       — Barry Minkow

So it’s confusing that Medifast’s libel suit against FitzPatrick is allowed to go forward because his comments were “libelous per se because they accuse Medifast of a crime”, but all of Minkow’s direct and specific accusations of criminal activity is declared protected free speech. And get this… Within the Order granting Minkow’s and Coenen’s SLAPP motion[5] and dismissing them from the libel suit the court recognized:

“That these statements are couched in language like ‘in my view’ does not affect the Court’s analysis… Statements in the publications do not attain constitutional protection simply because they are sprinkled with words to the effect that something does or does not ‘appear’ to be thus and so; or because they are framed as being ‘in our opinion’ or as a matter of ‘concern.'”.

Now I’m completely confused.

The part of FitzPatrick’s SLAPP motion that was upheld involved his alleged libel of Medifast chairman and TSFL founder Bradley MacDonald. This gets even more bizarre. According to the court’s decision, “none of Defendants’ statements can be reasonably interpreted as referring to MacDonald.” One of the defendants was an anonymous message board critic called “zeeyourself”. However, it was the comment from another far more active and uglier poster “medisdead” who said “Pimp-Daddy-Brad McDonald [sic] is a disgrace to our Armed Forces for running a Madoff Ponzi Scheme and ripping off good people”, which was cited within the court’s decision. However, the judge went on to say “To conclude that the authors of these postings read Defendants’ statements and understood them as referring to MacDonald would be pure speculation.” I see. So, they might have been referring to another Bradley MacDonald? The fact that all of the 78 negative posts made by the above two trolls all occurred after Minkow’s and Coenen’s attacks began is just a coincidence? When “zeeyourself” posted, “Barry Minkow and Brad MacDonald are cut from the same cloth, they are National Directors of scam. Bernie Madoff is the sole Presidential Director”[6], what did the judge believe here? That the poster wasn’t aware of Minkow’s anti-Medifast propaganda and just randomly picked his name out of thin air?

It’s also interesting to note that Minkow solicited a supportive comment from anti-MLM attorney Douglass Brooks to “bolster the charge that Medifast is in violation” of Penal Code 327. Brooks is also a Pyramid Scheme Alert board member and best known for representing the plaintiffs in the infamous Webster v. Omnitrition case. In an email to FitzPatrick[7] Minkow describes Brooks response as “less than enthusiastic”, and no supportive comment was ever provided. Kudos to Mr. Brooks. At least one anti-MLM critic’s opinion can’t be bought.

Robert FitzPatrick, who is often cited in media reports as a “multilevel marketing expert” and who testifies as such in legal matters, claimed during his deposition:

1) He has never spent one day as an M.L.M. distributor;

2) There is “no fundamental difference” between a Ponzi scheme and a pyramid scheme;[8]

3) When asked about his negative Usana report that Barry Minkow paid him to produce he responded, “I never regarded it as negative.”;

4) He spent “200-250” hours researching his negative Medifast report, but never contacted Medifast corporate to have them address any of his concerns, only spoke to “two or three” Medifast distributors, could not recall anything from all but one conversation, took no notes of any conversation, only asked about costs associated with building a Medifast business, never inquired as to the rep’s income, and was told by the one rep he could recall speaking to that building an Medifast business was “a lot of hard work”;

5) Thought is was a “red flag” that Medifast’s stock had increased from $2.50 per share to $32.50 between December of 2008 and 2009[9];

6) He did not consider Medifast an “MLM company” until the sales from their “Take Shape for Life” division exceeded 50% of total company sales[10];

7) He believes there are only “300” M.L.M. companies operating (not based, but operating) in California;[11]

8) He still believes that Amway’s “70 Rule” means “that 70% of whatever they purchased each month had to be resold to people who were not also distributors.”[12]

Within Tracy Coenen’s self-congratulatory gloat post on her blog she declares: “While it may be true that Barry Minkow has engaged in some bad acts,” (may be true?), “I did not know about any of them and I did not participate in any of them. I was simply a consultant doing work for a client, and I stand behind the work I did.”

It’s funny how Coenen obligatorily and unconditionally parroted every one of Minkow’s accusations against Medifast, Usana, Herbalife, Pre-Paid Legal, and Lennar, often adding considerable amounts of her own commentary in support of Minkow’s claims.[13] But now that Minkow has been exposed as a fraud and is likely going back to prison, he was simply a “consulting client”. And how did Tracy — a certified fraud examiner and “forensic accountant” — miss all of Minkow’s fraudulent bash-n-cash schemes in spite of working directly with him on each and every one of them? In fact, she repeatedly accused Lennar of fraudulent, illegal activity based allegedly on her own analysis, besides routinely supporting and promoting Minkow’s anti-Lennar campaign. Yet, we now know that Minkow’s Lennar attacks were part of a fraudulent extortion plot and insider trading scheme. I knew what Minkow was up to four years ago from just outside observation. Coenen was on the inside working directly with him on these attacks and, allegedly, couldn’t figure out what was really going on.

Also within her victory post she writes: “While Barry may have lied to the court, fabricated documentation, destroyed evidence, concealed witnesses, and intentionally hid information,” (again, may have? It’s already been proven in a court of law that he did!), “I was not involved in any of those bad acts and did not know that they were occurring. I never engaged in any misconduct in any litigation, and I was not involved in the concealment or destruction of any evidence.”

According to the Court Order granting sanctions against Minkow in the Lennar case, not only did Minkow possess “numerous emails” with Coenen and others who assisted in his investigation that he hid from the court, Tracy Coenen is specifically identified as having “deleted emails about Lennar (she) had exchanged with Minkow.”[14]

So Tracy Coenen now claims she knew nothing about any of the deceptive, fraudulent or illegal activities being perpetrated by Barry Minkow. So, is she dishonest, or an incompetent fraud examiner? Keep in mind, I’m not saying she’s either. I’m just asking a question.

Tracy Coenen is a devout defender of Freedom of Speech and avidly supports hers and other blogger’s First Amendment right to post critical commentary online. Well, unless it’s about Tracy Coenen. If she keeps with her usual M-O she’ll now respond to this Alert by attacking me within her blog — because she knows I can’t respond there. You see, Tracy Coenen only allows comments to post that are either in support of her, or that offer criticisms she thinks she can successfully rebut. If you challenge her with criticisms she can’t defend she’ll simply delete your comment and ban you from posting anything else — which is exactly what she did with me. Apparently, freedom of speech only applies to Tracy Coenen’s criticism of you, not the other way around.

As for the Medifast libel suit against Minkow and Coenen, Medifast does have the option of appealing. Since the legal definition of libel seems to be a crap shoot, and the odds of crapping out twice in a row are very slim, they should certainly go for it. However, they’d have to appeal to the 9th Circuit — the same appeals court that ruled against Omnitrition in 1994. So once again, all bets are off.

Len Clements
Founder & CEO
MarketWave, Inc.


[1] Strategic Lawsuit Against Public Participation: Basically, a suit filed by a defendant in a slander or libel case that charges the plaintiff with trying to use the legal system to stifle public criticism.

[2] Although the primary stock manipulation charge was allowed to go forward.

[3] In his Feb. 20th 2007 letter to the FBI, SEC, and IRS, Minkow quotes attorney and Pyramid Scheme Alert board member Douglass Brooks as saying, “it appears that Usana has ‘contrive[d],’ ‘set-up,’ ‘propose[d] or operate[d]’ an endless chain within the meaning of Cal. Pen. Code Section 327”. (The SEC did subsequently investigate Usana on this charge and apparently found no reason to believe it was true — the investigation was closed with no action taken of any kind).

[4] Each company subsequently conducted their own tests and found no evidence to support Minkow’s and Grell’s accusation. Only the products supplied to Grell by Minkow appeared to have unsafe levels of lead in them.

[5] Footnote 11 on page 14.

[7] Medifast deposition, pages 264-265.

[8] In a Ponzi scheme the total amount due to be paid from each participant’s investment exceeds the investment, where as in a pyramid scheme the total amount due to be paid from each participant’s investment is less that the investment.

[9] Besides the obvious fact a rapidly rising share price is not, or at least should not, be a “red flag”, a “multilevel marketing expert” would have known that the direct sales industry is counter-cyclical with the economy and that public M.L.M. companies have been outperforming the overall market for most of the last ten years.

[10] There is no legal or historical precedent that defines an M.L.M. company in this way.

[11] The most conservative estimates place this number at 800, and most estimates run between 2,000 and 3,000.

[12] During an FTC action against Amway (1975-1979) the 70% Rule meant that at least 70% of a distributor’s previous purchases must have been sold to anyone — “at wholesale and/or retail”. Back then there was no multilevel compensation checks paid by the company, but rather it was routine that each distributor resell their inventory to the next person one generation below them, and a small profit is taken as the product is transferred down each generation. Within the court’s decision in the FTC v. Amway case these “wholesale” sales to other distributors are specifically recognized as counting towards the 70% Rule. Furthermore, the 70% Rule has long since been interpreted to mean 70% of a distributor’s purchases must have been “sold, sampled or consumed” before any more product can be purchased. This rule is designed to inhibit the front loading and stockpiling of unwanted product purchased solely to qualify in the compensation plan. See: http://www.marketwaveinc.com/articles/Taylor-Rebuttal-1.pdf

[13] Barry Minkow likewise reciprocated by providing a very positive review of Coenen’s book about accounting fraud where he ironically refers to her as the “ZZZZ Best fraud investigator”. ZZZZ Best was the name of Minkow’s fraudulent carpet cleaning business that resulted in his 7-plus year incarceration. Coenen has now removed Minkow’s testimonial from her website, but I just checked and it still appears at the top of page one of her book.

[14] Fact No. 11, page 6.

Filed Under: Alerts Tagged With: , , , , , , , ,

Alert #175: 4/30/2011

January 18, 2013 Leave a Comment

Google Goofs, BBB BS Abates
And Other Random Items of Interest

As an April Fools joke a few years back I sent out an Alert announcing that I had just launched my own M.L.M. company – called FreeLunch International.

http://www.FreelunchInc.com

In spite of the absurdity of the site (listen to the “Grand Pre-Prelaunch Ground Floor Kickoff” call) I received about a dozen angry unsubscribe notices, another dozen facetious requests to join – and six more asking “is this for real?”. One subscriber wrote, quite earnestly, “If it is, you should be ashamed!”. I suppose, technically, she was right.

This reminds me of the April Fools joke I perpetrated on my newsletter subscribers in the early 90s – back when newsletters were made out of paper – where I introduced them to the Alchemy Foundation. AF had discovered, allegedly, a way to turn tin into platinum. For every tin can you send them they’d pay you $4.10, plus 40 cents for every can those you enrolled sent in, down ten levels. Alchemy Foundation’s initials were the first clue, along with all the 4s and 1s in the pay plan. But if that weren’t enough, I borrowed an idea from Sports Illustrated’s 1985 April Fools edition (where they reported on a baseball pitcher that could throw a 168 mph fastball) and spelled out “April Fools” with the first letter of each of the article’s ten paragraphs. To avoid any calls or letters asking how to enroll in the Alchemy Foundation I directed the reader to the bottom of the last page for sign up information. There they found the message, “If it sounds too good to be true, it probably is – April Fools!”. I still received 6 calls asking how to enroll in the Alchemy Foundation.

About four months after my FreeLunch, Inc. website went live I received a couple of solicitations in the mail from Google offering a discount on Google Adwords. But, they weren’t exactly directed to me. They were directed to C. Augie Stein, the CEO of FreeLunch, Inc. (and an homage to friend and MLMInsider.com founder Corey Augenstein), and FreeLunch’s Vice President Bill Spazzle. Apparently, when Google’s web crawling scraper software found my MarketWave website and went in search of a contact name it came across Augie and Bill on FreeLunch’s Company page. I only wish they would have left their post nominals intact (Augie earned an So.B. and Bill achieved the Oc.D designation).

BBB BS Abates

Some of you veteran Alert subscribers may recall an analysis I performed on the Better Business Bureau ratings of M.L.M. companies back in May of 2009.

http://www.marketwaveinc.com/docs/bbbdata(5-09).pdf

http://www.marketwaveinc.com/AudioLibrary/rs/5-INM(3-24-09).mp3
(BBB commentary begins at 1:04:40)

http://www.marketwaveinc.com/AudioLibrary/rs/6-INM(5-4-09).mp3
(BBB commentary begins at 0:53:27)

The point was to expose what appeared to be a shakedown scheme perpetrated by the BBB in an effort to strong arm companies into purchasing BBB memberships. What seemed obvious by this data was that if you paid their “Accreditation” fee, which ranges from $350 to several thousand dollars depending on the size of the company, you could practically be assured of at least a B+ grade, no matter how many complaints were made against the company. An A grade was also rare without paying the fee.

Allegedly, according to the BBB, there were 17 factors (now 16) that go into a company’s grade and accreditation only accounted for 4% of that grade. Even if this were true it made it impossible for any company, even those with zero complaints who have met the highest standards in all other criteria, to receive an A+ grade without paying the accreditation fee. However, based on the above data, the 4% weighting didn’t even appear to be true. Melaleuca received an A grade in spite of having received 307 complaints over the previous 36 months (8.53 per month) and only 39% were confirmed resolved to the customer’s satisfaction (although all complaints were addressed in some manner). So, had nothing else changed other than Melaleuca’s accreditation status this would have dropped their grade to a still sterling A-minus. And how did PrePaid Legal still manage to get a perfect A+ with 250 complaints (6.94 per month) and only 16.4% confirmed satisfactorily resolved? Then there was AmeriPlan, YTB Travel, and Liberty League, all with significantly lower complaint totals and higher confirmed resolved percentages who received the BBB’s lowest possible grade — an F. While some may argue that the latter two examples may have been deserving of a low grade for other reasons (both were facing serious legal challenges back then), there seems to be no rational explanation for the then 53 year old Tupperware receiving an F grade with only 33 complaints (0.92 per month) and 78.8% confirmed satisfactorily resolved. That is, other than Tupperware’s refusal to pay the BBB’s accreditation fee. None of this made any logical sense, and it wasn’t even the most senseless points revealed by the analysis. Perhaps a lower grade was warranted for Ideal Health (now called The Trump Network) and Max International because they allegedly didn’t even respond to the few complaints that were submitted (3 and 1 respectively). But an F? With one complaint in three years? The now expire Fruta Vida (merged with Pro Image) received only two complaints and resolved both, one confirmed satisfactorily — and got an F. And get this… although the age of a company is one of the BBB’s factors that it considers, the then almost 17 year old Neways International had no complaints at all — ZERO — and their BBB profile was emblazoned with a scarlet F!

Then, in November of 2010 ABC’s 20/20 aired a scathing segment exposing the same issues that Alert subscribers were made aware of 18 months earlier. See the 20/20 report HERE. To it’s credit, the BBB responded quickly and, for the most part, appropriately by issuing this statement HERE where BBB president and CEO Steve Cox acknowledged an internal investigation into the Los Angeles area BBB chapter. That’s the one cited in the 20/20 segment for accepting the $425 accreditation payment from, and awarding A- and A+ grades to, the fictitiously enrolled “Hamas” (named after the Middle Eastern terror group) and “Stormfront” (a neo-nazi white supremacy group) respectively. Mr. Cox also announced that the BBB will no longer factor in whether or not a company is accredited when computing their grade.

I performed the same data collection and analysis in December of last year to see how the top 100 M.L.M. companies faired under the new grading system, along with 27 new upstart companies. The results were quite revealing:

http://www.marketwaveinc.com/docs/bbbdata(12-10).pdf

Among the most remarkable aspects of note were companies like PrePaid Legal who, even after this supposed 4% weighted accreditation factor was removed, still managed to receive a perfect A+ grade with among the very highest number of complaints and lowest resolution ratings. Even though being accredited should no longer be a factor, of the 83 non-accredited companies surveyed there were 11 Fs, 7 Ds, 5 Cs, 14 Bs, and 46 As, 27 of which were perfect A-pluses. However, of the 38 accredited companies that were assigned a grade 35 received at least an A-. The lowest grade among accredited companies was the B awarded to Ignite (Stream Energy) — which had amassed 454 complaints (12.61 per month) with a well below average resolution score. I’m wondering… what grade would the BBB have given Madoff Investment Securities had Bernie paid his accreditation fee? I mean, what would an accredited company have to do to warrant an F grade? Or even a C. Be a Nazi terrorist organization?

Although there’s circumstantial evidence that accreditation might still be holding some grades aloft, to their credit the BBB does, in fact, appear to no longer be tethering grades of unaccredited companies to the ground. Of the 18 such M.L.M. companies that previously were assigned grades of C-minus or lower 9 are now graded A-minus or above, including The Trump Network, AmeriPlan, Tupperware and Neways, who all went from an F to an A. MonaVie jumped from a C-minus to an A+ and World Ventures and Isagenix both rose from D-minuses to an A and A-minus respectively. Coastal Vacations, Liberty League, and YTB Travel were Fs, and are all still Fs. Although there are other legitimate factors that may account for the failing grades of these companies, and to relative newcomers Amega Global, CSI (previously Narc That Car), and Global Verge, the Ds and Fs applied to Winalite Health, Rain Nutrition, Qivana, Zija, and Max — who have a total of 15 addressed complaints combined — are mysterious, to say the least. There are two things all five have in common (besided not being accredited). First, the BBB cites “Length of time business has been operating” among the “factors that lowered this business’ rating”. But, Max has been operating since September of 2006. The company For Earth had (as of the 12/10 survey) a vertually identical complaint record and one less year in business, yet earned an A-minus. For Earth is accredited. Max is not. The other “factor that lowered this business’ rating” all five of the above had in common was the “BBB’s concerns with the industry in which this business operates”. The only “industry” all five have in common is network marketing. Of course, if you pay the BBB’s accreditation fee, such as A+ rated Life Plus, Amazon Herb, Life Force, Youngevity, XanGo and several others did, the BBB will no longer have any “concern with the industry in which this business operates”.

The Better Business Bureau’s Baffling, Biased, and Bogus grading system is somewhat improved, but there’s still a lot of work to be done.

DSWA Round Up Celebration

I know it’s late notice, but I’ll be participating in the Table Topic Discussions at the upcoming Direct Selling Women’s Alliance event in Dallas from Thursday, April 28th to Sunday, May 1st. I’ll be speaking on the topic of Compensation Plans Strategies. And yes, if you’re one X chromosome short of a W like me, you are absolutely still welcome!

For more information just click on the DSWA banner at the bottom of the MarketWaveInc.com home page.

Favorite Company Contact Spots Going Fast

If you haven’t voted for your favorite M.L.M. companies yet, please click on the link below. Unlike some online voting campaigns this one doesn’t allow anyone to gang-vote for only their own company over and over. Everyone get’s to submit only one ballot per year, and you must vote for at least three, and no more than 10, companies. The Favorite Company vote page typically attracts several thousand unique visitors every year, and you’ll only need to enroll one good prospect to have your one year listing more than pay for itself. And what other kind of prospect would such a listing produce? After all, they’ll all be folks researching their choices by visiting MarketWave!

To be the exclusive contact for your company’s listing just go to:

http://www.insidenm.com/fun-stuff/top-opportunity-vote/

Then click on your company’s name and sign up. If there’s already a contact listed get your name on the waiting list and we’ll contact you if the spot opens up.

Thanks. And Happy Easter!

Len Clements
Founder & CEO
MarketWave, Inc.

Filed Under: Alerts Tagged With: , , ,

Professional Network Marketing

January 5, 2013 Leave a Comment

Eight Habits that Will Guarantee Success

By John Milton Fogg

Habits are a fact of life and work. There are bad habits – ones that undermine and disable you, and there are supportive habits – ones that empower you and assure ongoing positive action and achievement.

Following is a list of eight habits you can do every day. They are not the only ones, but they’re proven practices that will contribute to your professional network marketing success – guaranteed.

1. Write Down Your Goals and Review Them Daily.

Successful people in all walks of life and work not only have goals, they also write them down and review them daily. Making written goals keeps the “why” of the business up in front of your face. Written goals assist in keeping you focused, help you get through difficult times, and are more “real” and concrete than dreams in thought. Knowing where you want to go transforms a “Sunday drive” into a purposeful journey. It is the key to creating success by design – the design you want – and not by luck or accident.

2. Listen.

How often are you more interested in what you have to say than in what the person you’re speaking with is saying? Do you have more answers than questions? Do you approach conversations with an agenda you want to “get” the other person to “see” or agree with?

Listening is a powerful ingredient for success, yet many of us are not good listeners.
The key to listening is this: notice when you’re thinking about your answer instead of listening; stop, focus on what the other person is saying and ask more questions. Kahil Gibran said that the true teacher does not bring you to the storehouse of his or her wisdom, but rather leads you to the threshold of your own. Giving people the right information is important, even empowering. Helping them discover what’s right empowers them 100 times more.

3. Acknowledge Your Actions Instead of Your Results.

Although many of us have been taught that it’s the result that counts, a focus on results may actually be counterproductive. What if, instead, we focused on our actions – and let the results take care of themselves?

For one thing, our actions create results. So it makes sense that continuous action – what we call being “proactive” – will generate more and greater results. By acknowledging our actions, we give ourselves – and others – positive reinforcement. We build a pattern of success.

Focusing on results tends to trap people into “doing it right,” rather than just doing it. That’s a sure set up for failure.

Remember, it took Thomas Edison 9,999 attempts (actions) to make a light bulb (the result). If he’d been preoccupied with the result, we might still be in the dark.

Consistent action – each one being able to be completed – generates momentum, the on-going power we need to accomplish our goals.

4. Say Only Things That Champion People.

“If you can’t say anything nice…” There’s more than enough negativity and criticism in the world. For every three good things being said on any subject, there are 33 bad comments whispering down the lane. Saying only those things that champion people, companies and causes generates positive word-of-mouth. In a predominantly negative world, this will attract people to you like a powerful magnet. When you find yourself engaging in negative talk, notice what you’re saying, stop, make a positive observation instead – or be quiet. Being known as a man or woman of your good word is something you can put right in the bank – and the interest it earns is both residual and powerful.

5. Make and Keep Your Agreements.

“Those people never return phone calls – they must simply not care… Tom said he’d send me literature, but it never came – he’s not serious about this business… We had an appointment at 3:00, but she never showed up, she never even called – I just can’t count on her.”

These conclusions may not be the truth, but that’s how people feel when you don’t return their calls, follow through and keep your agreements. Keeping your agreements in a timely manner is both professional and duplicatable – it’s the kind of action you want to encourage your distributors to model. Imagine how powerful your organization would be if everyone in it could be counted on to do what they said they would?

Most calls don’t get returned, letters don’t get mailed, appointments aren’t kept, because of “not enough time” or “not being organized.” Fact is, it’s really a lack of commitment to keep our agreements. Making that commitment alone is a powerful action.

Honoring your intention to make and keep your promises is an almost 100 percent guarantee of success.

6. Set a Limit On Your Phone Time.

As an overall rule and with specific calls, placing a time limit on calls increases your effectiveness and reduces your phone bill, too – a classic win-win. Communications experts estimate that more than 80 percent of what we say is not to the point. Even if you saved only 50 percent of your telephone time by making time-limit agreements, you’d have time for twice as many calls. Busy people appreciate being concise and to-the-point. It’s a habit they have. The telephone may be the most powerful business tool you have – but only if you’re actually using it to do the business.

7. Just Say “No”.

Building your network marketing business can be a very busy enterprise. Many of us have a tendency to over commit. One problem is saying “Yes” too often. Being all things to all people is a crazy goal. Can’t be done. Learning how and when to say “No,” isn’t a self-indulgent limitation. It is a solid expression of what it takes to run your business in the most efficient and effective manner. And, it will also help to promote your people rising up to take responsibility for their own success.

To start, set a simple goal of saying “No” three times each day.

Don’t make it arbitrary. Choose times and subjects where saying “Yes” doesn’t serve you or your enterprise. Say “No” when you really mean it. Say “No” when it serves everyone involved.

8. Do One Thing At A Time.

Focus is vital for your success. Many of us split our focus: writing notes or organizing while on a phone conversation, having two conversations at once, and the frequent trap of the home-based business person: being torn between family and work.

“Jack (and Jill) of all trades” is truly master of none. You’ve got to concentrate on the task at hand and give it your full attention to succeed.

Otherwise, you’re ripping yourself or others off. From paying full attention to the person on the other end of the phone, to scheduling your time so that you’re not torn between two concerns, the one thing at a time approach works best. If you find yourself looking up a phone number while writing a note to someone, stop, make a choice of one or the other, and complete one task before moving on to the next. Choice is the key. It leaves your mind free to be fully engaged in your action. Distraction saps your energy, leads to fatigue and a lack of productivity. Remember, producing predictable results is what you’re after. The ability to focus on one thing at a time will increase the number of wins in your day � and in your career as well.

These proven practices will powerfully contribute to your professional network marketing success – guaranteed.

John Milton Fogg authored the million-selling industry classic, The Greatest Networker in the World. You can receive useful tips, tools, news, updates, links and other resources to help you build a better network marketing business free from John on his website: http://JohnMiltonFogg.com Be sure to visit John’s weblog: http://TheFoggBlogg.com where (almost) daily he posts commentary and resources for authentic, intelligent, sincere and credible network marketing.

Filed Under: Articles Tagged With: ,

MLM Failures: Who’s Really Responsible?

January 5, 2013 Leave a Comment

By Len Clements © 1993

I was recently asked at one of my Inside Network Marketing seminars what I thought the top five reasons were for people failing in MLM. When I opened that question up to the group, I heard, again and again, stories of those they’ve heard about who were front-end loaded, had to stockpile tons of product to meet quotas, were misled or deceived into believing in a worthless product or opportunity, or duped into believing there was little or no work involved, or simply got involved with a failed company.

Not one time during this rather lengthy exchange did anyone suggest that perhaps the individual distributor was at fault. More importantly, in any discussion in the media as to why ex-MLM distributors fail, does anyone ever put the responsibility on thedistributor. It was always the company, or the MLM concept, that was to blame.

In no particular order, here is a list of what we’ve found to be the top five reasons for distributor failures. Take note, as you make your way through each point, who is really responsible.

Lack Of Knowledge.

Many people just don’t seem to take their business seriously. Heck, many won’t even acknowledge it as a business. It’s just this play-thing they take out once in a while to try to get rich with. Then, of course, toss it in the dump when it doesn’t perform.

Any legitimate MLM opportunity is a serious business, no less genuine than any other. But they don’t teach this type of free-enterprise in school. No, not in Harvard, or Stanford, or anywhere else. You have to learn how to do it, and this education process is worthy of much more than a quick flip through your distributor manual.

If you want to make a comfortable living out of MLM, you must go to school. Read MLM books (there are many good, generic ones out there), listen to tapes, go to training meetings, read as many of the MLM publications as you can, learn everything there is to know about your product line or service, and learn about your main competitors and how to contrast and compare with them. Call up your upline and ask questions. Do your homework!

I’m not saying this has to be drudgery, or you have to be an MLM expert. But folks, it doesn’t take much to be “expert” in this business – compared to everyone else. With even a little expertise you’ll launch yourself into the upper 5% (as far as MLM knowledge) and gain a great competitive advantage.
Aren’t you joining an MLM program to be successful? A question with an almost absurdly obvious answer. Okay, so this might, assuming you are successful, be the way you earn your living someday, right? If all goes as planned, this will be your livelihood for the rest of your life. People study for many years, and spend tens of thousands of dollars preparing for this. Yet, most MLMers won’t spend ten bucks for a training manual or even ten minutes reading it!

The Junkie Syndrome.

There is no basis for this figure, but I would guess that less than 10% of all MLM distributors who have been actively pursuing this business for more than one year are still with their first company. Most probably have been with several. Of course, this is not always the sign of a junkie. I, personally, have been involved with five, but they kept going out of business (this was years ago, when I didn’t do my homework).

I believe MLM Junkies fall into two categories. First, there are those that believe, If I can make $1,000 doing one program, I can make $10,000 doing ten! These are the folks who are distributors in ten programs simultaneously. Then there are those who believe, The cash is always greener on the other side of the fence. These people are in whatever program who’s tape they listened to last. They’re in ten companies in ten months.

I know a gentleman who used to brag about his “expertise” regarding the MLM industry. He was quite proud of the fact he had been involved with 21 companies over the last 15 years. Of course, he hadn’t made any money in any of them, but the one he’d just signed up for was going to make him rich! Again.
MLM is like a marathon. And we all run (or maybe craw) the 20 miles to the finish line at different speeds. And, unfortunately, there’s always that guy over in the bushes, at about the one mile mark, whispering to you to meet him back at the starting line. He knows a short cut that will cut five miles off the course! Usually, the promise is false. He just wants you to run on his course. And you’ve lost the mile you already finished. And this little scenario is then repeated over and over. Two miles in, then back to the starting line. A mile and a half in, then back to the starting line. Over and over and over. Then the disgruntled distributor stands there back at the starting line blaming their lack of progress on the track conditions, their shoes, the weather, the race officials – everyone but themselves.

Folks, EVERYONE has, allegedly, a better deal than the one your in. EVERYONE will tell you their deal will make you richer, faster, easier. Buy into that, and you’ll never finish the race!

Pumping Up The Volume.

By this, I’m referring to the act of artificially meeting group and personal volume quotas by stockpiling product with money out of your own pocket. This also includes the act of front-end loading your new recruits.

From all the feedback we get from the field, and from all the press MLM receives, it seems obvious that this is a major killer of MLM success, not only for the recruits that are victims of this practice, but the experienced distributors as well. And in some cases, even the company itself is ruined by it (think laundry balls).

Several years ago, while investigating a company for a review in my newsletter, I went to an opportunity meeting and later met with one of the representatives. She strongly encouraged me to sign up for $500 worth of product since that was this program’s personalmonthly volume requirement for advancement. Of course, I also needed $2,000 monthly group volume, and five active front line distributors… and it was the 25th of the month! But that wasn’t discussed. There was absolutely no excuse for her to suggest that kind of purchase, other than to increase her bonus check. By doing this she completely ruined my trust in her. And besides, front-end loading is illegal! Sure, this company didn’t require a product purchase at start up, but these people were actually being taught by their upline to not sign anyone up unless they bought at least $250 in product. Otherwise, they would “poison” their downline. I agree a new distributor should buy some amount of product, but at a time and amount they are comfortable with. Not by force. Which would you rather have, a distributor do $1,000 in volume and quit in a month or two, or $100 in volume for the rest of their life?

What I think is even worse than front-end loading, as far as cause for failure, is stockpiling. There are so many people out there that are either over anxious, lazy, desperate, or just plain ignorant when it comes to this practice. They think if they take money out of their own pocket and meet all the monthly volume quotas, they won’t have to retail, or perhaps they’ll sell it all later. Or they may not want to wait to naturally meet the criteria for higher bonuses by building a retail base or downline, so they buy in at some huge amount of inventory. Of course, sometimes they do this out of desperation. Their downline is dwindling fast, or maybe they had a lot of people break away all at once. This might be a fair excuse for a month or two, maybe. But I’ve heard of people who do this every month. There was a popular story going around about a guy in a popular break-away program who purchased $3,000 worth of product every month to maintain his status level and $5,000 check, because all his eight front line people broke away. He claims to have quit this business with over $50,000 worth of product rotting in his garage. Here’s a thought. Do whatever you did to get eight front line break-aways and build your front line back up. Okay, maybe he couldn’t wait. Maybe he quit his job to do this full time, and couldn’t afford the lower bonuses in the meantime. My suggestion; don’t quit your job until your status is secured. I’m not trying to be sarcastic here, I’m simply trying to suggest that these situations all stem from bad business decisions on the part of the individual distributors.

The worst thing about this practice, is that once the disgruntled distributor gives up and quits with this mountain of stock they’ve accumulated, they bad mouth the company, their sponsors and the industry in general. They file class action suits, go on TV, get interviewed by national magazines… and every MLM distributor suffers because of it.

Distributor Apathy.

Probably the most obvious reason for failure, in anything, is simple lack of action. Especially in MLM. So many distributors are convinced that to be successful in this industry you get other people to sell for you. And in many programs they even believe their upline will build their downline for them as well. And, of course, some distributors are just not very motivated, or just plain lazy. They want all those wonderful benefits they heard could be achieved in MLM, but they don’t want to do what is necessary to achieve them.

The more a company, or it’s distributors, continue to promote their opportunities as ones that require little work, or that can provide success “easily,” the more they are going to attract people who don’t want to work, who are going to take it easy. And when they fill their downline with these people, they wonder why nothing happens.

During my seminars, I like to tell the story of a man who is looking for a chisel (an MLM opportunity). A tool he can use to carve out a sculpture (carve out a living). He does his homework. He shops around and looks over several chisels. After studying each one thoroughly, he excitedly make the purchase (signs up). Then, he goes home and puts the chisel away. Days go by. The block of wood stands ready, but untouched. Occasionally, he takes the chisel out and ponders it. Fantasizes about what he could create with it. He keeps hearing great things about this brand of chisel. It’s sharp, straight, and accurate. Very comfortable to hold. Once in a while, he takes a stab at it, literally. Makes a few scratches here and there. A few shavings fall to the floor. Weeks go by. The block of wood is still shapeless. Spider webs begin to form at its base. The man begins to notice what little effect this chisel has had on his carving. It’s just not taking shape, he says. Damn chisel! I’ve been had, he thinks. My family was right all along… these chisels are nothing but junk! They never work. Not just this brand, but all chisels, he assumes. He throws the chisel into the trash can out back. Then, at work the next day, his co-workers ask him how his carving is doing. Terrible, he says. Those chisels are nothing but junk. Don’t ever buy any of them. It’s not my fault. I don’t have the right tools. But I’m going to the hardware store tomorrow — I’ll findsomething that works!

I Quit!

MLM is the one form of business where you could accurately state,If you fail long enough, you will success. I’ve heard many times that in MLM, you can not fail, you can only quit. I believe this is almost true. Almost.

I met a woman after a seminar one night who informed me that she was going to quit her opportunity because, after four months at it, she was “failing miserably”. I asked her what that meant, in numbers. She replied that she had signed up “only” two people her first month, none the second and third, and two more her fourth month. Four in four months. She also said that those four were doing no better than her. So, they too were “failing miserably.” I projected out on the white board what her downline would look like after one year, factoring in considerable attrition. It came out to about 20 people, which would have earned her roughly $120 per month. “See, that’s horrible!” were her exact words. I asked her what she thought her downline would look like after two years, assuming she and every one else continued to fail just as miserably as they had the first year. Her response, with no hesitation, was “Well, 40 people.” An obvious answer, right? Twenty the first year, so double it after another year. Obvious perhaps, but absolutely incorrect. I asked her to give me the number of people who were building her downline her very first day in the business. She gave the obvious, and this time correct answer of “One – just me.” Okay. How many people would be working to build her downline the very first day of her second year in the business? “Twenty, besides me” she said. Correct, since the downlines they build for themselves would also be building hers as well. So, since there are 20 times more people building her downline, wouldn’t it make sense that she’d receive twenty times the results? If each of those 20 people “failed miserably” and all brought in only 20 people each that year, she would have 400 people in her downline – and an approximate income of $2,000 per month. Keep in mind, we assumes no “heavy hitters” in this scenario. Although math is perfect and the real world is not, and her actual results could very dramatically either way, the point was clearly made. Don’t quit.

Notice where the responsibility lies within each of the above points. Not with the company, or it’s products, or it’s marketing plan, or even it’s distributor base. It falls on the distributor alone.
Yes, yes, the company could go under, or it could be an outright flaming scam. But if you’ve done your homework, the chances are increased that even this dreaded scenario could be avoided. And if it does, it will only be a set-back, not an end to your MLM career.

MLM opportunities are, in one way, kind of like investing in the stock market (and I’m speaking metaphorically). If you’re an “aggressive” participant, go for “ground-floor.” Sure, the rewards could be greater, but be prepared to take your lumps. Conservative? Go for a stable, mature opportunity that’s been around for 20 years. Or, are you somewhere in between? If you want to take the extreme risk of getting involved with a deal that’s in “prelaunch,” then that’s your decision. The 96% failure rate of MLM start ups is no secret. Pleading “lack of knowledge” of this fact is not an excuse.

What about the guy who quit his job, bought $5,000 worth of water purifiers, sold one to his mom, and then joined a class-action suit against the company (true story). He was deceived. Lied to. Scammed! If wasn’t his fault… was it? No, if someone held a gun to his head and forced him into it. Otherwise…
I hear about this kind of thing happening all the time. Some distributors make very emotional, uneducated, terrible business decisions, then look for a scapegoat. If you owned a video rental store, and a supplier offered you a great deal on 1,000 copies of Ishtar, which you agreed to sight-unseen, and later you found that only one was rented would you sue the supplier you bought them from? Sure, some would. But who’s the one that could have read reviews, talked to critics, called other video stores, or just watched the movie first? Who’s really responsible?

In today’s information age, especially with the abundance of information sources available in and to the MLM industry, there is absolutely no excuse for a new distributor to go into an MLM opportunity unaware of the truth. A few simple questions, a couple phone calls, and a little bit of reading is all someone needs to do to know exactly what will really be expected of him or her, and what to expect from MLM, to be successful.

Multi-Level Marketing works! The concept is sound, and the good, legitimate opportunities are everywhere. Everything you will ever need to succeed in this industry is out there, right now. The only ingredients that still need to be added to the mix are, hard work, patience, knowledge, honesty and commitment. Things we must provide. All of us. We are responsible!

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WHY IS IT…?

January 5, 2013 Leave a Comment

Len Clements © 1993

If it were possible to count all the words we speak within our lifetime, I’d guess “I” would be number one, “and” would be a distant second, closely followed by “to.”  Unless you’re me.  Then you’d probably find “why” right on “I”‘s tail.

Ever since I was a small child I’ve been asking that question.  I remember vividly having the “birds and the bees” explained to me at a very early age.  It was due to my questioning as to why Mommy had to go all the way to the hospital for my baby brother if the doctor was going to deliver him?

After Dad did the honors of teaching me the real story right from the start (he knew there was no hope of me ever buying into the stork bit), I remember asking why, after this elaborate, very deliberate, incredibly meaningful event between a man and a woman, did the father always act surprised when told his wife was expecting.  Did he forget?

About the age of nine or ten, during a cross country trip, I remember asking my parents; “Why do they say we drive on a parkway and park on a driveway?”  It wasn’t until many years later that I would hear, to my astonishment, that very same question asked of millions of television viewers during a show by the comedian Gallagher.

Gallagher has always been one of my favorite comics.  He asks a lot of good “Why…” questions.  Why is there an expiration date on sour cream?  Why doesn’t bomb and comb rhyme (a variation of my own question about do and go)?  Why is there a permanent press setting on an iron?  I love this guy!

I know that taking this why thing too far can get obnoxious.  I’ve really had to struggle to not ask the vendors at Oakland A’s games why their catsup containers are yellow and their mustard containers are red.  That makes no sense.  I’ve been dying to ask one of the tellers at my local bank why they just installed braille instructions on the drive-up automatic teller machine.  I don’t know how much longer and I can last on that one, but I’m hanging in there.

Why do all dictionaries contain a definition for the word “dictionary?”  Why don’t they just say:  dic•tion•ar•y  (dik’shen•er’e)  noun  1.  This thing you’re reading!

Why are there instructions on a bottle of shampoo?  Are there really people out there who massage in the shampoo — then wet their hair?

Why does the mashed potatoes section of a TV dinner always take three times longer to cook in a microwave?

Why does the prison doctor who administers lethal injections dab the subject’s arm with alcohol before inserting the needle (it’s true!)?  Is this guy really concerned about getting an infection?

Why would anyone buy Levi’s Oversized Jeans?  Why don’t they just buy normal jeans a couple sizes too big?

Why does fat chance and slim chance mean the same thing?

Why do all Bic lighters carry a warning label informing you the contents are “Flammable.”  Isn’t that why you bought it?

Why does that same warning label go on to suggest that the user should “…not hold flame near face?”  Who is this warning for, the Marboro Man… or Cro-Mangon Man?

Why did kamikaze pilots were helmets?  To prevent head injury?

What time is it at the North Pole?  I know that’s not a “why” question, but it’s still a darn good one.  Think about it.

This insatiable appetite to know why has carried on into my research and observation of the network marketing industry as well.

For example, why is it that if a large conventional business, employing thousands of people, goes bankrupt and/or is on the verge of closing, their employees, and many times the company itself, is pitied and people root for them to survive?  But if an MLM company, employing just as many honest, hard working people shuts down, it’s a scam.  Every time.

Why do ex-employees of closed companies usually see themselves as unlucky, or victims of the economy, whereas ex-distributors for closed MLM’s consider themselves “ripped off,” or victims of the company, or the MLM concept?

Along the same lines, why is it that if a car, real estate or insurance salesperson fails, he or she just wasn’t a good salesperson.  But if an MLM distributor fails, it wasn’t a good product, company, or compensation plan?

Why is it that if you create a company hierarchy where all those at the bottom can only succeed by climbing over those above them, and those above them are doing everything they can to make sure they stay below them, this is considered a legal, legitimate pursuit of the “free enterprise” system.  However, if you create the exact same hierarchy, but allow those at the bottom to create, and be at the top of, their own hierarchies, with unlimited support, training and encouragement from all those above them, this is considered a “pyramid scheme?”

Why is it that many states conduct lotteries which take in tens-of-millions of dollars more than they pay out, mostly from the middle and lower class, which have a one-in-ten-million chance of winning, but these same states will investigate, file suit, and even shut down some MLM opportunities because they employ a “luck factor?”

Why is it that any other kind of business that involves sales can induce and entice prospective sales people to join their company by displaying the earnings of their top sales people, and openly discussing the “income potential” of the compensation plan, but it’s considered “illegal” in network marketing?

I want to clarify something about that last question.  I’m not an advocate of high earnings claims in MLM.  But none-the-less, it infuriates me to no end to hear stories of top distributors being prosecuted for displaying evidence of their incomes, even with a stern disclaimer.  Prosecuted for telling the truth!

“Why ask why?”, the beer commercial asks.

Sometime for fun, and sometimes — to know the answer!

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Win The Race – By Staying in One Place!

January 5, 2013 Leave a Comment

By Len Clements © 1996

One of the saddest things I see happening in this industry is the huge number of folks who wander aimlessly through this ever widening sea of network marketing opportunities. These are people who indeed find an island oasis from time to time, only to jump right pack into the cold, rough surf in search for a “better” paradise. As I watch them swim away, I know their fate. Another island, another return to the sea. Then finally, with no strength left to swim another stroke, their hopes and dreams for a better, more secure life through network marketing sinks to the ocean floor. But alas, there is no floor, for it has been covered, layer upon layer, by the drowned hopes and dreams of so many others before them.

Or, we can liken these people to a marathon participant who runs the first of a 20 mile race, then sprints back to the starting line — over and over and over. Then stands confused and frustrated by his lack of progress (and, most likely, blaming the course, his shoes, the race promoters, the weather…).

You see, building a network marketing organization takes time. It takes patience. But what few distributors (in any opportunity) seem to realize is that it gets easier, it happens faster, as time goes on. But so few MLM distributors stick around long enough to see this happen. Think about it for a moment. You start out with one person building your organization — you! Then you sign up a couple friends. Now you have three people all working to build your organization. In a month or two you might have only twelve people in your downline. But that’s twelve people who could all contribute to yourdownline. The more your group builds, the more people there are to help build it even bigger.

This phenomenon, called geometric progression or “momentum,” does exist, and it can occur within your own personal downline much like it does for a company. After all, aren’t all the distributors in a company part of one really big downline? Your downline can go into momentum too, on a smaller scale of course. However, depending on your activity, the opportunity you’re involved in, and at least a little luck, this onset of your own mini-momentum might take three months, five months, perhaps a year. As long as you’re recruiting at least one new distributors every month or two, it is mathematically inevitable that your organizational growth will begin to accelerate on it’s own.

So let’s say, for the sake of example, that momentum would strike around the sixth month. How many people in this industry do you think are long gone from their opportunity before they even approach that sixth month? After all, they’re not rich yet, and the promises of all those other opportunities are just so enticing, aren’t they? Well, the answer is thousands. Thousands!

And how many hopes and dreams lie at the bottom of the MLM ocean? That’s right — thousands. It’s no coincidence.

The ocean’s cold. There’s sharks out there. Find a nice warm island, make it your home, and see what you can build on it.

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