In Defense of the FDA

It’s a Dirty Job, But Somebody’s Gotta’ Do It

By Len Clements © 2014

I’m not a big fan of the FDA. Let’s make that clear right up front. I do respect their overall intentions, and believe they have done a lot of rarely recognized good. But there are some dark spots on the FDA X-Ray, to be sure. I am, however, a fan of reason and fairness – two traits that seem to be sorely lacking in the otherwise legitimate criticism of this federal agency. Specifically, the argument that the FDA is somehow censoring the ability of dietary supplement marketers to present truthful and accurate disease treatment claims, and that this is somehow a conspiracy to benefit the drug companies. The same drug companies that, allegedly, have the FDA in their hip pocket. It’s certainly fashionable to buy into such assertions at face value, and scandalous in itself to dare defend the FDA (to what degree that is true, I’m sure I’m about to discover). But dare we to actually apply some common sense and logic, that is, to really think about the issue rather than take the safe, easy, “government bad”, “drug company greedy” position, we may just come to a different conclusion.

Most Baby Boomers will likely recall back in the 1960s, 70s, and arguably 80s, when such companies as Johnson & Johnson, Bayer, and Bristol-Myers were all members of the greatly admired and respected “Pharmaceutical Industry” that was working to improve our quality of life, and even save it. Curiously, and not coincidentally, when us boomers started to turn 40, and nutritional supplement sales began to skyrocket, Merck and Pfizer were now big, bad “drug” companies trying to squash legitimate health claims attributed to natural substances they couldn’t patent. Many of which were substances that had been on Earth for millions of years, but only after boomers turned 40 did they suddenly possess miraculous health and “anti-aging” benefits.

We keep hearing that the drug companies are somehow in cahoots with the FDA. I’ve certainly seen some circumstantial evidence of this, such as their railroading and subsequent banning of Ephedra (certain ephedrine alkaloids, actually) that they pulled off a few years ago. This was in spite of its proven efficacy, and the absence of any evidence proving a cause and effect between the adverse effects reported and the usage of Ephedra products.[1] But this is an example of a supposedly harmful supplement being taken off the market, and one could fairly argue it’s better to be safe than sorry. However, when it comes to the FDA’s heavy handed approach to our health benefit claims, I really don’t think they’re out of line.

First of all, the FDA actually makes the lives of pharmaceutical companies quite miserable. If Merck or Pfizer want to make a disease treatment or prevention claim – the identical types of claims dietary supplement marketers (and many MLM reps) want to be allowed to make, and so many are making – the FDA demands that they spend tens-of-millions of dollars and 5-10 years going through three phases of testing. Phase one involves in-vitro (i.e. in a Petri dish or test tube) and animal testing. Phase two is where limited human testing is performed, and phase three typically involves several studies on thousands of people. And these studies utilize a “placebo”, an inert substance like a sugar pill or dummy device that actually does nothing, and are “double-blinded”, where neither the patient nor the physician are aware of which is which. What’s more, all of this study and analysis is done to just prove the efficacy of one medical claim. If the company claims their drug treats both osteoporosis and arthritis they have to go through all of this twice. This is all done to not just prove the drug works, but also, and equally, to prove it is not harmful. And yet, in spite of all this extensive testing, some drugs still end up harming people (like Vioxx).

So, if the FDA is going to demand that the big pharmaceutical companies have to spend a decade and millions of dollars proving a single medical benefit claim, why should the dietary supplement industry be allowed to make several medicinal claims about a single product based on only personal testimonials and a few articles published in PubMed? We plead “freedom of speech” and “it’s our first amendment right” yet we are loath to allow the drug companies those same freedoms and rights. Consider that dietary supplement marketers often point to in-vitro or animal studies as the rationale for the rightful ability to make medicinal claims. So then, by the time a new drug has passed only the first phase of FDA mandated clinical trials they already have as much, if not significantly more “scientific substantiation” to back up their claim than dietary supplement marketers do about the vast majority of their products. Furthermore, a personal testimonial is essentially a non-placebo, non-blinded, non-medically supervised, non-controlled in any way, clinical trial involving one person. The “placebo effect”, where a patient reacts positively to even the fake pill or device, is powerful and common and must be eliminated as a possible reason for the positive effect. I followed two drugs through all phases of FDA mandated testing and both achieved a better than 50% remission rate, yet both failed phase three testing and were not granted new drug approval. [2] Why? Because the placebo group had about the same remission rate! And these were not diseases where people subjectively rated their pain or mood. These were physiological conditions that improved by introducing nothing more than the idea the subject was being treated. So by the time a drug company has successfully completed even phase two clinical trials they usually have far more scientific evidence that their substance works, and is safe, than any dietary supplement ingredient. So again, why doesn’t Merck and Pfizer have the same “freedom of speech” at that point to sell their product to the public by making a disease treatment claim? Oh, but if the drug companies were to ever try and get such a medication on the market, with only this limited amount of testing, we’d all scream bloody murder. Right?

If you’re going to make disease treatment claims you also have to prove (again, requiring years of double blind, placebo controlled studies on thousands of people) that your product is also safe. Note in many of the FDA’s Warning Letters to dietary supplement marketers they say their product is “not generally regarded as safe” (i.e. not on the GRAS list). That doesn’t mean it isn’t safe, it just means they haven’t went through all the hoops to prove it is. Obviously in some cases, such as the various exotic fruit juices that now pervade the MLM market, it would just be a formality – just as it was for many pharmaceuticals. But, the FDA demands that they still have to go through such a formality.

Yes, there are many common substances that obviously have disease treatment or prevention benefits, and we know they do from literally hundreds of years of observation. For example, we’ve known since the 15th century that citrus fruits, or more specifically citric acid, prevents and cures scurvy. We also know by now that Oranges and Lemons are probably safe to consume. And please don’t respond with the “but their drugs are synthetic, our supplements are natural” argument. Arsenic and mercury are “natural” and virtually every drug ever produced can be traced back to a “natural” source (i.e. penicillin and fungus, Codeine and the Opium Poppy, Aspirin and White Willow Bark, etc.). So, do you want Merck and Pfizer to keep to the same “proof” regimen currently required by the FDA? If so, then why shouldn’t dietary supplement marketers have to as well?

And in the case of the most obviously effective and safe substances that do have some scientific substantiation, although far less than required of drug companies, the FDA does, in fact, allow for the makers or marketers of such substances to petition for the right to make “Qualified Health Claims Subject to Enforcement Discretion”.[3] That’s why we can make such claims related to green tea and selenium and certain forms of cancer, tomatoes and/or tomato sauce and prostate cancer, omega-3 fatty acids & coronary heart disease, chromium picolinate & diabetes, calcium and hypertension (high blood pressure), and several more. So, if you have a natural, non-patentable substance and you want the freedom to make medicinal claims about it, you don’t need to change the law. There is already the facility for supplement companies to accomplish this which does, indeed, require substantially less clinical testing than is demanded of drug companies.

However, if you definitively claim your essential oil will prevent or treat Ebola, or your glucosamine supplement will cure arthritis, sans FDA permission to make a Qualified Health Claim, you are begging for an FDA penned Warning Letter. And righyfully so.

If anyone, whether it be an MLM distributor or company, a chiropractor, a naturopath, an herbalist, or a pharmaceutical company, wants to make a claim that their product prevents, treats, or cures a disease, they should all be held to the same standard of proof – both of efficacy and of safety. So we have to decide which way we want to play this. Do we want everyone to be able to say a product cured his or her disease because they think it did, or because the company has a few hundred testimonials, or they did a “study” on 15 people? Fine. Then Merck and Pfizer get to put their drugs on the market under the same rules. That would seem to be the logical alternative to the way it is now, where the FDA requires an extensive, expensive, decade long testing process of anyone who desires to make a definitive (non-qualified) disease benefit claim about their product, pharmaceutical company or otherwise.

We seem to want the ability to make definitive disease benefit claims based on a small fraction of the evidence that is required of drug companies, but are outraged at the prospect of drug companies afforded the same “freedom of speech”. We seem to want the advantage to be in our favor on both sides of the scale (efficacy and safety), while at the same time accusing the FDA of not playing fair with us. Well, at least in this case, I think they are.

Let the flames begin!

Len Clements
Founder & CEO
MarketWave, Inc.

Len Clements has spent over 24 years researching and analyzing all aspects of MLM. He is a legally recognized expert in MLM, and a professional speaker, trainer, and corporate consultant. He is the author of the controversial book “Inside Network Marketing” as well as the audio presentation “Case Closed! The Whole Truth About Network Marketing”. For more information, visit

[1] The number of each type of adverse effect compared to the total number of Ephedra product users actually showed that most adverse effects, including death, occurred at a rate lower than would occur by random chance for the same size segment of the population.

[2] One was a medication for gram-negative sepsis, the other for Crohn’s Disease.


Inside Wake Up Now

An Objective Review

By Len Clements © 2014

Disclosure: The time and expense involved with researching, analyzing and producing this review of Wake Up Now was funded, in part, by several competing network marketing companies. However, my reviews are never written to serve any other agenda than to portray the review subject in the most honest, accurate, objective and fairest manner. The companies which contributed funds towards the production of this review have been made fully aware of this, and I have been instructed to “call it like you see it.” And that is precisely what I shall do.

Disclaimer: The opinions, beliefs, observations and conclusions expressed in this review are solely my own and do not necessarily represent those of any other third party. I am not an attorney or regulatory agent of the government and thus cannot make definitive legal conclusions, nor should anything within this review be considered legal advice. All information within this review is based on research and analysis conducted between April 20 and May 27, 2014, with minimal participation by the subject, and is presented to the best of my knowledge at this time. I do not own, nor have I ever owned, stock in Wake Up Now and have no expectation of investing in Wake Up Now in the future.


I’m prejudiced. I admit it. When ever I begin the review of any MLM company I tend to go into that process with some sort of pre-conceived idea of how the review will go. I pre-judge (the literal meaning of prejudice). Usually I anticipate the review being, to some degree, negative. Not because I’m cynical – oh, I am, but not because of that – but rather, most of my review subjects are by popular demand, and usually because the subject is controversial, or there is already a lot of suspicion about its ethics and/or legality, and people just want to know the truth, based on facts. That’s why I’ve most recently reviewed companies like Zeek Rewards1 and Empower Network2.

In the case of Wake Up Now (WUN), I confess to a high degree of ambivalence. On one hand I saw the very disproportionate amount of online rhetoric criticizing WUN and, at first blush, what appeared to be yet another “online mall” program (a category of MLM that has historically produced virtually a 100% failure rate). But on the other hand, I thought, imagine how much credibility I would gain by actually writing an overall positive review, in spite of the fact I was being paid, even in part3, by a group of competitors. I am by no means suggesting I ever intended to deliberately do so. I am as loathe to fudge the facts towards the positive as I am the negative. But I certainly intended to give them every benefit of the doubt, and allow them every opportunity to fully address any and all concerns I might have. So I admit it. I actually went into this review of Wake Up Now hoping it would be positive.

I don’t think I got my wish.


If you trace WUN’s genealogy back to its roots, you’ll find its great-great-great-great-grandfather was called Teaching Technology Corporation (March, 1967). TTC begat Stewart Morgan Corporation (Aug. 1980), which begat Axion System Science, Inc. (Jan. 1989) which begat Wordcraft Systems, Inc. (June, 1994). This is the WUN ancestor that was publicly traded, thus their current, and somewhat unfortunate, ticker symbol WORC (make the C soft, hard or silent and phonetically they just can’t win). Here’s where it gets a little tricky. Wordcraft Systems became a Delaware corporation called Wake Up Now in November of 2010, which was technically a shell. A few months earlier, in July of 2009, a new Utah corporation was created, also called Wake Up Now. Then, in December of 2010 the two WUNs mated (by reverse merger – ouch) and now Wake Up Now, Utah is a subsidiary of Wake Up Now, Delaware, which genetically now makes Wake Up Now, Utah a public company. Then, in April of 2010, Wake Up Now had a child and named it CurrentSee, Inc., which was conceived in Nevada.4

To be clear, I’m reviewing Wake Up Now, Inc., the Utahbased corporation.

WUN’s management team has completely changed over since its inception. Of the ten senior managers they listed online in September of 20105, seven were gone by the time current CEO Kirby Cochran came on board in August of 20116 and the changeover was completed by the end of 2013. As I understand it, the corporate overhaul was not entirely amicable.

Originally, WUN’s senior management was identified by titles such as “Crocodile Overseeing Vision“ (COV) and “Crocodile Steward of Growth” (CSG). I like it when MLM executives don’t take themselves too seriously and try to have a little fun. The croc theme was inspired by Crocodiles International, which describes itself as a “Personal and Organizational Culture Development Training and Coaching company.” More traditional titles were adopted around mid-2011.

The current management lineup has Kirby D. Cochran7 (60) at CEO, Jason M. Elrod8 (34) at President, and Phil J. Polich9 (65) at COO (presumably Chief Operating Officer, rather than Crocodile Overseeing Operations). All three gentlemen have substantial business experience, however, none of it appears to have been within the MLM space. They did wisely hire attorney Kevin Thompson and consultant Troy Dooly to assist in developing compliance policy, but not until late last year. They also hired the MLM law firm Grimes & Reese early on.

A background search of all WUN senior managers produced a few civil lawsuits10 and bankruptcies over the past 20 years, all related to other business ventures, but nothing at all unusual or troublesome, especially for those who were involved in real estate and venture capital.11

Having said that, their current business venture is also not doing well, at least financially. We know this because, in spite of the large majority of public MLM companies now trying, or preparing, or desperately wanting, to go private – and for good reason – WUN chose to go against the trend and become publicly traded. As a result, they must now consider what’s in the best interest of their shareholders, which is not always consistent with the best interest of their distributors, and they must open their books for all to see. This works great when you’re in momentum (just ask ViSalus), but when things turn ugly, you can’t wear makeup (just ask ViSalus).

Here’s Wake Up Now’s financials since 2009:

2009 $787,428 -$57,311
201012 1,140,000 -379,529
2011 1,145,554 -1,928,688
2012 3,015,142 -3,302,858
201313 12,180,866 -4,548,504

With sales of over $18 million, WUN has somehow managed to lose over $10 million – and the losses are rising. Even with a quadrupling of revenue from 2012 to 2013, net loses increased by 37.7%. This is especially unusual considering the bulk of their product line is virtual and based on high-margin membership fees. The other products they resell should, for no other reason than basic economies of scale, have greater margins, thus greater profits, as sales increase. Yet, in 2013 their “Cost of Sales” was $11,167,523, or 91.7% of sales.

Current WUN management has said there were some “bumps” and “hiccups” early on and WUN proponents have suggested the previous management “blew through the money.” However, WUN was under new management in August of 2011, and even if we apply all 2011 losses to the previous management, it still amounts to $2,365,528 (77.0% of sales) over three years, and losses of $7,851,362 (51.7% of sales) in the two years since.

WUN has defended this exsanguination14 of cash by asserting funds are being plowed back into the business to expand their infrastructure in preparation for future, massive growth. However, their 2013 financial statement betrays this explanation. Although sales increased from 2011 to 2012 by $1.87 million, and losses increased by $1.37 million, their fixed assets only increased by $392,676 (total assets increased by $205,261 due to all other forms of assets declining). From 2012 to 2013, sales increased by $9.17 million, and net losses increased by $1.25 million, but fixed assets increased by only $236,247 (the majority went to software development). Total assets did more than triple to $2.1 million, but the rest of this was attributed to increases in cash, accounts receivables and loans, inventory ($128,998, most of which would be their skin care products), and prepaid expenses (e.g. advance payments on insurance that hasn’t been completely used up yet). Also, their total liabilities increased from 2012 to 2013 by $3.57 million to $6.74 million.

WUN is expanding, I have no doubt. I’ve seen the videos of the construction being performed to expand their office space, and according to industry advocate, and WUN consultant, Troy Dooly, they went from 30 employees in October of 2013 to over 200 today, and their tech team has expanded from 2 to 20.15 I’m not questioning that some of this huge, growing debt and net losses are due to expansion expenses. But, it really does look like they are borrowing like crazy, raising additional capital via their stock, and successfully increasing sales – which then goes straight through WUN like poop through a pigeon (which is faster than a goose – look it up).

WUN is also expanding internationally, but even this is being performed oddly. As of April 2014, they opened Malaysia and Thailand, which I get. Most of the Pacific Rim is an MLM hotbed. But they also announced “We will be open in Peru, Colombia, Brazil, Chile by convention (September 2014).”16 Regulatory, logistical and market challenges make Peru, Colombia and Chile strange bedfellows. Even Brazil can be challenging (trust me, I know) in that, like all South American countries, there is little regulation of MLM; pyramid schemes are rampant, and bribe– I mean, administration fees can be excessive. On the plus side, Brazil does have the market size, and they’re MLM crazy there, too. And they’ve got Rio.

Although WUN broke out “Distributor Compensation” in their 2009 and 2010 annual financial disclosures (43.2% and 60% of sales respectively), they lumped this expense into “Sales and Marketing” in the three years following. If we consider the entire Cost of Sales (which can’t all be commissions considering this number exceeded sales in 2011) their payout must be significantly less than 71.5% and 91.7% in 2012 and 2013. Even if they are paying out anything close to these amounts, this compensation model clearly isn’t working. In late 2013, CEO Kirby Cochran stated WUN’s profit margin was about 20%. Based on their most recent financials, it’s closer to 8%. Based on the growing pains WUN has weathered over the past year, and their claims of expansion, the last thing they need to do is cut overhead. So, when you’re losing millions of dollars a year, and you’re operating at an 8% margin with the majority of your expenses being commissions, it seems obvious where WUN is going to have to cut to achieve profitability.

MLM companies live and die based on the confidence of their distributor base, and MLM distributors tend to be a fickle, flighty bunch who spook easily. Every bump in the road is Mount Everest and every puff of smoke is a mushroom cloud. That’s why it is never more evident why MLM companies should think twice about going public, and why WUN is so ill-suited to be a public company, than when they are compelled to make public disclosures such as this:

Going Concern – The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company incurred losses of $4,548,504 and $3,302,858 during the years end December 31, 2013 and 2012, respectively. The Company also used significant cash in its operating activities during the years ended December 31, 2012 and 2012. Through December 31, 2013, the Company has accumulated a deficit of $10,401,439 and has a stockholders’ deficit of $4,646,260. At December 31, 2013, the Company has a significant working capital deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. (emphasis added)

The WUN website contains several typos and grammatical or punctuation errors. For example, the subtitle of the “On Demand” section of the Product Suites page, where one may select a few products a la carte, reads, “Get even more value with these something here for placement only and one more thing.” That’s verbatim. Their address on their home page displays a four-digit zip code, and all of the “View Details” links related to their energy products returned a “Page Not Found” error for at least the first four weeks I worked on this review (they’re working now). Their online notice was, “We are currently out of stock, BUT we.” That’s not a typo. Well, at least not mine. This has also since been repaired, but with an even more ominous message. Now the back order notice says “Pre-order now, receive volume credit for this month, and get your Thunder shipped next month.” I have also learned from a reliable inside source that, “WUN sold out of the first run (of Thunder) before it was ready to ship”. That means they must now be, and were, charging credit cards, paying commissions on these charges, then shipping the product weeks later. Not only is this a serious violation of most merchant services agreements (most banks demand product be shipped within 48 hours of the charge), but it creates the impression – and this is only speculation on my part – that they are floating the cash. That is, they need the funds from these pre-orders to fund the next run of the product. Otherwise, why haven’t they fired up the production line weeks ago, back when they saw inventories quickly diminishing? Maybe there’s a reasonable explanation. I don’t know. I wasn’t allowed to ask for one.

“I believe Wake Up Now has the potential to be
one of the most successful (public) companies.”
– Kirby Cochran

If so, they’ve got a lot of work to do.


Wake Up Now offers one of the most eclectic, hodge-podge of products I have ever seen. From a mobile app to help you track taxable expenses, to discounts on travel and groceries, to jewelry and to energy drinks. Want to learn a new language? They’ve got a course for that. Magazine subscriptions? Got it. Or, how about a commissionable web portal where you can send others to shop from over 5,800 affiliate vendors, and whet your beak a bit on every sale? Yeah, they have that, too.

Awaken Energy Drinks

Let’s start with Awaken Natural Energy, which comes in both liquid (called Thunder) and powder forms (called Tropical Burst and Citrus Rush), and was introduced in March of 2014. Energy drinks were all the rage a few years ago in MLM as they washed over the industry on the same tsunami of “exotic functional beverages” that popularized Noni, Mangosteen, Goji and Acai, along with myriad other fruits, berries, roots, beans, fungi, phytoplankton and asteroid spores (and no, I’m not kidding) that pervaded the industry. While the Jungle Juice craze continues to slide down the other side of the STP coated bell curve, energy drink sales are still rising17. And as Americans become more and more overworked – that’s both Mom and Dad now (us Boomers can remember a day when only one had to have only one job to support a family of five) – and as us Boomers get older, and slower, there’s no reason to believe physical energy will not continue to be a coveted commodity.

I consider myself somewhat of a connoisseur of energy drinks. There’s a guy who delivers my drink of choice, called GoFast (non-MLM), to all the grocery and convenience stores in East Las Vegas. My home is on his route. And no, I’m still not joking. Being physically addicted to them, much like a cigarette smoker is to tobacco, or more accurately, a coffee drinker is to caffeine, I have done a lot of research on this particular type of product in an effort to find the safest, or at least the least harmful, formulation. What I found is that most energy drinks, such as Red Bull, RockStar and Monster, the top three selling brands, contain numerous plant extracts, synthetic vitamins, and amino-acids, along with the obligatory caffeine, sodium, and of course, sugar (often listed as Glucos). Caffeine amounts range from 80 to as high as 500 mg. And that’s just what’s listed as “caffeine” on the can. Then there’s the Guaranå, Ginseng and Green Tea, all of which add more “naturally occurring” caffeine. What also gives several top selling brands their kick are amino acids such as Taurine, L-Tyrodine, and L-Phenylalaline. Such ingredients are not cheap, thus neither are energy drinks. And then there’s the B-vitamins, all of which (mostly B-6 and B-12) are necessary to convert the food we consume into energy.

WUN claims they do not consider other MLM energy drinks as their competitors, but rather the top selling brands in stores. They also like to brag about their $2.00 per 8.4 oz. can price (when purchased in 24 packs) as being among the cheapest on the market. Considering most bands are between $1.75 and $2.25, Awaken’s price is comparable. However, there is a reason for that – it’s among the cheapest formulations. Most energy drinks contain mega-doses of various B-vitamins, from 100% to 8,333% of the Recommended Daily Allowance (RDA) per the FDA, with the majority hovering between 100-250%. Awaken contains 100% of B-5, B-6, and B-12. It’s also on the very low end of caffeine at 80mg. The range among its top selling competitors is 80-200mg. And the only other energy producing ingredient found in Awaken is a modest 50mg of Green Tea, which just adds a little more caffeine. In fact, the only other primary ingredient of any kind is a small 25mg of Chokeberry Extract (which they recently, as wisely, renamed Aronia Berry), which is curious considering I can find nothing attributing the Chokeberry to physical energy production.

GoFastTo place this in perspective, here is what the Supplement Facts label looks like on an 8 ounce can of my beloved Go Fast18 – which costs about $1.45 when purchased as a 24 pack:

WUN brags about Awaken having only 10 calories per 8.4 oz. can. Most energy drink brands have low calorie versions, such as Red Bull (13), RockStar (10), Monster (10), XS (8), and even Go Fast (10). In fact, Red Bull now has a “zero calorie” product.

What’s also curious is that Thunder lists their 125mg of Sodium (salt) as being 1% of the “Daily Value” (DV), or the amount you should consume in a day. Sodium is the one ingredient you want to have the least of. However, Red Bull and Monster lists their 100mg (25 mg. lower than Awaken) as being 4% DV (four times higher), RockStar’s 40mg is 2%, and my beloved GoFast lists their 60mg of sodium as being 3% of DV. What’s more, several MLM energy drinks contained 5% to as little as none. But it’s not really the high levels of sodium in Thunder that concern me (125mg is not harmful), it’s their claim that this is a mere 1% of what should be your total daily intake. This may seem like I’m picking nits here, but consider this: A consensus of health organizations, including the FDA, peg the maximum daily recommended amount of sodium to be 2,300mg. So Red Bull, Monster, RockStar and GoFast got it about right. But 125mg is not 1% of 2,300mg, it’s 5.4%. If they are off by over five times on the DV of this ingredient, how reliable is the rest of the supplement label?

And then there are the B-Vitamins – which, for most consumers, do absolutely nothing. Vitamin B will only provide an energy boost to those who suffer from a Vitamin B deficiency. However, due to the abundance of B-Vitamins in our diet, it’s extremely unlikely anyone who can afford to pay even $2.00 for an 8.4-ounce beverage doesn’t already have a diet that supplies them with all of the B-Vitamins they need. And if you’re thinking, ah, but we all have such crappy diets now, and the soil is all depleted of nutrients (which is a myth, but that’s another story), and so on, consider this: A chicken breast from KFC (extra crispy) contains one-third of all the Vitamin B-6 you’ll need that day19, and a Taco Salad from Taco Bell provides about the same for both B-6 and B-1220. You can even get a third of all the B-12 you’ll need from a Big Mac!21

WUN also recently added a coffee product called Arabica Black, which contains Ganoderma. It costs $19.95 (8 CV), but there is no mention anywhere as to the size, or number of servings, even when I clicked on “View Details” (which actually worked). I literally had to find an image of the box and zoom in on it to discover it’s 30 servings.

WUN also offers a line of personal care products that were acquired from the now defunct Trivani. Trivani was a somewhat controversial MLM company co-founded by Dee Mower, ex-wife of Neways and Sisel founder Tom Mower. Trivani was acquired by Ariix in August of 2011, and WUN introduced their new Trivani product line in September of 2013. I’m not entirely clear on how these products made it from Ariix, which is still in business, to WUN. A non-MLM company called Northstar actually has the rights to the line and now has an exclusive agreement with WUN, which now claims that “These are products that have been formulated specifically for WUN.”22 If WUN was going to have their personal care products custom-formulated just for them, why acquire an existing line of products? If these are the same Trivani products, and you want to let people know – because the market believes Trivani has great products – no problem. But, if they have since been reformulated, and these new formulations are exclusive to WUN, then they are no longer Trivani products, yes? They may be even better products now, I understand. But from a marketing standpoint, why brand your products with the name of a dead MLM company, which a previous MLM company has dumped, and whose formulations no longer apply? Alas, such questions will have to remain rhetorical. WUN also adopted Trivani’s “harmful ingredients” campaign which is, for the most part, nothing more than bogus scare tactics.23 To be clear, the marketing of these products are my only issue. Trivani’s products (at least the ones before they were reformulated specifically for WUN) were of good quality.

Another primary product in the line is their “Vacation Club,” which has dropped from a one-time activation fee of $200 to what is now $90. On the up side, there are some good deals here (I did check and compare). On the down side, WUN’s Vacation Club is significantly higher-priced compared to travel club sites like,, and several others, which offer the same “insider deals” and discounts on cruises, hotels, resorts and condos. Most online travel clubs are free (or under $90). What’s more, the WakeUpNow “booking portal,” for hotels and cruises, links to, a public site that posted identical prices whether I accessed it through WUN or went straight to it. There’s also a car rental discount page, which offers the same discounts as countless other online car rental discount sites.

Taxbot is another showcase product, which WUN defines as “one-touch tax relief designed to make it EASY to save thousands on your taxes. The mobile app and online system help save you time, effort, and money. With Taxbot, you can track business mileage automatically with GPS and store receipts quickly by simply taking a picture with your phone.” And that’s accurate. This product was developed by Sandy Botkin, one of the foremost experts in business tax savings. However (you can usually tell how positive or negative one of my reviews are by the number of times I use the word “however”), Taxbot is usuallysold at for $19.99 a month; however, TaxBot has a current sales promotion for $9.99 per month. It’s sold through WUN for $19.99 a month.Other organizations also have lower priced options24.Some MLM companies offer TaxBot to their distributor base but generally as a business tool25.

Side note: A WUN webinar I watched suggests you use the Taxbot system to keep track of all your deductions during your luxury vacation.26 As Taxbot developer Sandy Botkin would surely agree – don’t do that. You can only deduct business expenses.

Then there’s WUNProtect, “powered by Invisus.” However, it’s not just powered by Invisus, it is Invisus. Same product, for the same $34.95 price you would receive if you just went to

Same with WUNSpeak, their language training. It used to be powered by TellMeMore, for a one-time fee of $148.85 ($225 with a 35% discount available to anyone). Although their enrollment instruction videos (which are otherwise pretty cool) still list TellMeMore, this product is now powered by Transparent Language, for $29.95 per month, or an annual fee of $199.95. I don’t see anything substantially superior to TellMeMore, but let’s assume you are getting what you pay for. You’ll pay the same thing whether you pay WUN first to get to their site, or just go right to their site.

Next up is the WakeUpNow Finance product, which “simplifies your finances” by placing “all your accounts in one place.” It’s actually a pretty cool system. How… wait for it… ever, it offers practically the same functions as,,, and several other online applications – for free. Although WakeUpNow Finance is seamlessly integrated into the WUN website and appears to be a custom product, it’s actually a product offered by

The Marketplace also includes “WUNDealStream,” which is made up of an odd collection of only 22 very specific brands of products28, seven of them jewelry, and includes color film and a canned foods rack, along with a few obscure branded tech items. I only checked the first five tech items listed, but found no deals. Not only were their “retail” prices grossly inflated, but their “deal” price was beat every time with just a few seconds of Googling.

Product “Retail” WUN Competitor
Dr. Dre Headphones 279.95 189.95 169.9529
Slim Sonic Toothbrush 29.00 9.99 8.0130
Xtream Bluetooth iPad 59.99 48.00 44.3831
NEO-X5 Media Hub 128.99 79.99 74.9932
NEO-G4-108C Minix 79.99 64.99 47.0333

The WUN “Marketplace” offers grocery coupons and “free” items, but once again there are numerous sites on line that offer the same things for free. Just Google “free grocery coupons” or just “free crap”. Seriously, that works!

WUN has also thrown in the “Newsstand,” which provides up to three magazine subscriptions per year. At least that’s worth eight or nine bucks a month.

WUN doesn’t hide the fact that several of these items are free. They openly offer “Dealstream, Discounts, and Cashback” (from the 5,800 affiliate vendors), along with Grocery Coupons and the Travel Booking Portal as “free benefits” to those who enroll as free customers. In this case, the convenience of having all in one place is a benefit considering there is no cost to outweigh it.

Keep in mind, even if you do find a few products that you save a little on, you have to have savings in excess of $100, every month, to make it worth the monthly $99.95 fee.

All of the above is available through the “WUNHub.” The Hub is, “your one-stop shop for exclusive offers for car rentals, hotels, and cell phone discounts… The HUB is a web-based software platform that includes a search engine populated with deals on everything from household products, to vacations, to entertainment, to online offers.”

I started to write that websites that offer coupons, deals and discounts are a dime-a-dozen. But I deleted that. Because it wouldn’t even cost you a dime. For all dozen.

When it comes to commissionable products – that is, the ones WUN, and your upline, want you to buy, it really comes down to one – The “Platinum” package. This package includes:

• WUN Marketplace
• WUN Protect
• Premium Local Deals & Grocery Coupons
• Corporate Discounts
• Taxbot
• Vacation Club (10 Bookings)
• Newsstand (3 Magazines)
• Finance
• Language

The cost is $99.95 with 90 CV. This works out perfectly since 90 is precisely the amount of personal volume points you need to qualify in the compensation plan. But if you don’t want the Finance and Language products you can buy the “Gold” package for $64.95, which would seem to suggest those two products have a $35.00 value. However, the Gold only gets you 45 points, so you’re going to have to find a retail customer to make up the difference. Of course, you could also go “Silver” for $24.95 if you only want the top three items on the list, and just the CyberWatch part of WUN Protect, but that’s only 8 points. Even if you sell ten more of those, plus your own, you won’t quite qualify. It’s pretty clear they really, really want you to buy the Platinum package.

So here, literally, is the million-dollar question: Is there enough value here to induce a customer, who has no interest in the compensation plan, to pay $99.95 for these items?

Based on my own research, here is what your monthly costs would be if you collected like or very similar versions of each of these products individually:

Travel Club: FREE
Market Place: FREE
Finance: FREE
TaxBot: $19.9934
Invisus (Family plan): $29.95 ($14.95 for individual plan)35
Transparent Language: $29.95 ($16.66 if paid annually)36
AT&T Discount ?37
Three Magazines:  $6.00
Grocery Coupons: FREE

That’s $77.59, or $57.60 if you’re an individual who pays for the language plan annually. So the real question becomes, would a significant number of people, who have no interest in the income opportunity, and only want this product, actually want all of these disparate products, and be willing to pay an extra $22.36 to $42.40 per month ($268.32 to $508.80 annually) for little more than the convenience of having all of these products in close proximately? Keep in mind, even if there is some amount of financial benefit here that is exclusive to WUN members, it would have to be significantly in excess of $268.32 to $508.80 annually for the member to come out ahead.

One prominent WUN supporter has produced his version of their relative value list, which comes out a lot higher than mine, of course. But to accomplish this he only compared travel club costs to those offered by other MLMs, which are a small fraction of all that are available, and among the most costly. He also acknowledges the financial product can be found elsewhere for free, agrees with my values for the Language, Taxbot and Invisus products, so the only way to make the value of a Platinum Package greater than $99.95 is to give a high value to the essentially free Market Place and Grocery Coupon products – or buy three really expensive magazine subscriptions.

In reality, people will much more likely want some of these products, and at different times. So you want to go to Cabo for seven days this summer? It would take almost as much time to do this…, as it would to log into your WUN account and perform the same search. Same thing if you need to send some flowers, or get a good deal on a new iPad.

And how does a Silver package warrant a monthly fee of $24.95 when Invisus’ CyberWatch program costs $4.95 per month, and a myriad of completely free, local deal, grocery coupon and discount product search engines orbiting cyberspace? Why would anyone ever choose this product? But then, it appears they are not supposed to choose this product.

I’m not at all suggesting these products within these packages are not great products. They’re just not WUN’s products.

“The traditional network marketing company is about selling. No one wants to be sold anything. That make you feel like you’re being cheapened, like someone is going to pull something off on you. We just want to share. We want you to share and let the products and services speak for themselves.”
– Kirby Cochran

There’s no way to rationalize “sharing” something with a retail customer that involves an annual expense of almost $1,200 without it also involving some serious selling skills.

Especially a product that is very likely worth less than $1,200 annually.


WUN claims their compensation plan is “patent pending,” and back in December of 2010 actually referred to it as “patented.”38 Although it seems hard to believe, a number of companies and individuals have, in fact, managed to patent their plans.39 However, after searching both patents and patent applications, I can find no evidence that a patent for the WUN plan is even pending.

The plan has gradually morphed over the years, but it’s always been a Unilevel.

WUN Unilevel Payout Chart

Their “Group Retail Commission” does reward retailing, a little. This unilevel is the payout only on the affiliate products purchased through their web mall, not on Silver, Gold and Platinum packages. The Unilevel pays 25% on the first level, 10% on the next five, plus 5% on an extra generation for those who have reached “Founder 7” (F7) or higher, which pays “all” levels down to the fourth F7 in the line. The fine print states “Max payout of 100% of GRCV.40” However, that’s a mathematically maximum 80% payout just through the first seven levels. So, although this appears as though you can get paid many levels deeper, in reality, this 100% payout cap also caps the number of levels paid on at eleven.41 So it doesn’t keep paying down to four F7s, it can only pay down four more levels.

But, before we go any further, let’s establish what this is 100% of. Because it is not sales volume.

WUN pays on “Volume” points, or Commissionable Volume (CV). They love to talk about their $99.95 Platinum Package because it is worth 90 CV, or 90.2% of the price of the package (90/99.95). Most MLMs use a CV, or BV (Bonus Volume) point system, and the industry average CV-to-price ratio is around 83%42 so, so far so good. But then we get to the $64.95 Gold Package, which carries a CV of 45 (69.3% of the price). Of the $24.95 Silver Package, only eight CV is commissionable. So, although the Silver Package is about one-fourth the price of the Platinum, it will take twelve of them to reach the requisite 90 CV qualifier. But then, at least it’s not early 2012, when the CV of a Silver and Gold Package was 6.25 and 12.5, or most of 2013, when it was 3 CV and 9 CV respectively.

Again, those Group Retail Volumes described above are paid on products that Customers (not IBOs) purchase from the HUB, which will mostly be the retail items they search for (DVDs, clothing, iPads, etc.) that various retailers pay WUN a small affiliate fee for. WUN claims this can be as high as 40%, but that’s a bit deceptive. The vast majority of such affiliate commissions are between 1% and 15%, and average around 5%. And again, that’s what’s paid to WUN, which then sets aside “up to” 50% of this volume (they do not disclose what determines this percentage), then divvies up the remainder via the above described Unilevel.43 So when you see a 10% payout on levels 2 through 6, that’s more likely 10% of (at most) 50% of the 5% affiliate fee paid to WUN, not 10% of the product price.

Awaken is $48.00 for a 24 pack. Yes, that $2.00 per can price is decent, but only half of that $48.00 is commissionable (it’s 24 CV). And the price of a 24-pack is “comparable,” or “competitive,” to store prices, but not actually lower than store prices. A 24-pack of Red Bull is $44.00, and comes with a free flash drive44. A 24-pack of Monster can be had for as little as $29.99 – for 16 oz cans!45 So, it would be tough to make the argument that this price will generate twice as many sales to compensate for the halved commissions.

The Finance and Taxbot products each cost $19.95 per month, but only 5 CV is applied to the compensation plan payout. So basically, you’re only getting paid on a fourth of it. This goes for the two powdered versions of Awaken, too.

The Trivani products have CVs from 6.2% to 40% of the price, and average 32.2%. So you’re only getting paid on less than a third of what sales are made in your downline.

Overall the line averages 35.9% CV-to-Price. But, to be fair, we should apply at least some weighting to the more popular, and higher CV product. That is, they’re surely selling a lot more Platinum packages, where the CV is 90.2% of the price, than Gold packages, where it’s 69.3%, and a lot more Awaken (50%) than Trivani Mouth Rinse (27.4%). So let’s give the Platinum Package quadruple weight, and double the weighting of the Gold Package, the Finance and Taxbot products, and the Awaken beverage line. This isn’t 100% accurate, but certainly more accurate. And if you think the Platinum Package should be given far more weight, because it accounts for “probably 99% of sales,” as one ex-WUN rep guessed, then hold on for the Legal Concerns section below and you’ll understand how I am actually giving them the benefit of the doubt here. This brings the CV-to-Price ratio to 42.1%. To be clear, when CEO Kirby Cochran told a room full of WUN enthusiasts, “We approach 100% payout on our 90% PV… we operate off of a very small margin,” he was referring to only the Platinum Package. That’s it. If you factor in all of their other products you’re getting paid about 100% of 42% of the product cost, which basically makes it a 42% pay out, which is not bad, but on the low side of what is considered a competitive payout (most plans today pay out between 40-50% of actual sales).

And this doesn’t even consider their MarketPlace products which, at the time I checked, all had CVs of between 1 and 3. Yes, that’s a one and a three – like the Dr. Dre Headphones for $279.95, of which 1 CV goes into the plan. Or the Sterling Silver Pearl necklace for $178.00, which is 3 CV. This is what I was referring to earlier regarding the “Retail Commissions” of 10% of 5%. In these two admittedly worst case examples, you’d be paid 10% of either 0.04% or 1.7% of the product price respectively. If you’re having trouble following the math, I’ll help you out. That comes out to a reeeeally small number.

This CV-to-price ratio of 42%, which is about half the volume that average CV using MLM companies pays on, comes into play in an even more impactful way when it comes to qualifying. Stay tuned.

When ever you evaluate a plan, it’s very important that you understand the plan’s “weighting.”

Plan Weighting

A plan can be front, middle, or back weighted. A front weighted plan spreads the payout more evenly. More participants make money, but those who do make less, on average, because it’s spread more thinly across more people. A “compressed” unilevel plan that pays 40% on the second level (e.g. pays five levels, 5%-40%-3%-2%-%1) would be a front weighted plan. A back weighted plan is one where fewer participants make money, thus those top producers make more due to the concentration of commissions on that smaller group. Most break-away plans, like those used by Nu Skin, Amway, and Shaklee, would be considered back weighted. They have the highest percentage of millionaires, but also the highest percentage of those making no profit at all. Of course, a plan cannot be all things to all people. When you add weight to one part of the plan you must remove weight from another.

A survey of over 7,700 distributors46 and prospects included the question “What is the minimum you would have to earn on a monthly basis for you to consider yourself successful?” The question was further qualified by explaining we were looking for their “primary income goal,” not their “dream goal.” Six percent checked $84,000 (one million per year). Which means 6% still misunderstood the question (it’s likely most would still consider themselves successful if they only made $50,000 per month). Another 8% said they only wanted a “supplemental income” of $200-$300 per month. The remaining 86% were just looking for a “comfortable living income,” which they quantified as between $7,000 to $11,000 per month. Their primary objective when joining an MLM opportunity was to quit their job and live comfortably off of their MLM residuals.

Clearly the vast majority of MLM entrepreneurs are looking for a more balanced, middle weighted plan (although most of them are oblivious to it). In spite of this, the majority of existing compensation plans are not only front or back weighted to some degree, it has become common to heavily weight pay plans to one extreme or the other due to the more attractive hypothetical incomes which they produce. The most common design weights the payout in the form of an hourglass, with the bulk of the payout shifted away from the middle to the front and the back. This is not only a complete contradiction to the optimum weighting for over 86% of the market, it is diametrically opposite of the manner in which downlines form – which is in the shape of a diamond.

WUN Plan Weight Diagram

So, where does WUN fall? Is it weighted like a diamond, or an hour glass? Or, perhaps it’s more like an arrowhead pointing downward, with the diamond shaped payout skewed slightly more towards the front, or top. That would be, according to 86% of WUN’s market, ideal. Well, imagine the shape of a push pin. Something kind of like this image to the right.

Although, to the plan’s credit, this is a rudimentary form of middle-ish weighting, it’s where they took the pay out from, then where it was added, that bothers me. There’s essentially no very front end, and less in the actual middle, and this appears to be in lieu of extra padding in the front-middle, and on the very back end. In other words (and few sentences deserve to be restated in other words than that one), you get paid nothing upfront, even if you have a small downline under two first level reps, then break even at Director 3 (with three on your front line). But then you get paid a few hundred dollars per month with the fewest distributors I’ve seen in any plan since compressed unilevels were popular in the 90s. If you are among that 8% who desire only a supplemental income, this is a perfect plan for you. However, if you are among the 86% that want a “comfortable, living income” of $7,000 to $11,000 per month, so you can quit your job, you’ll have to achieve at least Founder 6. Not only do a fraction of 1% of all WUN reps achieve this income, less than 1% achieve Founder 4, and all nine ranks above that, combined.

“In fact, out of 800 to 1,000 people who join an average network marketing company today
one person, in aggregate, will make a $1,000 – Wake Up Now is approximately forty-seven times      greater than the average network marketing company.”
– Kirby Cochran47

Based on WUN’s Income Disclosure Statement, Mr. Cochran would had to have been referring to lifetime earning. Having said that, Mr. Cochran’s claim that 4.7% (47 out of 1,000) of WUN rep’s eventually earn at least $1,000 is still impressive, on its face. However, 14% earn $99.95 to $115.00 per month, so they would all earn more than $1,000 annually – but make little, if any profits – and 96%, in total, earn this amount or nothing.

Catering to those supplemental income seeking eight-percenters isn’t a bad thing. An extra $600 to $2,000 certainly won’t get you out of your daily commute, but it can be life changing. But again, you can’t make all of the people happy all of the time, especially with MLM comp plans. So while you’re enjoying your few hundred a month, plan on high attrition and turnover (due to the utter lack of income on the way to it), and a much tougher time getting to an income that will allow you to “exit the rat race.”

Here’s how the plan works:

To begin qualifying for those Unilevel payouts, or to qualify for any payout, you must first achieve 90 CV in personal purchases, or sales to Preferred or Retail Customer, and sell at least 90 CV worth of product to three customers or IBOs. In other words, buy a Platinum Package and recruit three others who buy a Platinum Package. The large majority of MLM reps in any opportunity never recruit their first person, and rightly deserve no commission. But a much higher percentage do recruit one or two. In WUN, if you sponsor two stars and one or both build substantial groups, you’re paid nothing.

Compensation plans should not be designed to compensate. They should be designed to incentivize. Every aspect of an MLM comp plan should have a good answer to three key questions: 1) How much will this add to the overall payout?; 2) What behaviors does this incentivize?; and 3) Are there any unintended, negative consequences? In WUN’s case, by delaying participation in the compensation plan until a third 90 CV sale is made strongly encourages what’s called “bonus buying.”That is, once you have enough activity below the one or two people you’ve recruited to earn you more than $99.95 per month, you can buy your way into this income by paying for someone’s Platinum Package.

There’s even a greater incentive to do this when we consider the “Director 3” and subsequent “Founders” bonuses. Here’s how those work:

Once you enroll one IBO or customer you are a “Director 1.” Which, again, earns you nothing but the title. When you enroll your second person you get promoted to a “Director 2.” The benefit is that you get to put a “2” at the end of your title instead of a “1.” Those of you who read my Empower Network review48 already know what I think of Aussie Two-up plans49. This is even worse. You not only don’t get paid on your first two, they don’t even roll up to your sponsor!

Once you land your third sale, you become a “Director 3” and earn a monthly $100, which covers your own $99.95 monthly Platinum Package fee. Numerous reps call this a “three and it’s free” bonus, which is not actually true, and a legal no-no. Your income covers the cost, but you’re still paying for it. WUN will tell you that any combination of products can be purchased or sold to reach the requisite 90 CV, but clearly the plan strongly incentivizes, and is based on, everyone buying a Platinum Package. Any other combination of three products won’t get you even close to break even if you’re paying for the Platinum Package. Similarly, if you use any other product combo to achieve 90 personal CV, it will take a lot more than three sales to cover your monthly cost.

When you have at least 1,080 CV in your group, with at least 360 CV in each of your three legs (four WUN-folk who each product 90 CV) you become a “Founder 3,” the $100 Director Bonus cease and desists, and you start earning a $600 Founder Bonus. So, once you come within five Platinum Package sales of achieving the required downline 12, you now have the option of paying $499.75 (for five Platinum Packages for friends or family members) to get a $600 bonus. And Founders get to play in the Group Retail Commissions (Unilevel) now as well. As your legs continue to build, just cancel the PPs you gave your friends or family members as you no longer need them to reach the requisite 12. Yes, this is a scummy, and very legally suspect way to earn the bonus, and yes, WUN’s policies forbid this practice. But their compensation plan is designed to powerfully incentivize this behavior. Unintended consequences.

If you build to a minimum of 2,500 CV (28 Platinum Package sales will get you there, as long as no more than 50% is from one leg), you get a bump to $700 per month. Five-thousand CV earns you $800, and 7,500 CV pays $1,000. Enroll a fourth person who produces 90 CV and produce 10,000 CV in those four legs, and you’re a Founder 4, and earn $2,000. This keeps going to Founder 7 which required 80,000 CV (889 PP sales), no more than 40% of which can come from any of at least seven legs, and you are paid $10,000.

As you can see from the chart below, seven more ranks can be achieved each requiring ascending amounts of group CV, which gets you more shares of Leadership pools and other bonuses (to be discussed in a moment).

WUN Ranks3

One of the challenges with any plan that requires a certain number of reps of a certain rank on your front line, and why I never employ such a feature in any plan I design, is that it introduces a luck factor that can produce rewards wholly out of proportion to production. For example, if I sponsored seven IBOs on my first level, who each sponsored the minimum three to become a Director 3 (i.e. I have 21 IBOs on my second level), and my group produces 640,000 CV, I’m a Diamond. However, if you sponsored 50 on your first level, but only six are Director 3s and the other 44 average 1.5 recruits each (i.e. you have 84 qualified IBOs on your second level), and your group generates over 1.2 million in CV, you’re a Founder 6. You’ve sponsored over seven times as many people, have four times as many PP sales on your second level, and almost twice the total Group Volume, and you are seven ranks lower than me. And if you then buy one Platinum Package out of your own pocket and give it to someone on your second level, you instantly jump seven ranks. Although this example is somewhat extreme, it’s not entirely unrealistic. Nor are the myriad of more common scenarios where the same unfairness, and incentive to bonus buy, occur within such plans.

“Industry average is a buck, maybe 50¢.”
– Online WUN Presentation50

The quote above is referring to the alleged average earnings per distributor. It’s also utterly wrong. I know because I did just such an analysis, albeit backing the late 1990s, and it runs between $2.50 to $5.50. If anything this average has risen since then as MLM product prices have inflated as more companies compete with their comp plans rather than product value (still not the majority, but getting closer). The key factor is the amount of sales volume produced per rep, not the percentages in the plan.

Having said that, WUN’s earnings-per-rep ratio is a healthy $33.33 when you earn your $100 Director bonus on your first three people. Even at the Founder 3 rank, you’re earning $600 on 12 people, which is $50.00 per rep. And no, there’s no “however” lurking in the margins of this paragraph, waiting to strike. At Founder 4 you’re paid another $1,400 on $8,830 of additional volume (16% of volume, or $14.14 per person). This ratio drops to a still impressive $17.86 overall, and at Founder 5 it’s $19.93 overall, Founder 6, $13.48, Founder 7, $11.25, and when you hit Executive it’s still $7.50. And this isn’t even counting the Leadership Overrides and luxury bonuses. Or, the Group Retail Commissions. So sure, if you need some change for the gumball machine, count that, too. Having said that, this healthy income-per-person ratio at these higher ranks is impressive, but offers nothing if you can’t qualify for them.

Leadership Overrides are paid out from a pair of bonus pools. “Up to” 5% of total company CV is poured into the “Founder Override reserve” and “up to” 7.5% goes into the “Executive Override reserve.” The Founder’s pool is paid to all IBOs who qualify for Rank F4 to F7, who each receive an ascending number of shares from one to ten. The Executive pool not only pays an ascending amount of shares, from one to 24, to those who qualify for Executive and above, but each receive ten shares of the Founder’s pool as well. As we’ll discuss in more detail later, WUN is too young to have amassed large numbers of Executives and above yet, but when (if) they do, the stated “maximum” pool earnings at each rank will likely appear silly, and not in a good way. At Founder 4, it’s $500, but eventually this pool is going to get split into so many pieces that a single share will be worth only a few dollars. Let’s assume, for example, that when WUN reaches 100,000 current, active participants, producing an average 90 CV, and with a slightly better breakdown of what percentage of IBOs achieve each rank than they depicted in their most recent Income Disclosure, the Founder Pool will be 450,000 CV, which will be divided by about 29,000 shares. That’s $15.52 per share. And since the size of the pool rises and falls commensurate with the number of shares distributed, this could very well be about what a share is worth right now. Also, contrary to what was stated in a recent WUN training podcast51, the value of these shares will not rise commensurate with overall company CV. As more CV is produced, more IBOs will qualify for more shares, keeping the per share value somewhat consistent over time. So although those big numbers in the “Max” column in the above chart are rich and handsome, much like a listing, they’re significantly embellished.

The “Luxury Payouts,” which begin at Founder 4 (F4), pay you “Vacation Dollars” from $250 to $1,000, and a car bonus from $250 at F5, up to $1,000. These bonuses are a nice touch, however, you must incur the entire expense first, and then submit your request to have your accumulated “Vacation Dollars” be applied to the expense. For example, if you want to use these Vacation Dollars towards a trip to Hawaii, you must actually go to Hawaii, and incur all of the expenses, then come back and submit your request for reimbursement, and wait up to 30 days to get paid, assuming your trip qualifies (you have to submit proof that you took the trip, including photos and a video telling WUN about your trip). Same with the Auto Bonus. You must buy or lease the car first, then apply for payments. In other words, if you can’t afford a down payment or lease on a new car, or a trip to Hawaii, you still won’t be able to afford it no matter how many Vacation Dollars you have pilling up. Sure, you can put it all on a credit card (assuming you have enough remaining credit), and hope that the company will agree, or be able, to pay you 30 days after you return. And when they are paid their Vacation Dollars (which is likely), will that IBO really use that $3,500 to cover their family’s week in Hawaii, or to pay off that $3,500 they put on their MasterCard? Or have more fun with it? Sure, that’s on them. Absolutely. But why even place your IBOs in this position? Your “Vacation Dollars” are yours. You earned them. I get WUN’s desire to have IBOs really use it for cars and vacations, but why not allow them to pay for it straight out of their Vacation Dollar account?

I also found Mr. Cochran’s recent announcement of a mortgage “payoff” option to be very overstated.52 Previously, if your monthly Luxury Bonus exceeded your car payment you either forfeited the difference, or you could simply increase your car payment to match and pay it off faster. This new option, presented as a big announcement that prematurely leaked, allows those with mortgages to apply this excess to it rather than their car payment. The audience’s reaction was rousing applause. Mine was, so what? So, you have a car payment of $200 and a bonus of $250. Whether you apply the extra $50 to a car payment or a mortgage, it’s still $50 less out of your pocket. This would only offer a benefit to those whose interest rate on their mortgage is higher than the interest on their car payment, and with 30-Year-Fixed now running about 4.4%53, the odds of that are slim.

There’s more goofy stuff going on here. When you submit your first request for Vacation Dollars, a compulsory $250 is used to purchase and send you the “WUN Adventure Kit,” which includes a backpack, GoPro® action camera, and some “great WakeUpNow SWAG to sport on your travels” – even if you neither want nor need any of this. Also, once you start using Vacation Dollar funds you are required to use them to purchase at least two tickets to the Annual WakeUpNow Corporate Conference. Allowing them to use Vaca Bucks (that’s what the kids would all them nowa days) to cover event tickets is great. Forcing them to, not so much. Also, IBOs with a rank of F7 up to Pearl are required to use Vacation Dollars for at least one corporate Escape Trip per year. If you decline, the full price of these conference tickets will be deducted from your Vacation Dollar account anyway. And finally, whenever new Vacation Dollars are earned they only “accrue” for three months, then expire! Put another way, when you are able to take a vacation, you can only use the Vacation Dollars you’ve earned in the last three months.54

On the plus side, you do have the option of gifting the event tickets to someone else, and in the case of the Auto Bonus, you can elect to take 50% of the Vacation Dollar bonus in lieu of a car payment. Both are better than nothing.

In October of 2013, WUN added a “Customer” qualifier to each rank of the plan. Director 3s not only need to enroll three IBOs, but also must enroll three Customers. A Founder 3-7 requires seven Customers, and an Executive and above requires 10. WUN defines these Customers as “Preferred Customers, Insiders, customers who checkout or redeem shared deals as a guest, really any customer who purchases retail product.” However, an “Insider” is defined as, “A Deal Stream Insider is a member who subscribes to WakeUpNow marketing messages and deals, typically via social sharing,”55 and guests need only “check out” the shared deals to count. What’s more, even IBOs who have not yet reached Director 3 count as “customers,” as do those who enroll and choose to not purchase anything56. So, which activity does this more strongly incentivize? Acquiring new retail customers, or getting a few friends to sign up for free?

I’m also curious to know how Founders are protected from having seven “Customers” and then one of them enrolling as an IBO without the Founder’s knowledge (and leaving them one short of the required 7)? This creates the unintended consequence of not wanting your Customers to become IBOs. At least, not on a Friday.

Now, after all those volume qualifiers have been described, let’s revisit that 42% CV-to-price ratio. Remember those three people you had to enroll who each have 90 CV to be a D3 and earn the $100 bonus? Or the 1,080 CV over three legs to get to F3 and join the “$600 Club?” Or the 80,000 CV to qualify for F7, or the 1 million CV to achieve Global Executive? Now, giving WUN every benefit of the doubt – that is, as they claim, they are not just pushing Platinum Packages to everyone to qualify, but indeed are “sharing” a wide variety of individual products of value – and thus assuming my weighted average57 of 42% is more in tune with reality, it will actually require about $855 in sales to achieve 360 CV, $1,425 in sales to get to 600 CV, $2,565 will produce 1,080 CV, and you’ll have to amass $190,024 in sales to get to Founder 7 (assuming it’s all spread out in the correct structure). To achieve their highest rank of Global Executive plan on your group producing around $2.37 million. Which probably explains why no one has ever qualified of this rank. At least, not yet.

Bottom Line: CV is not sales.Whatever ratio you want to use, it’s going to take significantly more sales than these CV qualifiers suggest.

WUN is among the growing number, but still minority, of MLM companies who publish an Income Disclosure Statement. As with all such statements, they’re hard to fall in love with at first sight. They tend to reveal a very large percentage of reps earning little or nothing, and a disproportionate percentage earning the largest incomes. Of course, that’s because the large majority of MLM reps, or human beings for that matter, tend to not apply nearly enough effort, for not nearly enough time, to succeed. That’s why the income distribution of Americans in general looks very similar to an MLM company’s income distribution58. But, this is a rant for another day.

In WUN’s case they show 54% of IBOs as not even achieving Director 1 (haven’t enrolled one person), and 18% have achieved D1. Another 10% achieved D2, and 14% made it into the money by achieving Director 3. Unlike all previous quarterly disclosures the 82% that were below a D3 made absolutely nothing. Zero. D3s earned an average $101.90, which would be their $100 Director bonus and some gumball money from the Group Retail Commissions.

When analyzing commission trends since their Q2 2013 statement (the last three published) I found it curious that all average incomes from Founder 3 and above are slightly trending down, while the percentage of IBOs below D3, and earning nothing, has slightly ticked up. As an MLM company grows, as WUN has been in recent months, average incomes should be slowly rising across the board.

Although WUN does not report the number of IBOs at each rank, when the “low,” “average,” and “high” incomes are all identical, it’s not hard to figure out that there’s one person at that rank. This was the case for Founder 7 and Pearl (the highest rank anyone achieved) in the second quarter of 2013. That’s nothing unusual, especially for a young, pre-momentum company. However, in their August 2013 statement, they had one Executive, at least three Pearls, no Rubies, and a single Emerald and Sapphire. By the end of December, they had one each of Executive, Pearl, Ruby, and Emerald, zero Sapphires, and one Diamond. Granted their Q1 2014 Disclosure isn’t out yet, but considering they’ve been celebrating their strong growth since the middle of last year, and are now claiming to have amassed “over 100,000 customers,”59 there seems to be a dearth of participants partaking in the higher ranks of the plan. Not that there isn’t a very robust back end to the plan. In fact, the back end is loaded. However, very few reps seem to be able to get to it.

Included on all WUN Income Disclosure Statements are the number of average hours per week that each ranks spends on their business. Although they appear to be somewhat arbitrary, WUN claims these numbers are derived from “estimating and surveying,”60 but no sample size is revealed. For example, the Statement suggests Directors 1 and 2 each spend fewer than two hours per week building their WUN business, as does a Director 3, inspite of the $500 monthly increase in commissions if they were to advance one more rank to Founder 3, and with a mere nine additional Platinum Package sales. Founder 3s should be the most active rank on the chart. Even the top six ranks spend only 9-18 hours a week on generating their average $13,602 to $54,582 per month. To put this in perspective, the DSA’s research shows about 10% of all reps work “full time” on their businesses61, and other credible sources peg the “full time” workers among all direct sellers (not just MLM) at 30%62, or show 12% of MLMers working over 20 hours (and 45% work 5-15)63, and the average per week for all active distributors is 16.8 (mean is 12)64. Methinks the “Avg. Hrs/Wk” column is inaccurate, and creates an unrealistic expectation as to the time it will take to achieve these incomes.

To their credit, VP of Sales & Training Andy Benis and VP of Marketing Jordan Harris get it right. When addressing those who might receive the survey, Harris pleads, “We really do want honest answers. We don’t want anyone coming into this with false notions about how long it takes”.65 Benis goes on to mock the claim, “Hey, I’m a Founder 7 and I only work 10 hours a week.” He continues, “I guarantee there is probably not a single Founder 7 in this company worth their salt that only works that many hours a week today… if you’re going to rank up, you’re going to do more that that.”

Too bad their Income Disclosure Statement, which suggests Founder 7s only work 9 hours a week, isn’t as candid and forthcoming.

WUN Income Disc 12-13

WUN claims the primary means by which they manage these $100 bonuses on three $99.95 enrollments/sales, or $600 on 12, is that they “operate off of a very small margin.”66 This will be discussed in more detail in the Legal section below, but for now, let’s take a look at their “Gross Margins” as a percentage of Total Sales.67

Total Cost of Gross  
Sales Sales Margin  
2009 $787,428 $426,969 45.8%
2010 1,140,000 710,132 37.7%
2011 1,145,554 1,284,745 -12.2%
2012 3,015,142 2,155,138 28.5%
2013 12,180,866 11,167,523  8.3%

I do like the larger per-member payouts from D3 to F7, but there’s a trade off for these gaudy ratios. If you only enroll two, no matter how many they enroll, your earnings-per-member is zero. Build a 2×2 downline of 1,000 people and the combined earnings of all of them would be zero! Yes, I know that’s perfect math, and that’s ridiculous. But any plan is flawed if all participants enroll only about the average number of recruits and no one makes a penny. And that’s based on the optimistically flawed, but generally accepted average of 2.6 recruits per distributor.68 Consider this, if ten distributors are surveyed and nine sponsor none and one sponsors 20, the average is two, even though no one enrolled two people. In reality, this 2.6 average is generated by a mass of participants enrolling zero, one or two, and a very small percentage enrolling three or more.

Overall, it’s hard not to like a plan that at least tries to be middle weighted. The WUN plan does, and succeeds to a degree. But again, wherever you shift the payout to, you have to shift it from somewhere else.

In spite of the high “however” count, I’d actually give this plan a solid B. It’s kind of like last Thanksgiving when I decided I was going to take the burden off of my elderly mom by doing all the baking for her. By popular demand, I made six pumpkin pies, diligently following her recipe to the letter. Except I forgot the sugar. The intent to do the right thing was there, but the execution was very flawed. Kind of like the Wake Up Now compensation plan.


The WUN P&Ps are not particularly unusual. It contains much of what can be found in most MLM P&Ps. Not that this isn’t troublesome, it’s just not unusually so.

First, the good news. Their compliance section is one of the best I’ve seen. In this case they are unusual in that they don’t just say “don’t make income claims” or “if you make an income claim include the disclaimer” (I’m paraphrasing). They actually go into detail about what exactly you can and can’t say and under what circumstances. For example, they describe “lifestyle” and “hypothetical” claims as being the same thing, from a regulatory standpoint, as an income claim, and thus requires the same disclosure. And, unlike many MLMs today, they seem to have been well educated on the difference between a disclaimer and a disclosure. The FTC changed the rules a few years ago where a disclaimer (e.g. “results not typical” in fine print) is no longer acceptable. Now you need a full, prominently displayed, Income Disclosure (or link to one) that declares what results are typical. Which explains why WUN, and a growing collection of other MLMs, are now producing these Income Disclosure statements.

Now if WUN could just get more of their reps to actually read their P&Ps, and adhere to this guidance, that would be even better. Because, with some exceptions, it doesn’t appear as if they are doing so. Although there are surprisingly few (relatively speaking) blatant income claims sans any disclosure, the income claims I’ve seen often include only a brief, way too subtle, disclaimer, not a prominent link to the Income Disclosure. However, corporate produced material does it right (see, not every “however” is bad). Even small meetings where Mr. Cochran spoke (on video) and made income or lifestyle claims, he did provide the proper disclosure, and used it as a teaching moment.69 In the same presentation he stated, “I live, drink regulatory.”70 When it comes to income claims, I’d like to see their reps use their disclosure statement more, and in a more compliant way (most who use it online are not making the link prominent enough), but in this one regulatory area WUN is ahead of most MLM programs. However, that’s a much larger area than just income claims.

WUN does include an atypical policy against poaching reps from other MLMs. If you try to pirate your own WUN downline into another MLM that’s a terminatable offence, of course. But section 4.11 titled “Targeting Other Direct Sellers” only states WUN does not “condone” it. What’s the penalty for engaging in such activity? You “bear the risk of being sued by the other direct sales company.” And if you are, “WAKEUPNOW will not pay any of IBOs defense costs or legal fees, nor will WAKEUPNOW indemnify the IBO for any judgment, award, or settlement” (emphasis original). What’s odd about this is that it is extremely rare that the company is not also named in such lawsuits. If it were me, I’d actually make such activity a policy violation, not something that’s just not “condoned,” but tacitly allowed – because it does appear a lot of their new reps are coming from other network marketing companies.

A policy that is not unusual, but which I abhor, are those that require “Continuing Development Obligations” (5.2), “Ongoing Training” (5.2.1), “Increased Training Responsibilities” (5.2.2), and “Ongoing Sales Responsibilities” (5.2.3). These are fine when a retirement clause is included that overrides these requirements, but I’ve only seen such a clause in about a dozen P&Ps – the ones I wrote. Without such a clause, how does one retire and live off of their “residual income” without violating their company’s P&Ps?

An unusual policy I like is 8.3, which states an IBO “will not be terminated for merely requesting a refund…” Most companies will.

However, 8.1 provides for only the federally mandated three day refund period (5 days in Alaska) to get a full refund on all monthly auto-pay products, then a 75% refund from 4 to 7 days beyond the charge, plus a 10% service fee. After seven days there are no refunds. This would include the Platinum, Gold and Silver packages, and most components if purchased a la carte. Several states, including Georgia, Massachusetts, Wyoming, Maryland, Louisiana, Montana, Oklahoma, and Texas, as well as The State Without a Star (Puerto Rico), all have their own refund policies that MLM operations are required to adhere to, each requiring at least 30 days, and most 9071. Also, how could any bona fide customer of these products even begin to assess the value of these products in a mere three days? Or, even seven? Of course, if you’re just buying a Platinum Package to qualify, then this makes perfect sense.

Section 8.4 breaks down how refunds are clawed back from the immediate upline when a refund or chargeback occurs after commissions have been run. Note, I said the refund is clawed back, not commissions paid. That is, the entire price of the product is recouped by WUN from the pockets of their IBOs, as if the refund never occurred! So WUN still gets their money, but now pays very little, in any, commissions on it. In addition to this prorated “refund liability” to those IBOs five levels above the refund (from 30% to 10%, depending on how many levels the IBO is above the refund), WUN also charges a $100 “service fee” – to all five of them! Think about what behavior that incentivizes? If someone you sponsored is about to ask for a refund on a $99.95 Platinum Package, and you knew you were going to get hit with a deduction of 30% of that ($29.99) plus a $100 fee, is there any way you’re not going to cover their $99.95 fee? I can see no other reason for WUN clawing back the entire purchase price of the product (not just the commissions paid) from those five levels upline, plus gouging them for another $500, than to incentive eliminating refunds and charge backs in this manner.

WUN can also warn, fine, suspend, or terminate IBOs for “any illegal, fraudulent, deceptive or unethical business conduct, or any act or omission by an IBO that, in the sole discretion of the Company may damage its reputation or goodwill (such damaging act or omission need not be related to the IBOs WAKEUPNOW business).” In other words, for doing things that are not necessarily illegal, or even in violation of their policies, and may not even have anything whatsoever to do with Wake Up Now. Sure, a lot of MLMs have this in their P&Ps. That doesn’t make it right.

WUN also has a mandatory arbitration clause (9.4) where the IBO “waive rights to trial by jury or to any court.” According to the 9th Circuit Court (Pokorny v. Quixtar)72 such a clause is not enforceable.

Section 10.3. entitled, “Sales Taxes” states, “WAKEUPNOW is required to charge sales taxes on all purchases made by IBOs and Customers, and remit the taxes charged to the respective states. Accordingly, WAKEUPNOW will collect and remit sales taxes on behalf of IBOs, based on the suggested retail price of the products, according to applicable tax rates in the state or province to which the shipment is destined.” The problem is, WUN doesn’t do any of this. They have no “suggested retail price” on any of their products, and they don’t charge sales taxes on any products outside of Utah.

One of the most poorly thought out policies is 11.2.1 “Failure to Meet CV Quota,” under the “Cancellation Due to Inactivity” section, which states, “If an IBO fails to generate sales of at least 300 CV every six months, his or her IBO Agreement shall be canceled for inactivity.” So, what if you sell one Gold Package in January, February and March, and both a Gold and Silver package in April, May and June? That’s monthly CVs of 45-45-45-53-53-53, for a total of 294 CV – and you’re terminated for “inactivity”? They should change the title of this section to “Buy a Platinum Package or Else!”

One of the most potentially harmful, yet most ignored policies in any company’s P&Ps is the one that says, “An IBO may also voluntarily cancel his or her IBO Agreement by failing to renew the Agreement on its anniversary date or by failing to pay his / her monthly website fee. The Company may also elect not to renew an IBOs Agreement upon its anniversary date.” Seems pretty innocuous, right? It just says you can quit by simply not renewing your annual distributorship. Except, it also says “The Company may also elect not to renew an IBOs Agreement upon its anniversary date.” Many MLMs have such “renewable by the agreement of both parties” type of language. There are two potential “gotchas” here, and they are so subtle most companies don’t even understand what kind of power it provides them. First, it gives WUN the ability to terminate you on your anniversary date for absolutely no reason. They just refuse to renew you. Secondly, what if you ever are wrongfully terminated, you sue, and you win? Let’s say you joined in January of 2010, were terminated in November of 2010, were declared wrongfully terminated in May of 2014, and the Jury awards you back commissions. But not for November of 2010 through May of 2014, but rather only for November and December of 2010! Your distributor agreement obviously would not have been renewed by the company in January, your anniversary month, so a clause like this acts like a circuit breaker for damage awards. And this is not theory. There’s legal precedence.73)

Please understand that I’m not at all suggesting that WUN management are such scoundrels that they deliberately placed all these booby traps in their P&Ps. A lot of this is just boilerplate verbiage that gets cookie-cuttered from company to company. But some of this is unique to WUN, and can best be described as draconian.


Let’s work from small to big.

The BBB report on WUN is relatively negative. They have a grade of “C,” which can be quickly changed to at least an A- by simply paying the $600 to go through their fairly simple “accreditation” process. They’ve received 49 complaints in the last 12 months (up from 42 just a couple of weeks ago), most dealing with refund/billing and product/service issues. To place this in perspective, the current top 15 MLM BBB complaint receivers over the past 12 months are:

North American Power 353
Momentis 231
Ambit 157
Stream Energy 151
Melaleuca 116
Empower Network  101
ACN 88
Avon 79
Viridian 74
Primerica 56
Nerium 55
Wake Up Now 49
LegalShield 45
ViSalus 41
Tupperware 37


Gas & Electric companies are listed in red. If you’re curious, Herbalife has 13. So other than energy companies, which are always bombarded with slamming complaints, WUN’s 49 complaints ranks 6th. MonaVie, Nu Skin, XanGo, Zrii, Send Out Cards, Morinda, Neways, Shaklee, Agel, USANA, Mannatech, Vemma, Purium, ForeverGreen, Youngevity, Gano Excel, Yoli, Freelife, Life Force, Reliv, and Amway also have 49 complaints – combined.

To their credit, they have made the appropriate effort to resolve all 49 complaints. How a company handles their complaints is actually more important than the raw number of them.

Transparency & Disclosure

WUN management tends to overplay the “we’re so transparent” angle. An Employer Identification Number (EIN) is required of all corporations, or businesses with employees. This is public information that can be used to verify certain regulatory filings (and the fact they even have an EIN number). In fact, it should appear on every 1099 form WUN sent out last January, so it’s not a secret. Yet, it does not appear within either of their annual disclosures, within any of their corporation documents74, nor within several public EIN databases. If you want to join WUN under a business entity they require that you provide them both your social security number and your EIN.75 But when I asked them for this number, I was first told that the only two people who could provide it were in Asia (actually, there would have been several in their accounting office). After two weeks I asked again, and my request was denied. A reason was provided, but within a “privileged and confidential” email that I am not at liberty to quote. WUN has been recently attacked by other industry critics using their public disclosures. It would make sense that they are reluctant to provide them any more fodder. Now, read between those last two lines.

When the blog BehindMLM wrote a negative review of WUN76, their response included the statement, “Much of Inside MLM’s article focused on selected items on our 2013 Annual report. That report was honest and comprehensive because we believe in full disclosure. It shows we are honest and optimistic.”77 Actually, it shows nothing more than what they are legally compelled to show as a publically traded company – and that they got me confused with BehindMLM. I’m also not sure the line in their 2013 report describing “substantial doubt about the Company’s ability to continue as a going concern” would be considered “optimistic”. “We strongly feel,” they continue, “this is a strategic advantage over companies that are privately held and not subject to the same level of accountability… The 2013 Annual Report was voluntarily produced and published by the company, and not by any third party.” Again, as a public company they are, once they get large enough, or their stock become active enough78, compelled by securities law to publish such information, and it’s suppose to be audited by an objective third party. WUN’s disclosures are not79. So we are left with having to just trust what they say no more or less than any private MLM company. They have also never published a 10-Q (quarterly financial disclosures), Proxy Statements, a Form 8-K (notice of events pertinent to shareholders), or any of the other public disclosures common to public companies, and only two annual disclosures since 2009. WUN is likely exempt from reporting to the SEC (which is why an EDGAR search returns nothing80) due to their small size and minimal trading activity, so I’m not suggesting any legal impropriety here. Just, don’t gloat about your transparency while refusing to provide your EIN and disclosing the minimum you are supposed to disclose, and not until you could be required to disclose it. Personally, during my research for this review, I found WUN to be one of the least transparent companies I’ve ever investigated.

Within WUN’s 2013 Income and Disclosure Statement they claim, “The Federal Trade Commission requires Direct Sales organizations to submit an annual Income Disclosure Statement outlining how many members were paid (at all) at each level, and how much they were paid. Wakeupnow is committed to transparency and has elected to publish its Income Disclosure Statement on a quarterly basis rather than annually. In addition, rather than reporting only to the FTC, Wakeupnow® makes these statements available to the general public via its website.”81 None of this has ever been remotely true. The FTC does not “require” Direct Sales organizations to produce such Income Disclosures, nor does the FTC require that such disclosures be submitted to them. Only when income claims are made are such disclosures required, and the production of such disclosures are completely voluntary, and always made public. About 20 MLM companies currently provide such disclosures, and although most are annual, some are more frequent (e.g. Empower Network’s is in real time). So yes, while it’s admirable that WUN is among the small minority who even produce such a disclosure, they are doing nothing at all special by making them public, as they claim.

As VP of Sales & Training Andy Benis recently said, there is “no legal requirement” to produce an Income Disclosure Statement.82 WUN really needs to give Mr. Benis a raise.

Alleged FTC Approval

WUN also has a “Governmental Approval or Endorsement“ policy (4.13) that reads, “Neither federal nor state regulatory agencies within the United States of America or officials approve or endorse any direct selling or network marketing companies or programs. Therefore, IBOs shall not represent or imply that WAKEUPNOW or its Compensation Plan have been ‘approved,’ ‘endorsed’ or otherwise sanctioned by any government agency.”

Considering this, somebody’s got some splainin’ to do. (1:00 mark) (3:10) (Text section)

[Update: All of the above links were promply deleted or revised after this review was published]

The “FTC Letter” in these (and other) WUN promotional sites is made to appear as a response to an email inquiry as to WUN’s legality. The letter states:

You emailed us 7 days ago inquiring about the legitimacy of a company operating by the name of Wake Up Now, Inc. Since their establishment in 2009, they agreed to maintain their compliance by participating in random evaluations done by the FTC. Since the beginning of their establishment we have found no evidence of wrongdoing or any evidence of broken antitrust laws. There have also been no known complaints filed against them during their years of operation. They have been very cooperative and outstanding in conducting business matters within the corporation and with consumers. They do not operate as a commonly known financial scam known as a Pyramid Scheme. They instead operate as a legal and fully functional marketing company with very strict policies on following compliance. They are federally regulated to the fullest extent every year. But in the event that you may witness any future violations, feel free to contact us again by phone or file a formal complaint and we will continue to respond accordingly. Thank you for contacting us with your concerns.

Federal Trade Commission
Office of Policy and Coordination
Room 7117
Bureau of Competition
601 New Jersey Ave, NW Washington, D.C. 20580
(202) 326-3300

This email is completely fraudulent. The FTC never endorses or approves companies, nor would ever offer a legal opinion on one. When I called the Consumer Fraud division of the FTC to confirm the letter was fake, and began to describe it, the agent I spoke to said his “supervisor” was aware of the letter, had read it, and “she knows exactly what you are talking about.” He then confirmed the letter was a hoax.

This could be written off as an act of one rogue rep, except for the fact the earliest reference to this letter is October 24, 2013, and it’s still being used by several, at least what appear to be, active IBOs. WUN claims to have an ever expanding “compliance department” which closely monitors field activity. Yet, in spite of it being one of he most egregious policy violations an IBO could perform, and the creation of a legal red flag large enough to cover Texas, they’ve somehow missed this for almost seven months?

State Registration

There are five states that require MLM companies to formally register before they are legally allowed to conduct business in those states. They are Montana, Louisiana, Georgia, Massachusetts, and Wyoming. As of May 16th, 2014, Wake Up Now has, according to each state, been operating in four of them without being registered. They are Georgia, Massachusetts, Wyoming, and Montana.83 According to Louisiana, when I checked on May 5th they were not registered, but when I checked all five states again, this time using other DBAs and variations of “Wake Up Now” (e.g. WordCraft Systems, founder’s names, Wake Up Now with and without spaces, both Inc. and LLC, etc.) I was told Wake Up Now, Inc. – the identical name checked previously – had been registered in this state since 2009. The other four states reconfirmed no such MLM company was registered. Only Massachusetts hedged my asking for WUN’s EIN number to be certain. Which WUN refused to provide.

It does seem odd that they would only register in one of the five states, but even weirder that the other four would get it wrong, twice each. I also don’t give much weight to this. Even if they aren’t registered, if they get busted they pay a small fine and a registration fee. That is, except for Montana. They play a little rougher. But hey, it’s Montana.

Update (9/3/14): I have been notified by a WUN representative that WUN has, in fact, been registered in all five states since Octbober of 2013. This may very well be true, but in the absense of any participation by WUN during the researching of this review, all I can go by is the information provided to me by representatives of these states.

Pump & Dump

“Pump & Dump”84, as it relates to stocks, is a scheme usually associated with pink sheet, or over-the-counter penny stocks. That is, those worth a few pennies with very little trading activity – like Wake Up Now. The reason such stocks are more vulnerable to P&D schemes is that they are much easier to manipulate since fewer trades can effect the share price. Keep in mind, a stocks price is more of a gauge of what the market thinks a company is going to do than what they’ve done. So, buy some stock for, say, a nickel, “pump” it up by making claims about how well the company is about to do, then “dump” it for five bucks a share and you’ve made a tidy 9,900% profit. And as you can see from the chart below, this is about what happened back in 2011. Only it went from a nickel to $5.50.

WUN 5 Yr Stock Chart

Granted this was before the management shake up that brought in the current team, and a management shake up can stir trading activity and market optimism. But it was about six months before the changeover, so the timing doesn’t jive. And I can find no other explanation for why WUN’s stock price would pop over 10,000%, then be back down to under a dollar four months later, and back to pennies by early 2013, followed by many months of virtually no trading activity at all. Either way, this wasn’t on the current management team’s watch. However, a similar pattern has recently reappeared.

WUN 1 Yr Stock Chart

Once again, nothing of significance occurred last March to account for the spike in daily trading activity to over 10,000 shares, after practically none at all for almost two years, and the price skyrocketing from five cents to over $8.00 (peaking in intraday trading to $10.70 on March 31st). And now, as the price begins to fall, there has been not a single share sold in three of the last four days85. Investor interest went from liquid nitrogen to boiling to ice cold in two months.

Something is seriously wrong with this picture. I am not at all suggesting anyone in WUN management is doing the painting, or at least not deliberately to execute a Pump & Dump scheme. The optimism and hype coming from them and field leaders didn’t begin, or wasn’t even dialed up, in March. Nor can this be explained by over-exuberant IBOs who are not sufficiently educated in stock market investing, as some WUN supporters have suggested. As can be seen from their internet activity such exuberance towards WUN began a full year before there was any for their stock.

WUN Alexa Rank

Alexa ranking for WakeUpNow.com86

WUN Alexa Search Visits

Searches for Wake Up Now related terms.87

WUN management claims they have produced their most recent financial disclosure in response to this unusual trading activity, so potential investors can be properly informed of their current condition. Yet, at the same time, they continue to claim their financial losses are all part of their plan to build the infrastructure to support their future success. “As for not showing massive profits in the early stages, we’re in some pretty good company. Amazon, Facebook, Tesla and other technology companies did not show profits in their early years,” only to become billion dollar behemoths (although Amazon is still losing millions). And their losses, they claim, are mainly due to their reinvestment in the business to accommodate their imminent growth. In other words, they’re saying all the things that would encourage investors to buy their stock.

Again, I don’t believe there’s a deliberate Pump & Dump scheme being perpetrated here, at least not by management. The timing doesn’t add up. Another compelling theory was that competitors to WUN were attempting to buy up all the stock at pennies a share to prevent WUN from raising more capital. But that doesn’t add up either. Most of the trading activity has been after the share price started to pop, so if this were the work of competitors they are only providing more capital to WUN. Whatever the reason, trading aberrations like this is what makes you a blip on the SEC radar, and that’s the last thing WUN needs right now. Especially when they’re telling their IBOs, and potential shareholders, “Wake Up Now is making money”8889 while you’re actually losing millions of dollars.

“This is what the typical network marketing company looks like – it’s a pyramid.
And there’s only a few people, top distributors at the top, get paid.”
– Kirby Cochran90

Is Wake Up Now a Pyramid Scheme?

Allow me to begin by saying, MLM downlines don’t even remotely resemble a pyramid shape. They look like roots of a tree, and when the number on each level is plotted out it takes the shape of a diamond. In fact, one of the most ironic things about multilevel marketing is that this is the only type of business that does not form a pyramidal hierarchy! Nor do only those distributors “at the top get paid”. Large branches can form off of that root-like structure at any point along it. And Mr. Cochran, the anti-MLM critics don’t need your help.

That mini-rant was irrelevant, but cathartic. Thanks for indulging it.

Followers of my Inside Network Marketing91 video blog series will recall episode #2: What’s a Pyramid Scheme92, where it was revealed that the Federal Trade Commission cares little as to how much commissionable product is purchased by the affiliates themselves. Rather, they are more concerned with the motive for those purchases. That is, were the products purchased based solely or primarily on their intrinsic value to the end consumer, and would have been purchased even if there were no income opportunity attached? Or, are they being purchased solely or primarily as a means to qualify for income in the compensation plan?

For example, Fortune Hi-Tech Marketing required their reps to purchase a “bundle” of legitimate products ranging in cost from $130 to $400. The more products you purchased, the more commissions you qualified for. Most reps bought more products precisely for that reason. The FTC recently closed FHTM, claiming it was operating as an illegal pyramid scheme93.

Same with BurnLounge. In the FTC’s complaint they explain94:

Participants join BurnLounge through the purchase of product packages, of which there are three: (1) the Basic Package, which sells for $29.95 per year; (2) the Exclusive Package for $129.95 per year plus $8 per month; and (3) the VIP Package for $429.95 per year plus $8 per month. More expensive packages provide the participant with an increased ability to earn rewards through the BurnLounge compensation program. (emphasis added)

The FTC, and subsequently the courts, determined that the value of these packages to a non-participant customer (the evidence for which BurnLounge argued was “overwhelming”) was not even “remotely persuasive95.” The crux of the FTC’s claim was based on the “plethora” of other sources for the BurnLounge product (downloadable music), often at a lower price.

Case studies that hit a little closer to WUN are FTC v. (aka MallVentures)96, Michigan vs. Km.net97, and FTC vs. BigSmart98. These were all examples of companies that sold online shopping malls that offered a variety of products from other vendors. Each set up affiliate accounts with these vendors where the distributors would get a small discount on all the products purchased through these vendor websites, and a small affiliate fee would be paid to the promoter, such as, BigSmart or The promoter would use the affiliate fee to pay commissions on a multilevel basis to the distributors who also bought the web mall. However, they would also charge several hundred dollars for the web malls themselves, which were commissionable products. Since the overrides paid from affiliate fees, from the actual goods purchased via the mall, were miniscule (gumball money), there was no way they could support an MLM opportunity. Legal authorities adjudge these web malls, or “shopping portals,” to be sales aids which only distributors would buy. Obviously, no one bought the web mall that wasn’t a part of the income opportunity.

The Hub is “simply a search engine… (with) 6,000 cash back vendors.”
– WUN CEO Kirby Cochran99

Granted, WUN is not doing the same thing, exactly. But they are in the ball park. So the question becomes, how close are they to home plate?

Purchase Motive

Are there significant numbers of people paying $99.95 a month for WUN’s Platinum Package, who just want the package? Not, is there, in theory, sufficient value to attract customers, or would someone purchase it who is not an IBO, but are they actually doing this? Are there people actually paying $99.95 for a collection of products that can purchase for the same price from the individual vendors (Taxbot, Invisus and Transparent Language), and other products (or comparable ones) that can be found online for free (travel clubs, financial tracking, free items, and grocery coupons), and a Market Place for discounts and deals that demonstrably does not often offer the best discounts and deals?

And, why would anyone want to purchase all of these disparate products unless they were actually in the market for all of them? Need a tax tracking system? Go to and sign up. Are you one of the likely fraction of one-percent of the population who wants both a tax tracking system and wants to learn a new language? Then visit after you’re finished signing up for Taxbot – and pay $49.94 per month instead of $99.95. What? You are actually in the market, right now, that is, you actually want, a tax tracking system, to learn Spanish, and an identity protection and internet security system, too? Even then you’d still be better off to just pay the $79.89 per month (or $51.60 if Invisus is an individual plan, and you pay for Transparent Language annually) by signing up for them individually. And, again, travel clubs, discount & deal sites, comprehensive financial tracking sites, and grocery coupon sites can be found all over the net, for free.

Mr. Cochran states, “We pay people to be able to save money and get paid when other people shop and save.”100 But WUN IBOs are getting paid a minute fraction of their earnings from people shopping and saving, and most of their income from the sale of Platinum Packages. In fact, nothing else ever need be purchased. Let’s say Bob enrolls ten IBOs who build a group of 1,000, all buy Platinum Packages and all of them enroll in every product (Taxbot, Invisus, Transparent Language, etc.). Carol enrolls ten IBOs who build a group of 1,000, all buy Platinum Packages and none of them enroll in, or use, any of the products. Bob and Carol will make the same income.

A key question is, how many IBOs actually use any of the products within the HUB? If they’re just buying Platinum Packages without using anything within it, over just one or two of the products, this is very damning from a legal standpoint. Sure, one might argue, if someone buys any product from an MLM company and chooses not to use it, how is that the fault of the MLM company? But, that same MLM company, while making the case for their legality, would also have to argue that the large majority of their products are being sold to those who genuinely wanted them, and would have purchased them anyway even if there were no income opportunity to qualify in. So the “it’s not the company’s fault if the purchaser doesn’t use the product” argument paints the arguer in a very legally vicarious corner. Why would someone who genuinely wants a product, and whose decision to purchase it is based only on their desire to use it, not use it? However, purchasing a product as an obligatory step to income qualification, which would not have been purchased otherwise, would seem to be the most valid explanation for purchasing a product that is never used.

I would have liked to have asked WUN for this usage information, but… like I said.

Those close to WUN have suggested Thunder is now “outselling everything.” However, I’ve also learned that all of this product was sold before it shipped – so how could these high sales be based on the value and effectiveness of the product? I know some will claim here that I am trying to find fault, but I swear, I’m trying to look at this as logically and pragmatically as possible. And through that lens all I see are people basically saying, “I’d rather meet my 90 CV qualification by buying four 24-packs of an energy drink, regardless of how much energy it gives me or what it tastes like, than by purchasing a Platinum Package. And if this reasonable, albeit somewhat cynical, theory is even remotely accurate, there is no doubt what the motive was for selling out the first run of Thunder with these multi-24 pack purchases – and it can’t possibly be due to the value of the product because no one had even tried the product yet!

It’s somewhat subjective, I suppose. But in my well-educated (24 years of full time industry study and analysis), professional, expert opinion… there’s just no way in hell any significant number of people are paying $99.95 for a Platinum Package for any other reason that to qualify for income by enrolling other IBOs with $99.95 Platinum Packages.

Yes, yes, I remember a few pages up where I gave Platinum Packages only quadruple weight that results in a 42% CV-to-price ratio. Again, I was giving them the benefit of the doubt by assuming Platinum Packages sell at only four times the rate of most other WUN products. Personally, I believe, based on all the circumstantial and anecdotal evidence I’ve seen, Platinum Packages and Thunder sell at more like six to eight times the sales of the rest of the line combined. Yes, that will raise the CV ratio – and the right eyebrow of state and federal regulators.

WUN recently published the aforementioned press release claiming to have amassed “over 100,000 customers.” That’s impressive. Or, is it? Is this 100,000 current customers? How is WUN defining customers in this count? Does this include D1s and D2s who have enrolled others, but haven’t completed IBO enrollment yet? If someone enrolls as a free customer, how long are they counted before their inactivity drops them from the count? I’m not suggesting WUN doesn’t have good answers to these questions, but rather, there’s no way of knowing if this 100,000 customer figure is impressive without knowing the answers to these questions. I asked, they didn’t answer. If (emphasis on the IF) they are counting all those who simply sign up for free, regardless of what they do after that, and those who have enrolled one or two others (D1s and D2s) but haven’t filled out the IBO Agreement yet, as “customers” then this not only is not at all impressive, but completely betrays their claim that they don’t “play games” with their customer numbers. And these people are defined as customers elsewhere.

There’s also plenty more evidence that WUN is all about enrolling IBOs with Platinum Packages (or four 24-packs of Thunder, sign unseen and taste untasted). During the online enrollment process, after entering your name and email address, you are brought to a screen with the prominent notice, “Your next step is to earn 90 volume and get qualified.” That next step displays the three packages, with Platinum above and in the middle of the other two, with a gold “Recommended” banner draped over the corner (not one word about Thunder). It also just happens to be exactly 90 CV. The little instruction video that accompanies each step (which is otherwise a cool idea) is 42 seconds long. Thirty-two is spent talking the applicant into buying the Platinum Package, and the last 10 seconds are spent trying to talk them out of buying the Silver and Gold packages.

WUN makes no distinction between Preferred Customers and IBOs. When anyone enrolls (which is free) they all start out as Preferred Customers. If they choose, they can become an IBO by completing the IBO Agreement and agreeing to the P&Ps. However, all those who enroll go into their sponsors downline, can immediately begin recruiting (even though they won’t get paid until they upgrade to IBO), and immediately have full access to a back office suite of business building and downline/sales volume tracking functions.101) Within their P&Ps, section 12.8 states: “The WakeUpNow Hub gives IBOs and customers access to online products as well as important information to help build their businesses. IBOs will be able to access their TeamOffice within the Hub.” (emphasis added) Why would a Preferred Customer, or anyone whose motive to join is just to get access to the product, want “important information to help build their businesses?” It’s almost as if WUN is acknowledging that no one is joining just to get the products.

The WUN mantra is “B3H3G3 – Bring 3… Help 3… Get 3…” Not three customers, but get three who will then bring in three and help them get their three. Why would customers, who have no interest in the business and only want the products, need help getting three? Again, the emphasis is entirely on recruiting.

“An IBO may also voluntarily cancel his or her IBO Agreement by failing to renew the Agreement on its anniversary date or by failing to pay his / her monthly website fee.”102 On the IBO enrollment form, and only on this form, it reveals that the cost for a Platinum Package is actually $89.95, plus a required $10.00 for an “IBO Marketing Suite,” which includes a replicated website and an “IBO Back-Office to help you build your business.”103 This begs the question, why is it still $99.95 for Preferred Customers?

It was stated on a recent WUN podcast, “It’s not about bodies; it’s about sales volume.”104

Yet, the GV of each of the first five ranks are all precisely divisible by 90 – the commissionable value of a Platinum Package.

“Management believes that its efforts to develop a robust product offering with a compelling value proposition will continue to attract distributors both in the United States and abroad”105 (emphasis added). This sentence started off well, but ended up practically being an admission that they are only trying to attract distributors. In the following sentence they state, “By simultaneously growing the Company’s distributor base while adequately containing its fixed costs, management expects to have positive growth in earnings.” (emphasis added)

“To increase our revenue, we must increase the number of and/or the productivity of our distributors. We rely primarily upon our distributor leaders to recruit, train, and motivate new distributors… Our operating results could be harmed if we and our distributor leaders do not generate sufficient interest in our business to retain existing distributors and attract new distributors.106

This should all say, attract customers… grow the company’s customer base… increase the number of our customers… generate interest in our products… retain existing customers and attract new customers. However, WUN clearly knows which side of their bread is buttered – and they’re not buttering up their customers.

“To set the record straight, WUN has always made retail sales a priority
BECAUSE trends show we are excelling in that area.
There has always been a focus on retail as our many affiliates would attest.”
– WUN Response to BehindMLM Report

I can’t speak for WUN affiliates, but this objective, third-party analyst doesn’t see any emphasis on retailing at all. And unlike other WUN critics, I really wanted to find it!


COMPANY: WUN appears to be in very poor financial condition, but their growth does appear to be in momentum. However, this momentum began back in early 2013, and I see little evidence of an expansion of infrastructure at a level that would account for their record net losses during this record revenue year. It is my opinion that these losses are mainly due to excessive overhead, primarily as a result of an over-paying compensation plan. And their expansion into South America is baffling. On the positive side, they are expanding into Asian countries, and expanding their product line into more conventional, tangible products. They appear to have great, in house, customer service – once you reach them (they do need to pipe in some classical music during the long waits on hold). Although BBB complaints are higher than average, they have promptly and positively address all of them, which is what counts most. But those bright red net losses really need to turn black, soon.

PRODUCTS: Their energy drink product appears to be based on little more than carbonated water, flavoring, and caffeine, and their limited personal care line appears to be a fringe addition that is barely recognized. The rest of the line appears to be a collection of online products that are either free, or can be purchased for the same price, to in some cases occasionally for less, directly from the original provider, and the product “discounts” and “deals” are only true for those who can’t find the “Shopping” menu option on any Google search page. Their flagship product is a collection of these online products called the Platinum Package sold for $99.95. Its component parts are, in my judgment, of lesser value. Invisus, TaxBot, Transparent Language and their finance product are all excellent products unto themselves. You just don’t need WUN to access them.

COMPENSATION PLAN: The WUN compensation plan is its one redeeming aspect. Relatively speaking. It pays literally nothing until a participant enrolls three people, no matter what group volume is generated under the first two, and hierarchical requirements make the higher ranks exceptionally harder to achieve, including those ranks that are most likely to produce a comfortable living income. The plan is also ripe for manipulation and abuse by clever participants, and includes an essentially meaningless “Customer” requirement that will do little to quench a regulator’s thirst for outside, “non-participant” customers. However, it’s one of the best plans I’ve ever seen for those who are looking for only a supplemental income of a few hundred dollars per month. All other issues aside, $600 a month for a downline of a dozen people each placing a $99.95 order is extremely attractive.

POLICIES & PROCEDURES: I love their compliance policies regarding income claims, and their policy of not terminating IBOs who ask for a refund is uniquely distributor friendly. But, their refund policy is atrocious, and their claw back policy is worse. Their six month, 300 CV quota is entirely unique to WUN, and hopefully never actually enforced – because it’s ridiculous. There are a number of other policies unfriendly to reps that are adopted from standard industry P&Ps.

LEGAL CONCERNS: Having good compliance training and an Income Disclosure Statement are strong plusses. Getting your reps to actually use them is another matter. However, graded on a curve (otherwise most MLMs would fail this one) WUN reps deserve a B-minus. They’re a long way from “excellent” (who isn’t?), but after about three hours of doing nothing but watching and reading dozens of their pitches they are definitely better than most. However, their aggressive raiding of other MLM organizations (and there’s a lot more than one company that’s seriously pissed off about this) is probably going to get ugly if WUN doesn’t reign them in. It’s unlikely the unusual trading patterns are due to a Pump & Dump scheme, but this kind of quirky activity can get the attention of the SEC. If so, they may find that what WUN management is telling shareholders (current and potential) and their IBOs regarding their financials, present and future, are not consistent, and in some cases contradictory. I’m giving little weight to the state registration issue, or the high number of BBB complaints, but the bogus FTC email is also serious. Not so much for the email itself, which never really went viral and is finally being addressed by corporate (or, so I’ve heard), but more because WUN is no longer just a face in a crowd of over 1,000 MLMs to the FTC. It shined a spotlight on them, and the FTC is now paying attention. The FTC is the opposite of a Cheers bar. It’s where you absolutely do not want them to know your name. And now, they might see the same thing I see, which is lip service to customer acquisition and an overwhelming emphasis on recruiting, and on buying in with Platinum Packages – a product that, in my judgment, has little intrinsic value and virtually no market outside of qualifying IBOs. WUN desperately needs to expand the product line into more tangible, proprietary products, and phase out, or at least deemphasize, their eclectic product potpourri called Silver, Gold and Platinum Packages.


This is the first review I’ve ever written that made me uncomfortable. Although I’ve been paid by companies to do private reviews of themselves, it’s also the first one I’ve ever been paid to write by others not associated with the subject of the review. This is really a no-win situation for me. No matter how well I make my case, or how much supporting evidence I provide to defend my point or opinion, if it’s at all critical of Wake Up Now, it will be perceived by many as gratuitous, or at least not objective. And, of course, that’s how WUN will spin it. That’s why I’ve applied extra effort to include verification, and some legal, mathematical or historical background to explain the concepts or theories behind my conclusions – and why I tried so hard to get them to discuss those conclusions with me. If anyone feels compelled to attack those conclusions, or me personally, on this basis, then allow me to make it easy for you. Let’s assume I am biased. I’ve written an obligatorily negative review of WUN to appease my clients. I’ve sold my honor, trust and credibility that I’ve built up over 24 years for less than I typically earn from one expert witness gig. I’m guilty. I’m a slime ball.

Now, why am I wrong?

I’m not at all suggesting I’m not, at least in some technical aspects of their financials, products or comp plan. There’s always the risk of not having my facts 100% straight when the subject of my research refuses to assist me in that effort – who then inevitably accuses me of “not getting his facts straight” once the review is published. In fact, I have two pages of questions I’d very much like to ask them, and one of those pages I did send to WUN president Jason Elrod. These were the simpler, one or two sentence answer type of questions. I received no response.

In fact, when WUN was first made aware that I had begun this review I received an invitation from Mr. Elrod to visit their home office and they seemed more than willing to answer my questions and address any concerns. This was very early in the process and I had not yet compiled any questions or concerns, so asked that we speak by phone in a week or two. As a matter of course, I usually decline home office visits (even when all expenses are paid). I can’t afford the time away from the office, and I don’t want to be influenced by emotional attachments. I want my reviews to be pragmatic, fact based, and my opinions to be based purely on reason. And for the last ten days I have made every effort to have that conversation, and WUN management has declined.

I have had review subjects who welcome my grilling, and come into the process confident they can address any concern I may have. They were never “too busy” to participate, and were loath to allow the review to be written without their side of the story being told. However, besides two very helpful links from their VP of Sales Andy Benis (thank you, Andy), and a limited email exchange from their consultant Troy Dooly (thank you, Troy) the only other response I have received from WUN, besides declining to speak via an intermediary, is a letter from their attorney accusing me of lying about my intent of objectivity, lecturing me on how to write a disclosure, and threatening possible legal action.

I am aware of the First Amendment, and what’s called a SLAPP suit, so I have no concerns regarding the opinions and conclusions I have stated, and I stand by them.

In WUN’s 2013 Information and Disclosure Statement they declare: “There has been no independent ‘due diligence’ review of our affairs or financial condition.”

There has now. I just wish WUN had chosen to participate in it.

Len Clements
Founder & CEO
MarketWave, Inc.



  3. I’m saying “in part” only because the number of hours I’ve spent on this project far exceeds the number of hours I’m being paid for. 

  4. Initial Disclosure Report, Part A. 






  10. The majority of which they either won or were dismissed. 

  11. Before other WUN critics blast me for this, yes, I am aware of the Emerald Homes issue, but do not consider it relevant to this review. That was a long, long time ago, in a galaxy far, far away. 

  12. (2009-2010) 

  13. (2010-2013) 

  14. Bleeding out, depletion. I paid $200 for these Verbal Advantage CDs. I’ve got to use these words for something! 

  15. (16:50 mark) 

  16. (10:11 mark) 

  17. US energy drink sales were over $13 billion in 2013. 

  18. Go Fast is not an MLM company, nor does it even have an affiliate program. 




  22. (1:25 mark) 


  24. e.g. InterNACHi members can purchase TaxBot for $9.99 per month or $99 per year. 

  25. e.g. Nu Skin offers TaxBot to its salesforce for $10.00 per month and 0 CV. 

  26. (3:20 mark) 


  28. As of May 18th. The featured products change from time to time. 









  37. This discount is 22% of call billing. However, AT&T discount programs are common, and the best way to get a discount on AT&T mobile service is to switch to practically any other mobile service. 



  40. Group Commissionable Volume. 

  41. 80% plus four more levels of 5% each. 

  42. Based on a 2010 MarketWave survey of 39 of the largest MLMs who use such a point system. 

  43. (Page 7) 



  46. MarketWave, Inc.; 1992-present. 

  47. (12:45 mark) 



  50. (0:40 mark) 


  52. (25:50 mark) 



  55. (Glossary) 


  57. Where the influence Platinum Packages had on the overall ratio was only quadrupled. 



  60. (3:30 mark) 



  63. September, 2008 Direct Selling News 

  64. Current MarketWave Survey (443 responses). 

  65. (5:10 mark) 

  66. (8:10 mark) 

  67. As declared within their 2010 and 2013 Financial Disclosure statements. 

  68. Which came from a Nu Skin survey in 1994; MarketWave’s survey places the average at 2.1. 

  69. (31:10) 

  70. (4:40 mark) 

  71. Since their P&Ps were last updated Tennessee has adopted a 12 month refund requirement. 


  73. Market America v. Rossi (1:97-CV-00891 


  75. Policies & Procedures, Section 3.1.5. 



  78. WUN management has stated that both annual disclosures were produced in response to increased trading activity. 

  79. Based on a reliable source, that auditing of their financial disclosures is in progress. 



  82. (2:40 mark) 

  83. Montana’s statute requiring registration offers an exemption for companies that are members of the Direct Selling Association. WUN’s application is “pending” but they are not yet a member of the DSA. 


  85. As of May 15th. One trade of 900 shares took place on May 13th. 



  88. (18:00 mark) 

  89. (4:00 mark) 

  90. (12:45 mark) 









  99. (6:50 mark) 

  100. (11:30 mark) 

  101. Policies & Procedures: Qualified Preferred Customers (Page 5 

  102. Section 11.5. 



  105. 2013 Information & Disclosure Statement, Page 12. 

  106. 2013 Information & Disclosure Statement, Page 36. 

Inside Empower Network

A Rare, Authentic, Objective Review by a Non-Participant

By Len Clements © 2013

Around August of 2012, not long after Zeek Rewards was hit with the regulatory trifecta (the SEC charged them with being a pyramid scheme, and Ponzi scheme, and an unregistered security), I began to receive an ascending number of inquiries concerning Empower Network1 I don’t believe the timing was coincidental. A lot of people had just gotten a taste of quick, online derived cash with relatively little effort, and they found it delectable. When the SEC took Zeek off the menu, there was an unsatiated craving for more entrées that boasted a super-size serving of dough with the expectation that someone else was going to do a lot of the baking.

And Empower Network was discovered. And their patrons appear to be gorging themselves.

I’m not suggesting Empower Network affiliates don’t apply effort in the creation of their income. They do. So no, it’s not an unregistered security. Nor am I suggesting they are a Ponzi scheme. They are not, nor do I see anything that would even remotely suggest otherwise. So let’s eliminate those two issues right up front. But after a thorough, six month investigation involving a survey of 104 active affiliates2 and a marathon six hour interrogation of CEO and co-founder Dave Wood.3 plus another hour-and-a-half with co-founder David Sharpe, it appears there are still some dark spots on Empower Network’s X-ray, and a couple urgently warrant a biopsy. Having said that, and much to their credit, one of the most troubling diagnoses – let’s call it Acute Adrenocortical Income Claim Carcinoma – seems to have resulted in emergency surgery followed by an aggressive after-care regimen of preventive medicine. Considering the extent to which it has metastasized, the prognosis is guarded.

This is just one example of several where concerns that I raised during the non-public investigative process resulted in a pro-active attempt at resolution. What ever red flags I may present in this review, I am convinced none are deliberate, and all are being, or will be, addressed.

Whether it’s enough, and in time, or too little, too late, only time will tell.

Product Issues

Empower Network offers essentially five products:

1. The $25 monthly “Fast Start” Training
2. The $100 monthly “Inner Circle”
3. The single $500 “Costa Rica Intensive”
4. The single $1,000 “15K Formula”
5. The single $3,500 “Masters Course”4

If you want to go “All In”, which is highly and universally encouraged by virtually everyone, from the founders to the newest affiliate, that will cost you $5,125 for all five items, plus a continued payment of $125 monthly. The bulk of this material is related to blogging, Search Engine Optimization (SEO), Keywords, and other high level technical training that most affiliates won’t even get to for weeks, and could simply upgrade to them when they are ready. Perhaps there’s another motive for going “All In” right from the start. But I’m getting ahead of myself

Also, it’s important to understand at this point that using an Empower Network blog primarily to sell the Empower Network products and MLM opportunity is legally problematic. I’ll explain why in the Legal Issues section below. For now, let’s just say there is a good reason why Empower Network adamantly asserts that most of their affiliates are not using Empower Network blogging products and training just to market Empower Network blogging products and training.

The products described below are often revised. This is just an overview of their current contents.

Fast Start Training

The “Fast Start” training includes these eight items5:

1. A ready made website just for you – Saving you valuable time, effort and money.
2. Hosting for your website, which is free – Saving you money.
3. “Core Commitments” check list – To begin right away and keep you on track.
4. Lead capture pages – That is ready for you to capture prospects ASAP.
5. A ready to go presentation page – Split tested for high conversion rates.
6. Free automated emailing system – Keep in constant contact with your members.
7. Automated accounting back office – Sort all financial statements accordingly (E Wallet).
8. 8 complete HD video lessons that put you on the FAST track to making money – Free education only on what you need to know, from Leaders who know.

The training consists of 2.6 hours of video that describe the eight “Core Commitments” one must adhere to to achieve financial success with blogging. They are:

1. Activate Your Payment Account
2. Blog Daily
3. Market Daily
4. New Member Coaching
5. Empower Hour
6. Daily Audio
7. Read Daily
8. Attend The Events

The first Commitment is entirely focused on activating your payment account for the purpose of accepting orders for Empower Network products. The text on the title screen states, “Here’s how to setup your e-Wallet, and activate your 100% commission payout…”. Within the first few seconds Dave Wood declares, “You’re going to find here that there is an opportunity to make more money selling our products and services than I’ve ever experienced in the entire affiliate marketing space.” He goes on to say, “In order to pay 100% commissions you’ve got to have a way to process Payments.” So, you’re not setting up a payment solution to accommodate your primary MLM program, or your dog grooming business, or to raise funds to fight cancer (all alleged uses by some Empower Network blog users), but rather to take orders for Empower Network products. All doubt is removed as to whom their indented audience is when Wood suggests, “First thing you need to do is activate your affiliate account…” and then welcomes the viewer “as an official affiliate here at Empower Network… Our goal is to pay you 100% commission on all the products that you sell here at Empower Network, on all our products, that’s what we do.” About half of this first 32:37 training module is devoted to a detailed explanation of the Empower Network compensation plan.

In the second module, Blog Daily, while describing the value of quality blog content, Wood states, “They click on that (Empower Network) banner on your blog – everything on your blog at Empower Network is affiliate coded to you. It means that if you create content and somebody sees it and they click on that banner and they opt in, you get the lead, we do the selling. If the person buys, you get the commission, if you’re an affiliate”. This begs the question, why would anyone who is not an affiliate have the Empower Network banner on their blog?6

The third module, Market Daily, begins with Wood’s saying, “If you’re watching this video obviously you’ve written your first blog post, you’ve activated your affiliate account, because obviously you want to make money while you’re blogging, and if you haven’t done those things just pause the video and go back and do them.” Later the viewer is encouraged to reinvest their Empower Network commissions into marketing.

David Sharpe says they’ve created a platform that’s, “kind of an all in house university that has all of the moving parts and the only thing you need to do is send traffic, of course if you’re an affiliate. If you’re not an affiliate I would just take these principles and apply them to your business.”

Within this module there is no actual training on where to advertise and how to do it, other than Craig’s List, and be willing to make mistakes. They say you’ll have to buy the 15k Formula for that.

It is obvious on its face that the fourth and eighth modules, “New Member Coaching” and “Attend The Events”, are exclusive to Empower Network affiliates. “If you’re an affiliate”, Sharpe suggests, “(member coaching) is going to increase your sales two or three times.

Segment 5, titled Empower Hour, refers to “being on every call”. The call they are referring to is their Monday evening call titled “The Empower Hour”. “We talk about what’s most relevant to Empower Network that week”, Wood says. For example, “All of Empower Network’s new product launched are announced on the call”.

Lesson 6, Daily Audio, does refer to the value of listening to great orators like Tony Robbins and others, but eventually Wood suggests, “You need to listen to audio daily. How are you going to do that? You have to be a member of the Inner Circle… I personally will not help anyone who’s not in the Inner Circle.” The Inner Circle is Empower Network’s $100 per month audio product.

The seventh segment commands that Empower Network members should Read Daily. It’s actually a great commitment for anyone looking to improve their life in any way. Between the ages of 18 and 30 I read, cover to cover, two books. Theodore Sturgeon’s “More Than Human” (because it was assigned), and Charlottes Wed (to my step daughter). Between 30 and 54 I’ve read 74. In my single best income earning year during that period I earned more than I did from the ages of 18 to 30. Combined. Sure, there were other factors. But avid reading was definitely one of them.

Within all eight videos the viewer is encourage, at times repeatedly and emphatically, to go “All In”, both emotionally and financially.7 For example, in Lesson #4 you’re told, “You’re not going to make big money unless you go all in.”

Their Fast Start training is also seriously obsolete in that it refers to their long since omitted $250 priced product and no mention of the $3,500 “Masters Course”. The last time going All In cost $875 was about a year ago.

I also question how realistic Wood and Sharpe’s expectations are here. This reminds me of my freshman year of high school when, after explaining to an English teacher that my homework assignment was late because I was getting too much homework, she responded, “But this should only have taken you about 30 minutes”. I then reminded her that she was one of six teachers who were giving me “only” 30 minutes of homework. I suspect Daven’Dave found their minimal time recommendations reasonable while compartmentalizing each section of their somewhat ironically titled Fast Start training. But did they ever total them up? I did. The daily time requirements to fulfill these mandatory Core Commitments, per their stated recommendations, conservatively amounts to about four hours – per day! That’s not counting the Monday call, but listening to at least one a day from the archives (they average 1:20 in length). This is aside from the 209 total hours of actual video and audio training one would be overwhelmed with if they went All In. Assuming at least another 30 minutes a day of partaking in this training and a husband or wife with children – will probably soon have neither.

Up until late July Empower Network was catching a lot of online heat from critics for selling a $25 monthly blogging platform based on WordPress, which is free. Although there were other items included in this $25 package, the argument was that it wasn’t worth $25 a month to anyone other than an affiliate, and even then the value was dubiously focused on commission qualification. I would have agreed with this criticisms. Emphasis on the past tense. I’m not an SEO or “Info marketing” expert, but the information provided in the Fast Start training is overtly fundamental and basic, and the marketing tools (templates, banners, sales text, etc.) are clearly Empower Network-centric. And yes, the blogging platform itself was free.

However, I’ve witnessed the video streamed presentation at their recent Denver event where their custom “2.0” blogging platform was unveiled (called ENV2). And it simply rocks. So much so that had I not already went through the hellish process of custom building my own video and audio blogging platform I would seriously consider paying $25 a month for Empower Network’s. As a non-affiliate customer.

Inner Circle Training

For $100 per month ($1,200 over a year) you become a member of the “Inner Circle” which currently provides access to 90 mp3 downloads, totaling over 129 hours of audio, that allegedly contain “life-changing information… not only about the technical side of building your business online but also marketing strategies that will help you create content with the potential to turn your visitors into buyers.”8 You also continue to receive a new recorded interview or training each week.

The value to such information is subjective, and who’s to say it’s not worth $1,200 for a year of it? I did listen to a few of these audios and they were too long, of low sound quality, and involved a lot of rambling and back stories. One 90 minute recording about closing techniques didn’t even begin to address the topic until the 30 minute mark. This seems to be a common criticism among online critics. But still, if even a single technique, or one simple strategy, works for the buyer the subscription was probably worth the $1,200 for that year. But what about next year? Or the year after that? How many times, in how many ways, can you recite closing techniques? Or motivate someone to “take action”? Or explain to them how to select the best meta-tags? How will Empower Network justify the value of this product early in year five, when the cost has exceeded $5,000? Yes, there are myriad topics to cover, but the list is finite. The more and more the content becomes repetitive, the harder it could be to show that people are paying into the thousands of dollars for information they find of genuine value, and not just to remain qualified for commissions. I only sampled ten of them and was starting to find them repetitive.

Paid members can access all these audios online9 or downloaded as an mp3, thus are easily duplicated and transferrable. How valuable will they be when literally tens-of-thousands of Empower Network affiliates possess them, and offer them for free as part of their own team’s training (as some are already doing)?

The biggest knock on this product is that these audios are just archives of their Monday Empower Hour calls, which are publicly available for free every Monday night at 9:00 pm EST. You’re essentially paying $100 a month for little more than access to an archive of 28 past calls.

So yes, it’s value is subjective. It’s a matter of opinion. In my opinion, after the first month, and all audios have been downloaded, it’s value drops to nil. A call replay line is available throughout the week, so you’re not even paying for the convenience of being able to listen to the Monday call any time you want, rather than live on Monday.

Costa Rica Intensive

The $500 Costa Rica Intensive consists of 11 hours of video training and, according to several online descriptions, a 42 page online manual10 that appears to focus more on generic blogging, online marketing, and MLM building techniques. No reference to Empower Network is made in the first ten videos (totaling 7.8 hours) considering this was the event Wood conducted at his home in Costa Rica a little before Empower Network was launched (where 13 attendees each paid $2,997).

For $500 I would also expect a much more in-depth exploration of each topic. For example, during a session on Search Engine Optimization training the speaker lists only two objectives that must be mastered. Regarding the first one, related to “page relevance to search terms”, he says, “The details of this part I can’t get into right now”. The topic was revisited, but not in any detail. For 500 bucks, and certainly if I were one of those who paid $2,997 to attend live, I’d want details. Later he introduced the subject of “backlinks”.11 He asks the audience behind the camera if they all know what back links are. I must assume they all said yes. He responds, “You all do? So I don’t need to go over that.” But what about all the Empower Network affiliates and customers who paid for this training?12 He also suggests it’s highly beneficial to acquire backlinks from “authority sites” who’s domain name ends with .gov and .edu (government sites or one belonging to an educational institution). There was no mention as to how one would accomplish this ambitious goal. Students were instructed to add keywords to their article’s title tag, head tag, keyword tag, and alt tag. Only alt tag was explained (although I did learn a neat trick).

Lesson 10, How to Create a Compelling Story, was nothing more than a series of ten testimonials designed to encourage others to attend future Costa Rica MasterMind evens. It appears they simply took a promotional video and designated it a “product”. Curiously, four of the ten personal websites that were given out as part of each person’s intro are now inactive and, not so curiously, all ten speakers went on to join Empower Network.

The 11th “bonus” video is entirely about Empower Network, it’s history, it’s compensation plan and, of course, how to get prospects to go All In based on the qualification benefits, with nary a word about customers nor the intrinsic value of the products. It’s also suggested that you should allow for 1.5 to 2 hours a day for appointments. So we’re now up to 6 to 6.5 hours a day in recommended success generating tasks.

David Sharpe remarked during a Fast Start session that Empower Network training is “All killer, no filler”. The last two videos of the eleven that make up this product defy that description. Although, overall there is definitely some good information in the other nine. It’s really not that advanced, but it is comprehensive.

15k Formula

The $1,000 15K Formula is described as “an in-depth training course that is a must-learn for every online marketer wanting to successfully make 15k of income every single month.”13 According to Dave Wood, as well as numerous affiliates, this product offers “everything you need to know about making money online”.14 This product includes 13 videos, four “bonus” videos, and another seven “Archive Lessons”, all totaling 54.6 hours of video. Each lesson comes with a “Study Guide” that is downloadable as a PDF totaling 174 pages in all.

Each of the seven “Archive Lessons” includes a disclaimer that reads, “Some portions of archived videos are outdated and no longer apply to marketing methods. Refer to new training for updated methods.” There are no indicators within the lessons as to what is “outdated and no longer apply”.

A sampling of these training videos did reveal somewhat more advanced techniques and strategies, but again there was nothing that went over my head and little that I didn’t already know, so it just can’t be that advanced.

I also found the material much more repetitive than the Inner Circle training, but in a much more productive way. Rather than different people saying essentially the same thing, this product offered different ways of saying the same thing. From an educational and retention standpoint, this is a valid teaching methodology.

Dave Wood introduces this product in lesson one by declaring, “The purpose of this training series is simple. It’s to teach you guys how to get to $15 thousand a month in commissions in the network marketing industry, regardless of whether it’s in Empower Network or whether it’s in another company you chose. The formula is going to apply the same. It might work a little easier and faster in Empower Network, but you can actually use this information anywhere.” A lot of the content was clearly designed for Empower Network affiliates, especially lesson 15 which is described as “Specifically targeted at those people that are affiliates in Empower Network”.

Wood’s Lesson One intro also included a perfectly executed, completely compliant income disclosure (this was recorded in November of 2012).

Just before they introduced the $3,500 Masters Course in September of 2012 they didn’t drop the $250 product, they simply quadrupled its price. The 15K Formula is the same product. It was arguably worth the original $250 cost, but $1,000? Only if it included a trip to Dave Wood’s home in the mountains of Costa Rica – which is almost as breathtaking as that price.

Masters Course (Retreat)

The $3,500 Masters Course is comprised of 41 high-def video training modules shot at an event in Costa Rica in August, 2012, with 100 “Empower Network leaders and affiliates” who reportedly each paid $5,000 to attend. They impart “real insights” into what has made them so successful. This product offers, “the secrets of leveraging a system and automating the ability to produce an income on the internet” and “compelling stories from real people with extraordinary results that will shift you into making $10K, $50k and $100K+ per month for your best year ever.”

This begs two questions: First, after roughly 150 hours of training over your first year, at a cumulative cost of $3,000, is there really $3,500 worth of education about how to “produce an income on the internet” still untaught? After offering four training products for almost a year totaling an upfront cost of $875, how could their 2012 event in Costa Rica have included so much more new (i.e. non-repetitive) material as to have been worth exactly four times the cost of all previous products combined? Second, has a single, actual customer, who had no interest in making money in Empower Network, in the entire history of Empower Network, ever paid $3,500 to listen to Empower Network affiliates talk about how they made money in Empower Network? Even one?15

This presumably most advanced and comprehensive course includes such strategies as using real numbers when promoting an income claim, like $39,611 rather than “almost $40,000”, because it sounds “more believable”. Sharpe refers to this as “more advanced stuff”. But this isn’t advanced stuff. This is Marketing 101. Maybe 102.

During Lesson 34, which is titled “Cult Building”, Wood asks the audience, “How many people thought just today was worth $3,500?” The audience’s response was not overly enthusiastic. But to be fair, they might have been confused by the question considering they had all paid $5,000 to attend. This lesson teaches “Cult reinforcement patterns”, such as those they openly reveal are employed in the Inner Circle audio series. “The audios create a belief system that is conducive to selling stuff”, Wood explains. The “stuff” he is referring to are all the products after the Inner Circle.

Lesson 39 is titled “Sticking to the Basics: The Basics Make The Money”, which seems like an odd topic to include within a $3,500 product supposedly offering much needed, in-depth, comprehensive, advance training. But then, this 8.5 minute segment had little to do with the title. Other than one short testimonial from an audience member, who said, “It’s [inaudible] doing the basics. The basics over and over again”, and the basic concept of enrolling “two people a day”, the topic isn’t even peripherally touched upon. Basically, the entire segment could have been summarized in two words: Just Do It. Eh, I guess that is pretty basic.

The “bonus” Lesson 41 is over an hour of random commentary by various affiliates, all recorded at a poorly lit restaurant with a lot of background noise. What’s more, the volume was so low it was barely audible even with my own system’s volume cranked up to eleven. One of the snippets, within the context of “making money quick”, encourages the viewer to “get all in – right now.”

Product Summary

During Wood’s interview I confronted him with a David Sharpe produced product called “Marketing Mastery Vault” which purported to offer “everything… the full Monte” as far as online income generation, and which Sharpe introduced just two months before Empower Network’s birth – at a cost of $37 (which Sharpe still offers today for $297).16 Wood’s pushed back on the suggestion that this in any way can be used to establish the value of Empower Network’s products by exclaiming that, among other things, the information was two years old. Besides the significant technological advances over that time, he explained, both he and Sharpe had learned substantially more since then as well. While I accept his overall rebuttal to the issue of Sharpe’s product’s comparative value, what does this say about the value of all the Empower Network material that was also produced two years ago, such as the $500 Costa Rica Intensive? Or the Fast Start, 15K Formula, and Masters Course, much of which was produced about a year ago?

In my opinion, the entire training program needs to be completely overhauled. Besides the obsolescence of material produced before, and not long after, Empower Network launched, there are numerous blatant, disclosure free income claims throughout all the training products, as well as training that emphasizes up-selling/buying to qualify for higher income. Much of the training is overtly geared towards Empower Network affiliates to facilitate their marketing of Empower Network products, with all the legal ramifications that this entails (to be discussed later).

Their training is overburdened with tangents and anecdotes, and overwrought with back stories and repetition, but I found it not to be nearly to the extent of other critics. Much of the repetition is beneficial, and there’s certainly a place for anecdotes and asides. Just not this much. The beef is there, but for five grand I’d expect a little less bun. I, too, often go off on tangential topics and tend to over-explain things (he says, on page eight of his fifty-one page review). While I’m often called “verbose” (I prefer “prolific”), Dave Wood makes me look pithy.

The R-rated antics of Wood and Sharpe (mostly Wood), which appear throughout their training, and which range from what most may consider mildly off-putting to highly offensive, appear to seem hip and endearing to Empower Network affiliates (and, for the record, I personally have no problem with). However, there’s a wider audience they should consider. State and federal legal authorities don’t have much of a sense of humor, and tend to fall on the more stuffy, conservative side. But it’s not so much the AGs, SEC or FTC they should worry about, it’s the equally deadly and much less pragmatic ABC, CBS and NBC. I recall how CBS’s tabloid television program “American Journal” secretly recorded over 200 hours Amway meetings back in 199717 only to render it down to about five minutes of idiots saying things like “I’d rather leave my wife and children than my Amway business!”. One public video displays Dave Wood staring at a white board full of circles and dollar signs while confessing that when he recently ogled the Empower Network compensation plan he “got a boner”. If Dateline ever does a piece on Empower Network, wanna bet that little vignette doesn’t hit the cutting room floor?

Among the most common criticisms of the Empower Network products another is that the same information can be found elsewhere for a fraction of the cost. I found several such offerings that appear to do just that, including “Advanced Online Marketing” and “Blogging for Money” courses, both online and as part of the Adult Continuation Education curriculum offered by various colleges and universities. Costs ranged from a few hundred dollars to as high as $3,500. Many books covering much of the same information can be found for under $50, and in some cases free (at the library). There are numerous other online or audio training resources that appear to cover virtually all the same material as Empower Network’s products but for 10-20% of the cost.181920

A common criticism among Empower Network critics is that their claim of providing higher search rankings for their member’s blogs is, at best, overstated. Yes, traffic to “” is phenomenal. As of August 20th, 2013 Alexa ranks it the 366th most visited site on the internet.21 However, this has very little to do with where your Empower Network blog is going to rank. Since the large majority of the over 33.500 active Empower Network affiliates do appear to be using their Empower Network blog to market Empower Network, obviously no more than a fraction of one percent of them can rank within the first 100 search results22 Even spot-on searches for terms like “blogging” and “income” together finds only three Empower Network blogs in the first 200 search results, with the highest ranked 103rd. The terms “blogging” and “training” also found just four Empower Network sites, the highest listed 74th. Even “MLM” and “blogging” found only six active sites among the top 200 directly connected to Empower Network’s platform, with Dave Wood’s personal site at #13.23

When asked about this Dave Wood candidly confessed that he was never comfortable with this particular selling point, agreed that the ranking was not relevant to any blogger’s ranking, and that this benefit would be downplayed going forward.24

Another somewhat incriminating factoid is that, according to Alexa, only 4.7% of traffic to (or any derivative blog) comes from a search engine, and the most common terms used for such a search are variations of the company name itself. In other words, searchers are not looking for general information about blogging, or making money online, but specifically about Empower Network.

There is no longer any question what-so-ever as to the value of the $25 monthly blogging platform (it would be worth it even without the training), and I could even defend the value of the 15K Formula – before they raised its price by 400%. But I just can’t accept that any significant number of people are buying the other products for any other reason than to qualify in the compensation plan. Not that there’s not a lot of good education here. There is. Just not enough to warrant a first year cost of $6,500 and $1,500 every year thereafter.

And if Empower Network affiliates were to lucidly evaluate them without bias, I suspect they would agree. Of course, the size of that “if” is directly proportional to the size of their commission check.

Legal Issues

Followers of my Inside Network Marketing25 video blog series will recall episode #2: What’s a Pyramid Scheme26 where it was revealed that the Federal Trade Commission cares little as to how much commissionable product is purchased by the affiliates themselves. Rather, they are more concerned with the motive for those purchases. That is, were the products purchased based solely or primarily on their intrinsic value to the end consumer, and would have been purchased even if there were no income opportunity attached? Or, are they being purchased solely or primarily as a means to qualify for income in the compensation plan?

For example, Fortune Hi-Tech Marketing required their reps to purchase a “bundle” of legitimate products ranging in cost from $130 to $400. The more products you purchased, the more commissions you qualified for. Most reps, allegedly, bought more products precisely for that reason. The FTC recently closed Fortune Hi-Tech Marketing claiming it was operating as an illegal pyramid scheme.27

Same with BurnLounge. In the FTC’s complaint they explain:28

Participants join BurnLounge through the purchase of product packages, of which there are three: (1) the Basic Package, which sells for $29.95 per year; (2) the Exclusive Package for $129.95 per year plus $8 per month; and (3) the VIP Package for $429.95 per year plus $8 per month. More expensive packages provide the participant with an increased ability to earn rewards through the BurnLounge compensation program. (emphasis added)

Each of these three packages paid a bonus to the selling rep of $10, $20, and $50 respectively. The FTC, and subsequently the courts, determined that the value of these packages to a non-participant customer (the evidence for which BurnLounge argued was “overwhelming”) was not even “remotely persuasive”.29 The crux of the FTC’s claim was based on the “plethora” of other sources for the BurnLounge product (downloadable music), often at a lower price, and the fact that much of what BurnLounge included within their packages were tools and materials to assist BurnLounge reps in building their BurnLounge business.

Let’s also consider Equinox. This was a quasi-MLM company that offered perfectly legitimate nutritional, personal, and home care products that, based on my personal evaluation at the time, were actually quite good. They certainly had value to a non-participant. So, why did the FTC and over a dozen state AGs gang-gong them back in 1999?30 Because state and federal regulators don’t judge the legality of what the reps are suppose to be doing, but rather on what they are actually doing. Too many Equinox reps were “buying in” for several thousands of dollars in products primarily to qualify to earn more money getting others to do the same.

This explains why it is considered taboo for an MLM program to pay commissions on enrollment fees, distributor kits, sales aids, or program specific training. Who else would be motivated to purchase these items besides those enrolling in the income opportunity?

So, from a commission standpoint, products that have actual value to a non-participant in the income opportunity – Good. Sales tools and training designed to increase those sales – bad. So if one uses the Empower Network blogging platform and training to enhance sales of their personal business, or simply to promote themselves, great. If they are using their Empower Network blog and all the training to simply make more money selling Empower Network blogs and training, to those who are also using it to sell more Empower Network blogs and training to even more people, the Empower Network’s blogging platform is a sales aid, and the training is program specific. It would essentially be a closed loop, somewhat like (in this specific aspect) the mail order programs from the 70s and 80s that taught you how to make money in mail order selling mail order programs about how to make money in mail order.

Purchase Motive

The powers that be at Empower Network vehemently assert that the number of bloggers using the Empower Network system to build other, non-affiliated businesses or activities is massive. Considering over 167,000 affiliates and customers had to be sold or enrolled by someone, there appears to prima fascia evidence that the predominant portion of Empower Network affiliates are using the same system to sell Empower Network that got them to buy into Empower Network.

Considering Empower Network blogs are all adjuncts to the URL (or are forwarding from it), a Google search for all sites using the primary domain should turn up a few of these sites. So I did that. What I found was that of the top 100 search results 94 were promotional sites for Empower Network and 80 of those 94 were bait & switch “review” sites.31 Placing “scam” in the title, such as “Is [fill in the blank] a Scam?” or even “[fill in the blank] is a Scam”, is a common SEO technique designed to bury any real exposés of the subject32 within a sea of bait-and-switch promotions and endorsements. Five of the 100 were actual review sites, all of which were negative (although one was a competitor). Not a single one promoted a business, person, or anything unrelated to Empower Network.

As previously mentioned, I (along with two research assistants) also surveyed and/or interviewed 104 active Empower Network affiliates33 over the past six months. One hundred and one (97.1%) said they were using their Empower Network blog solely or primarily to sell Empower Network products and promote their Empower Network business. Twenty-two (21.2%) said they were using their blog to at least promote something else peripherally, or “on the side”. Which means 79 (76%) of those 104 were using the Empower Network blogging platform and training solely and exclusively to make money in Empower Network. Only three (2.9%) claimed they were using their Empower Network blog exclusively to promote something completely different. However, one then proceeded to tell me he’s making over $12,000 a month from Empower Network, and the other two subsequently tried to recruit one of us into Empower Network!

Upon this discovery, and to be as fair as possible, I went on a mission to find at least five sites using the Empower Network platform to promote something else besides Empower Network. After about 90 minutes of searching through hundreds of Empower Network blog sites (beginning around 11:00 pm on a Friday night – providing prima fascia evidence I have no semblance of a life) I collected all five (Momentis, EPX Body, Solavei, Essante, and Body FX), plus one that appears to be an actual blog related to the author’s political views. However, all but one also had an Empower Network blog that promoted Empower Network.

So yes, they are out there. But, in my opinion, there’s not enough. Not even remotely close.34

So, what’s the big deal about using the product the MLM company is selling to build your MLM downline selling that product? Once again, that could very well move the product from the realm of commissionable product to that of a not-legally-commissionable sales aid. There is an abundance of legal precedent that demonstrates that web sites used primarily to promote an MLM opportunity or it’s product is considered a “sales aid,” thus neither can it be commissionable, nor even significantly profitable.35

YTB Travel got a one-two punch from the California AG and their home state of Illinois’s AG back in 2008. Both claimed that YTB Travel was a pyramid scheme because about 80% of YTB Travel’s revenue, and about the same percentage of commissions paid, were not coming from the sale of travel but rather the $450 travel booking websites.36 The point being, selling a website to MLM reps that is designed to sell your product makes that website a sales aid. And YTB Travel was, at least to some extent, actually selling travel through their sites. Imagine what might have happened if they were using their YTB Travel sales websites to sell only YTB Travel sales websites.

A legal precedence that’s more on the nose involves Prosperity Automated Systems (PAS). In the SEC’s complaint against PAS37 they specifically cited the closed loop aspect of their commission structure where commissionable PAS websites were sold to PAS members, virtually all of which were used to sell commissionable PAS websites.

In an effort to pull down all the resulting red flags, PAS revised its Policies & Procedures to “require” its members to declare a “primary product” other than PAS that they wish to market on their PAS website. Even with this requirement (which Empower Network does not have) to market something other than the PAS website and advertising program the SEC claimed, “Despite these revised statements… regarding the need for a ‘primary product,’ PAS remains designed to generate returns for existing investors almost entirely based upon the sales of new memberships to downline investors, rather than sales of any product or services… The vast majority of PAS websites offer no goods or services other than PAS memberships or… affiliated products”. They go on to claim that even those who did market some other product also marketed the PAS program and “derive substantially all of their profits from the sale of new PAS memberships, rather than the sale of the other goods or services.” The SEC also cited how all of the “team leaders” who were responsible for producing all of the promotional videos and online materials “have no role in marketing or selling any products other than PAS memberships. They cannot respond to inquiries made on a PAS investor’s website for anything but the sale of PAS memberships”.

Only those who are not familiar with Empower Network will find none of this familiar.

“I don’t want 100,000 customers, or 1,000,000 customers –
I want 1,000,000 affiliates a month to be earning a commission.”
– David Wood; Facebook; March 9th, 2013; 2:14 am PT

So here’s the million dollar question: Are at least the majority of Empower Network product purchasers – even those going “All In” for $5,125 – buying these products because they genuinely want to build a blog to market their personal business, and to learn how to be blogging/SEO/lead capturing/traffic generating experts, and would have paid for it all even if there were no sales commissions to qualify for? Or, are they purchasing them primarily to qualify for the “100% commissions” that are paid for all the products they sell?

On David Wood’s Facebook page38 he claims 33% of all those paying the $25 monthly fee are non-affiliate customers, as of March 8th, 2013. If true, that would certainly support the notion that people would purchase it based on its actual value. Remember, even affiliates can count as “customers” if their motive for purchasing is proper.

However, there appears to be two Holland Tunnel size holes in this claim. First, let’s revisit Inside Network Marketing, episode #8, “Corporate Hype”.39 You may recall the segment concerning corporate statistics, such as sales growth data, attrition rates, and customer-to-distributor ratios. Specifically, how they can be manipulated to where they are technically true, but not entirely true. For example, if a company claims to have a six-to-one customer-to-distributor ratio that may be impressive depending on how they are defining “customers” and “distributor”. For example, if a “customer” is anyone who has ordered a single product in the last 12 months (an actual definition used by at least one company), and an “active” distributor are only those who received a check for the last pay period (an actual definition used by at least two companies) – that is, define “customer” in what ever way creates the largest number, and “distributor” in what ever way creates the smallest number – then yes, you might arrive at a 6-to-1 customer-to-distributor ratio. When asked, Empower Network reps unanimously and confidently proclaim a “customer” as simply anyone who has not paid the $19.95 affiliate fee. Those that only pay for the $25 monthly blogging system and training have no ability to sell, recruit, nor earn income. Those in that group have to be non-participant customers. Pretty cut and dry, right

Of course not. It never is.

In the Empower Network Policies & Procedures they clearly define seven requirements to be an “affiliate” (i.e. distributor). They include:

“Establish a merchant account for the acceptance of credit and debit cards for the purchase of Empower Network services by customers and the payment of commissions… and Personally sponsor the sale of an Empower Network service to an end consumer customer.40

Elsewhere they define the requirements to maintain “affiliate” status:

“If an Affiliate has not earned a commission for 90 days (and thus become “inactive”), his or her Affiliate Agreement shall be canceled for inactivity.”41

So what happens to all those who have paid the $19.95 affiliate fee but have not yet set up an account to accept credit cards, nor made their first sale? Or is an affiliate but has simply failed to make a sale for three months?

“Affiliate shall be reclassified as a customer.”42

So the questions remains, how many of those 33% are actual customers who just want to pay $25 a month for the blog and training, and how many are doing so with every intention of partaking in the Empower Network compensation plan but are simply failing at it?

According to Empower Network’s current Income Disclaimer43 91% of all (not just active) affiliates average less than $100 in annual earnings. That is, three or fewer $25 Fast Start sales over the previous 12 months. Therefore, at best, 91% of all Empower Network affiliates experience at least one 90 day period per year where their classification would change to customer. Worst case, if all three or fewer sales occurred in the same month they would have been demoted to customer in 9 of their last 12 months. What’s more, since the Income Disclaimer is only counting active or inactive affiliates, this 91% isn’t even counting those who currently have been demoted to customer for lack of sales. The evidence, albeit anecdotal, strongly suggests that demoted affiliates may account for the large majority of those 33% who are being classified as “customers”.

When confronted with this information Dave Wood claimed, with certainty, that the 33% figure only included those who “never” paid the $19.95 affiliate fee, even once. None are demoted affiliates, per the Policies & Procedures.44 Wood confessed, “We originally put that in there because [in the beginning], and I’m going to be straight with you, I didn’t even think we needed customers in network marketing.” This was somewhat confusing in that it suggests an explanation as to why such customer defining policies would not be present. Nevertheless, Wood was explicit in that he was aware this was how most other MLMs manufactured higher customer counts, that no such affiliate-to-customer demotions, per their P&Ps, have ever taken place in Empower Network, and this was not just an assumption. He was certain. Now it’s pretty cut and dry, right?

Of course not. It never is.

Dave Wood stated in an email, and confirmed during the interview, that “most” affiliates start out as customers. He elaborated that they typically buy the $25 blogging platform first, then upgrade to affiliate later. Which makes perfect sense. Those looking to be an affiliate would pay the first month’s $25 and check out the platform and training first, then when satisfied (a day or two, or week or two later) commit to the $19.95 affiliate fee.

So… this now begs the question, how many of that 33% are those who intend to be affiliates, but are still in this initial “try it out” phase? If, in deed, “most” (i.e. more than half) upgrade from customer to affiliate in this manner, the majority of their “customers” at any given moment are simply affiliates-to-be, and not someone who has no intention of marketing the products and just want them based on their intrinsic value. For example, in May of 2013 there were 8,289 affiliate enrollments and 3,901 customer enrollments. So the question is, how many of those 3,901 customers in May were part of the 6,176 affiliates who enrolled in June?

EN Chart1

As can be seen from the chart above, the number of affiliate and customer enrollments each month45 track almost identically. This strongly suggests there is a direct correlation between customer and affiliate enrollments. If you’re thinking, well, of course there is, because more or fewer affiliates create more or fewer customers, think deeper. If, hypothetically, there were 10,000 total affiliates and 5,000 total customers at the start of June, 2,000 more affiliates and 1,000 more customers joined that month, you’re start July with 12,000 and 6,000. Now, let’s say 1,500 affiliates and 750 customers join in July. Does the affiliate drop account for the customer drop? Really? But, there were 10,000 affiliates trying to acquire customers in June, and now 12,000 in July. How did a 20% increase in the total number of people trying to find customers cause them to be 25% (1,000 to 750) less successful?

Unless, most affiliates and customers were one of the same.

Having said all that, if those who never were/never will be affiliate customers accounted for even 10% of their sales that still puts them ahead of many, if not most, other MLMs, and is still indicative of a product with real world value. But, alas, it’s just not that simple.

Dave Wood’s claim of 33% being those who never paid an affiliate fee first appeared on March 8th, 2013. The percentage of all sales that went to customers in February was 32.2%, and in March it was 31.2%. Let’s put our thinking caps on and really consider this. If, as of early March, 33% of all sales made up to that point were to customers, going back to their October, 2011 launch, but 32% of their customers as of March 8th joined within the last 30 days, that would suggest that of all the sales made previous to February, 2013, only one percent of them are (stayed) customers! This virtually proves that the large majority of current ”customers” are simply soon-to-be affiliates, not folks who just want the product and have no interest in making money selling it.

Within a July 13th Facebook post Dave Wood cited the percentage of customers as 37%.46 However, data supplied to me on August 27th now pegs this at 33.34%.47 Let’s generously assume these are all actual customers with no intention of ever upgrading to affiliate. Also, let’s consider, based on actual data provided by Empower Network, that 29% of all purchasers (affiliates and customers) upgrade from the $25 monthly product to the $100 monthly product; 11% also purchased the one time $500 product; 9% upgraded to the $1,000 product, and; 2% purchased the $3,500 product (i.e. went “All In”). Now let’s be extremely optimistic and assume 10% of these customers purchased the monthly $100 product, 5% purchased the $500 product, 2% the $1,000 and 1/2% went “All In” for $5,125. Granted these are my estimates, but surely no one can argue they do not significantly favor Empower Network, if not excessively so in the case of the top three products. Knowing now how the customer-to-affiliate ratio is weighted (33.3% to 66.7%) we know that if these assumptions are accurate the number of Affiliates upgrading would be: 38.5% to the $100 monthly product, 14% to the $500 product, 12.5% to the $1,000 product and 2.8% of affiliates went “All In”. Before I make my point here, keep in mind that the assumed purchase breakdown for customers, even as optimistic as it is, still seriously brings into question the value of all Empower Network offerings above the $25 monthly Fast Start product. To lower these assumptions would only exacerbate this concern.

Here’s the point: Again, for the sake of argument let’s assume all 33.33% of their product users are, in fact, real customers. State and federal regulators don’t give much weight to the percentage of people, they tend to focus on dollars. This overly charitable scenario paints a rather unrosy picture. Of the 50,286 total buyers as of August 27th, 2013.48 customers would have produced $4.06 million and affiliates $17.51 million. What’s more, even if we assume all currently active buyers have been on the two monthly product for an average of three month, these products account for just over $11 million in sales, where as the three one time, higher priced products generated sales of $17.88 million.

From a different angle, almost four times as many affiliates upgrade to the $100 monthly product as to customers; almost three times as many to the $500 product, over six times as many to the $1,000 product, and almost fives times as many went All In. Certainly the income qualification motive exists, and can account for something, but it can’t be the primary motive for purchasing. Affiliates purchasing the $100 to $3,500 products three to six times more often than customers, with affiliates generating 77% of Empower Network’s revenue, and the three highest priced products, even being a small fraction of the sales of the lesser two, accounting for 62% of all income, certainly suggests there is something that is substantially motivating affiliates to upgrade over customers. This data does not bode well for the argument that income qualification isn’t it. What else could it possibly be?

And, just to reiterate, this is all assuming 33.33% really are genuine customers with no intention of becoming affiliates, when all evidence suggests it’s a substantially smaller number.

Wood & Sharpe do emphasize adding interesting content of value to one’s blog perpetually throughout all their training products. Based on the several dozen Empower Network blogs I’ve reviewed, few are getting the message. Although it’s not nearly as bad as SkyBiz, a defunct pyramid scheme that sold websites which had to be “activated” by adding “custom content” to prove they were not merely an obligatory purchase just to qualify for income – which created a deluged of websites with “asdfghjkl” emblazoned across their homepage. Empower Network reps are at least putting forth a perfunctory effort to add actual content. But, in most cases, the often bland, cookie cutter commentary seems compulsory.

The income qualification motive to upgrade is clear and pronounced. You must either purchase each of the products yourself to qualify for the commensurate commission on those you sell, or alternatively you can sell one of each to a non-affiliate customer.49 If you don’t the commissions from all of your and your downline’s sales on that product are forfeited and get passed upline (see the comp plan section below for additional concerns related to this aspect). Basically, your $100 monthly, $500, $1,000, or $3,500 payment buys you commission eligibility.

This would seem to be the only motive for a new affiliate to go “All In”, as both Wood and Sharpe doggedly recommend. Otherwise, it makes no logical sense to purchase well over 150 hours of audio and video training, plus numerous PDF documents, which includes the very advanced training in the upper tier products, within the first few weeks, or months – except to qualify for commissions from those who also prematurely go “All In” to qualify for commissions. Does it make sense to go for a PhD in medicine your first day of Pre-Med? Or, even more analogous, to pay for those extra eight years of education that’s going to take four years to get to? If you’re buying them for their educational value, why not buy them on an as-needed, or as-ready for basis? Why not see how much benefit you receive from the $25 and $100 products before committing thousands of dollars on the much more advanced training, especially considering Empower Network’s restrictive 72 hour refund policy, and the fact that, from strictly a training/product value standpoint, there’s no downside to waiting? There is simply only one rational reason to go “All In” upon enrollment – to qualify for income.

Within their training products, as discussed previously, Wood and Sharpe have no qualms with explicitly defining the “key” reason one should buy all the products – to qualify for more commissions. For example, in Lesson Four of their Fast Start training dealing with “New Member Coaching” (which could more accurately have been titled “High Pressure Sales Tactics”), Wood states, “If they buy everything, how much are you going to make? I’m going to show you in a second. You want them to buy everything.” Wood and Sharpe then roll play how to up sell a newly enrolled affiliate:

Wood: “How fast do you want to get to three or four thousand a month?… I can show you how to do it right now with what you’ve got (Inner Circle) in six months, a year, or I can show you how to do it in the next five days. If I taught you how to get to three or four thousand a month in the next five days, are you ready to get all in or not?”

He then explains, while still roll playing, that buying the rest of the products will allow Sharpe’s persona to earn “$1,000 this week.” Later in the training Wood says, “Here’s why you need to buy everything and go all in.” He first explains that, “It’s unethical (to sell something you didn’t buy). If you want to sell it, buy it.” Although I completely agree with Wood on this point, and while this should certainly be one of the reasons for buying all the products eventually, how much more income you’ll qualify to earn, and how much you’ll lose if you don’t, shouldn’t be the only other reasons. This can be discussed, within limits, during explanations of the comp plan, but within the context of why you should purchase the products there has to be at least some discussion, if not most of the discussion, about the value of the products. But here, there is literally one sentence, about half way through the 40 minute video, where Wood states, “This is information you can feel good about selling”, after explaining that the value of the products are discussed in the “sales videos”. But this is New Member Coaching. Shouldn’t there be an entire session on how to sell the products based on the actual value of the products? But no. One sentence. That’s it.

Like I said. The training needs to be completely recreated, from scratch.

Of all the different benefits these products provide, I wondered how much emphasis affiliates place on this qualification motive? So I ask them.

Of the 104 Empower-folk I questioned, 87 of them addressed the primary (and in some cases only) reason why one should upgrade to the higher priced products. Of those 87, 69 of them (79.3%) focused on the financial benefit of upgrading, and/or the potential cost of not upgrading. Many declared that you only get paid “on the products you own” – which is technically untrue (as describe above). Which begs the question, are they all genuinely ignorant of the customer sales option to qualify, or are they just being duplicitous?

Wood suggest it may very well be the former, and in response to my findings he and Sharpe have commenced a very proactive campaign to educate affiliates. No, they didn’t just say they were going to do this, they are doing it. At their mid-July event in Denver Wood, Sharpe and attorney Kevin Thompson lectured from the stage at length on this issue. Wood introduced the topic by announcing, “Right now about 70% of the people who are getting asked ‘Why should I buy that product’, they’re responding with – and we have done surveys – they’re responding with ‘Well, of course, to get a commission’. Let’s hope when people ask you that, they’re not a regulator.”50

Wood evangelize that, “It is a better sell to sell our products based off the value than it is based off ‘buy the products to get a commission’. It makes us look better. It makes us look more credible to people who are not in Empower Network. And it works better, too.” To sell the product based on the need to qualify for commission, he says, “makes us look bad”, and “When we have a value based message, better people get in”.

It’s unfortunate that after 18 months of offering hundreds of hours of advanced training related to marketing and selling that this so powerful value-based selling proposition is just now being emphasized, and the legal detriment to the qualification motive is just now being mentioned.51 There is already so much non-compliant material out there, and the clean up will be BP-esque in it’s difficulty, if not impossible. But still, kudos to The Daves for their bold effort to stem the flow of new non-compliant materials and claims. It is indeed better late than never.

However, there is a second legal red flag that’s big enough to carpet all of Costa Rica. This one concerns…

Income Claims

In episode #7 of “Inside Network Marketing”52 I broke down the rules and regulations related to income claims. Attorney Kevin Grimes does a far better job in his theses on the topic.53 In summary, the FTC changed the rules back on 2009 to where we can no longer make an income claim, then add a disclaimer stating “results not typical”.54 Now we must state what results are typical. That is, if you state someone else’s or your own earnings (i.e. you hold up giant faux checks with large numbers on them, while standing on stage at an event) you must also provide a comprehensive income disclosure that is:

1. Clear and conspicuous;
2. Printed in a type size at least equal to that of the statement of sales, profits, or earnings;
3. Discloses (among other things) the percentage of total reps who have achieved such earnings;
4. Adjacent, or in close proximity, to the earnings claim;
5. Unavoidable by the viewer;

On a state level, both Massachusetts55 and Wyoming56 strictly forbid any type of earnings claims under any conditions.

The FTC’s thinking on the issue of disclosure is spelled out in detailed, lawmen’s terms within their comprehensive guidance document titled “Dot Com Disclosure” (pub. March, 2013).57 Within this report they state:

“A disclosure is more likely to be effective if consumers view the disclosure and the claim that raises the need for disclosure together on the same screen… Requiring consumers to scroll in order to view a disclosure may be problematic, however, because consumers… may miss important qualifying information and be misled… Scroll bars along the edges of a screen are not a sufficiently effective visual cue.”

Therefore, the following two sets of examples would likely not be complaint despite the inclusion of the Income Disclosure link – in fine print, within a sliver of the page not visible without scrolling down just another inch. The “Income Disclosure” link is at the end of the bottom line of text.

 Example 1.1                                                       Example 1.2

EN Income Claim 1-1 EN Income Claim 1-2


 Example 2.1                                                       Example 2.2

EN Income Claim 2-1 EN Income Claim 2-2

The FTC includes these comments regarding the use of hyperlinks to direct readers to the disclosure:

“The hyperlink should be proximate to the claim that triggers the disclosure so consumers can notice it easily and relate it to the claim. Typically, this means that the hyperlink is adjacent to the triggering term or other relevant information.”

So besides reaffirming the lack of compliance of the above examples, it also suggests Empower Network promotional pages like this one below are not compliant as well:58

The FTC continues: “If claims requiring qualification are repeated… it may be necessary to repeat the disclosure, too.”

Therefore, the number of blatant income claims throughout the document above, and the “Join Now” links that direct the reader away from the document well before the Disclosure link, also makes the disclosure very likely non-compliant.

Another section of the FTC guidance document states:

“A disclosure in a color that contrasts with the background emphasizes the text of the disclosure and makes it more noticeable. Information in a color that blends in with the background of the ad is likely to be missed.”

Go get your magnifying glass and see if you can find the income disclosure in this popular image used by many Empower Network reps:

Empower Network Income Claims on Stage

It’s at the end of that faint red line at the bottom.

The FTC also makes clear that audio income claims should include audio disclosures.59 I’ve listened to numerous video and audio promotions of Empower Network that include explicitly, over-the-top income claims with not one verbal word of disclosure. For example, this online MeetUp that Empower Network co-founder Dave Wood declared there was “a thousand people are on” (edited for brevity):

Within what was likely the most prevalent and widely viewed Empower Network video, which the majority of Empower Network blog sites I visited linked to, a series of flagrant income claims were made.60 Here is an edited version rendered down to just those claims:

In the above audio Dave Wood does attempt to make an income disclaimer, but he sandwiches it within two of his own income claims. The FTC also considered “lifestyle” claims, so anything that even implies wealth, such as images of the rep standing in front of his or her million dollar home, driving an exotic car, sailing on their yacht – or writing with a $750 fountain pen – is an income claim worthy of an income disclosure.

And a disclaimer is not a disclosure.

Dave’s Wood and Sharpe can’t plead income claim ignorance. Besides having hired Kevin Thompson.61 one of the best MLM attorneys out there, to advise them over the last 20 months, they declare their keen awareness of this issue even within the earliest versions of their own Policies & Procedures62 where they demand that:

“No income claims or representations may be included in such materials unless a copy of the Empower Network Income Disclosure Statement is incorporated into the advertising or promotional material or the Internet address of the current Income Disclosure Statement is incorporated into the materials.”63

“If there are any income claims or representations contained within an Affiliate’s website, there must be a link to the Empower Network Income Disclosure Statement immediately adjacent to any such claim or representation.” (emphasis added)64

“No income claims or representations may be made when participating in a social networking site unless a link to the Company’s current Income Disclosure Statement is provided.”65

“An Affiliate, when presenting or discussing the (EN) opportunity or Compensation Plan to a prospective Affiliate, may not make income projections, income claims, or disclose his or her Empower Network income (including the showing of checks…) unless, at the time the presentation is made, the Affiliate provides a current copy of the Empower Network Income Disclosure Statement to the person(s) to whom he or she is making the presentation.”66

“…a copy of the (Income Disclosure Statement) must be presented to a prospective Affiliate… anytime the Compensation Plan is presented or discussed, or any type of income claim or earnings representation is made.” (emphasis added)67

“The terms ‘income claim’ and/or ‘earnings representation’ include: (1) statements of actual earnings, (2) statements of projected earnings, (3) statements of earnings ranges, (4) income testimonials, (5) lifestyle claims, and (6) hypothetical claims.” (emphasis added)68

“A lifestyle income claim typically includes statements (or pictures) involving large homes, luxury cars, exotic vacations, or other items suggesting or implying wealth. They also consist of references to the achievement of one’s dreams, having everything one always wanted, and are phrased in terms of ‘opportunity’ or ‘possibility’ or ‘chance.’ Claims such as ‘My Empower Network income exceeded my salary after six months in the business,’ or ‘Our Empower Network business has allowed my wife to come home and be a full-time mom’ also fall within the purview of ‘lifestyle’ claims.”69

Within a May 16th entry on David Sharpe’s Facebook page, he generically warns:

“When ever you show off commissions that you’ve earned, or money that you’ve made – make sure to include an income disclaimer that “these results are not average or typical” and link to your companies income disclaimer (if they have one).”70

Yet, on June 19th, 2013, Wood himself posted an image of himself holding a $4,833,394 check on the official Empower Network Facebook page.71 As late as August 12th, 2013, he posted another image of an Empower Network affiliate holding a $173,475 check with the request to “Share” it.72 In both cases there isn’t even an attempt at a disclaimer, let alone a disclosure.

Back in July of 2009, while Wood was promoting another MLM program called iLearningGlobal, he posted a blog entry titled “Are You Wondering if iLearningGlobal is a Scam?” Within he lists a series of nine “points to watch out for when reviewing whether or not a company is a legit business model in the world of MLM”. Here’s the eighth one:

Watch Out for Earnings Misrepresentations
Do the company’s literature and training materials scrupulously avoid claims of income potential that is promises of specific income levels other than demonstrations of verifiable income levels within its program? (The Federal Trade Commission, attorneys general, and postal inspectors all have their eyes on the matter of earnings representations. The acceptable approach emerging is that there should be no earnings representations unless they are based on a verifiable track record of the average earnings of distributors. For instance, a company should have statistics to show the percentage of active distributors and the average earnings of active distributors.)73

In a December 29th 2011 email Dave Wood announced that they have “been in the process of doing a major compliance overhaul.” During the first week June, 2013 – 17 months later – they published their Compliance Training online.74 The training is comprehensive and solid. It’s also 22 months too late. And, at least up to their Denver event, was being utterly ignored.

When consulting for start up MLM operations I’ve found the majority have no clue as to what laws or regulations they are violating and honestly believe they are about to do nothing wrong. Once informed they are usually more than willing to make the appropriate adjustments. In the case of Empower Network there is no doubt Sharpe was well aware of the rules regarding income claims and how to properly provide them all along, as was Wood at least two years before Empower Network existed.

All of the income claims presented in the pages above are not cherry picked worst case examples. In fact, they derive from common, current, replicated Empower Network web pages or emails that are part of the standard Empower Network auto-response options. Most of them I have received or viewed literally dozens of times, and am still receiving.

And these are just examples of how the Income Disclosure was used, but used improperly. In fact, of the literally hundreds of income claims I found, or been sent, the vast majority included no disclaimer or disclosure at all! Of the 104 Empower Network affiliates who were surveyed or interviewed 87 of them (83.7%) unabashedly made clear and explicit income claims. Of those there were two who provided access to the Income Disclosure in a way that was very likely out of compliance. Only one affiliate – one – provided a link to the Income Disclosure in the proper manner.

These violative claims are not coming from a small but prolific group of inexperienced or rogue affiliates. Many were provided by affiliates who Empower Network define as their “top leaders”, and the overwhelming majority appear to be corporate condoned, or corporate generated. Nor are these remnants of past digressions before compliance training was initiated. For example, just moments before I began this paragraph I received an email from a top Empower Network affiliate which contained a link to the website below which is chocked full of blatant incomes claims (including within the videos), and does not include even an attempt as an income disclosure.75

If there is any doubt as to the overwhelming number of Empower Network sanctioned income claims, check out the results of this Google image search for the terms “Empower Network” (in quotes) and the word “checks”.

However, once again, when all this was revealed to Wood during the interview he expressed genuine ignorance as to the magnitude of the problem, and a sincere, deep disappointment.76 Within 24 hours I was cced a copy of a very aggressive compliance demand notice that Wood had produced regarding income claims, and other inter-company emails where Wood proposed that the Income Disclosure URL be imprinted on the face of all of the oversized check placards to be presented going forward. Three days later, at their Denver event, the Income Disclosure URL was imprinted on the face of all of the oversized checks.

At that event they devoted 45 minutes of stage time entirely to compliance. At one point Wood commanded the audience to, “Repeat after me. I commit… that from now on… when ever I make an income claim… that I’m going to link… to… forward slash income dot php.”

And today, almost two month after this event, and over four months since their compliance training went live, all of the above examples of non-compliant income claims, with the exception of only the company’s main promo video featuring Dave Sharpe, are still available online, and unchanged.

The sheer magnitude of such claims already glutting cyberspace is irreparable. In my Zeek Rewards exposé77 I made the comment that their efforts to remove all of their online investment terminology (after they also belatedly hired good attorneys who told them to do so) would be tantamount to “removing the fudge from a Rose Bowl size tub of fudge-swirl ice cream”. Empower Network’s tub is about the size of the Pacific Ocean. And having Empower Network end the production of new online income claims will likely be as effective as Los Angele’s law against graffiti (where it’s so prevalent that taggers now have to paint over old graffiti first before they can paint new graffiti). Especially when your own leaders, from Empower Network CEO David Wood and President David Sharpe, and virtually all of those in the field they place so high on the earnings pedestal, have been so aggressively involved in the practice.

For example, here’s a link to a currently active web page where both David’s themselves declare their “over $6.1 million in commissions” in the “last five months’:78 You’ll find the non-compliant Earnings Disclosure in tiny, dark red text over a darker red background, at the very bottom of the screen, about an inch out of the frame.

As I’ve stated, their training is riddled with disclosureless income claims. For example, within Lesson #4 of their Fast Star training Sharpe describes an affiliate who went from “a list of 200 to a $20,000 per month income”. In Lesson #5 Wood recites a story about one of their affiliates making $150,000, which he describes as “a ridiculous, retarded number for a part time guy”. This was followed by three other utterly noncompliant, albeit heart wrenching, income testimonials.

The best compliance course ever created isn’t going to put out this fire. It will likely slow down it’s spread, but there’s already 100,000 acres of scorched cyberspace. This is a fire alarm bell that can never be unrung.

Refund Policy

One of the sacred “Amway Safeguards”79 that kept the FTC from shuttering Amway (and consequently the entire MLM industry) back in the 70s was their “buy back” (i.e. refund) of all unsold products and sales aids. Such a policy is now commonplace, and to not have one is considered anathematic. In fact, several states including Georgia, Massachusetts, Wyoming, Maryland, Louisiana, Montana, Oklahoma, and Texas, as well as The State Without a Star (Puerto Rico), all have their own refund policies that MLM operations are required to adhere to.

Over their first 18 months of operation Empower Network had an explicit “NO REFUND” policy:

“We have a NO REFUND policy because of the way commissions are paid out to members from product sales on a weekly basis, however, refunds can be requested dependent upon circumstances and only after review by our customer support team.” (caps are original)

Not until May 17tj of 2013 did Empower Network revise their refund policy to the more ambiguous:

“Refunds are handled on an individual basis due to the fact that some transactions are tied to our commission program, which is paid on a weekly basis. Empower Network is committed to providing each customer / member with exceptional service and 100 percent satisfaction. Should you have a request for refunds of purchases please contact Customer Support at…”

Less than two months later the policy was revised again to this:

“Due to the nature of the Empower Network business and the accessibility of our products immediately upon purchase, there is a strict 3-day return policy, which begins on the date of purchase. Therefore, we will not accept return requests after 3-days of doing business.”80

There is a federally mandated “Cooling Off Rule” that requires merchants such as Empower Network to allow buyers 72 hours to come down from the ether and make a lucid decision regarding their purchase.81 So basically Empower Network is back to a “No Refund” policy, except for the first three days when the FTC commands they provide one.

Most of the states mentioned above require a specific refund (at least 90% is acceptable) within a specific amount of time (30 to 90 days, or one year in the case of Louisiana). A policy that essentially says, “We might refund you some amount”, or the updated “No refund after 72 hours” is likely not going to be acceptable by most states.

No matter what Empower Network is actually doing, what legal authorities will focus on is what the participants are telling everyone, and what their newly enrolled affiliates and customers are being lead to believe.

Do a Google search of all online commentary containing the terms “Empower Network” and “No Refunds” (both phrases in quotes).82 In spite of the non-definitive “handled on an individual basis” version having been enacted over three months ago, and the “three day” version now in place, word does not appear to be getting out. Of those Empower Network reps I surveyed I had the opportunity to ask 41 of them what the Empower Network refund policy was. Eleven directed me to the online policy. Thirty (73.2%) firmly and confidently declared there were “No refunds”. More than one suggested only “wussies” would even ask for one.

I understand Empower Network’s reluctance to declare a more industry standard, and AG friendly, refund policy early on. Their business model, or more specifically their compensation plan, once placed them in an unusual and unenviable position of having to provide refunds for payments they never received. As will be made clearer in the compensation plan section below, Empower Network’s system pays a 100% commission on most of the products. This was accomplished by the buyer submitting their funds for the purchase which was then directly transferred to the eWallet account of the selling affiliate, or another upline affiliate. Most funds never passed through an Empower Network corporate account. For example, let’s say Alice sponsors Bob, and Bob sponsors Carol, and Carol sells a $500 “Costa Rica Intensive” to Ted. Ted pays his $500 either directly to Carol or, depending on how many previous sales Carol has made, the payment might roll up to Bob, possibly to Carol, or perhaps someone even further upline.83 So if Ted asks Empower Network for a refund they either had to find out which affiliate the $500 went to and try to claw back the funds from them, or just refund the $500 they never actually received and eat the loss. It appears Empower Network was wisely choosing the latter option.

For over a year-and-a-half now they’ve been accepting funds and paying commissions in a much more conventional way, with the funds passing from buyer to seller via Empower Network’s accounts. Thus they now have the ability to refund purchases and deduct the corresponding commission from the individual affiliate that earned it. So the arguably reasonable excuse they once had for having a restrictive (or no) refund policy no longer applies.

The most potent catalyst to a state or federal regulatory investigation are complaints filed by failed participants, or what regulators like to redefine as “victims” (and sometimes appropriately). The number one catalyst to complaints are refused refund requests. For now Empower Network appears to be biting the bullet, providing refunds when requested, and keeping the peace.

Wood claims a refund request rate for the $3,500 product of 1-2% and an overall rate of about 3%, which he claims is the “lowest I’ve ever heard of”.84 Actually, this is higher than most MLMs, but not significantly.85 Wood also asserts this is indicative of their product’s value and customer satisfaction. Perhaps, in small part, but this assumes the decision to return products is principally based on it’s value and the buyer’s satisfaction, or lack thereof. However, Empower Network is unique in that a single purchase of the $500, $1,000 and $3,500 products qualifies an affiliate for commissions on that product in perpetuity, unlike a more traditional MLM where a Personal Volume (PV) quota must be met every pay period. Returning any product in Empower Network precludes any opportunity to ever again earn a commission on that product (unless you repurchase or sell the same product), regardless of the amount of “PV” you produce. That is, if you return a $500 product you will not qualify for any further commissions on that product even if you subsequently achieve $4,500 in PV by purchase both the $1,000 and $3,500 products Thus, Empower Network affiliates are incentivized to not return product to a much higher degree than in most other MLM programs. They are also unique in that you only have three days to return products and the majority of affiliates seem to believe there are no refunds allowed at all. These idiosyncratic features suggest motives for not returning products than are substantially different to those which Wood suggests.

Any MLM operation that experiences a sales slide typically experiences a reciprocal rise in product returns and refund demands. In Empower Network’s case this could be exacerbated by five factors: 1) The high cost of their three singularly purchased products; 2) the over 36,700 of those products they’ve sold in total, and over 11,000 sold to currently active buyers; 3) Most of the content of each product is provided up front; 4) The ease of duplication, and; 5) The fact that, once it’s been provided, you can’t return knowledge. In addition to that, 91% of all Empower Network affiliates already earned less than $100 over the past 12 months, even during Empower Network’s pronounced upward momentum phase. If (when) Empower Network starts to experience a rise in refund demands for their $500, $1,000 and $3,500 products, with a greater number of them outside the 72 hour refund window, will Sharpe and Wood still be as accommodating, or be willing to part with those funds out of their own pocket (which they did under the original system early on)? If they attempt claw backs from the pockets of those affiliates who were the ultimate recipient of this cash (a large share of which will be their showcased leaders), they’ll likely just transfer the complaint from one affiliate to another. Imagine, in the above example, Ted going “All In”, and the over $4,500 in commissions being rolled up three generations to Alice. Then, Ted demands a refund and Alice’s next check is negative $1,500 instead of the $3,000 she was expecting, due to a refund on a sale she had nothing to do with.86 Or worse, Dave & Dave continue to accommodate late refund requests, to assuage unhappy customers and ex-affiliates, and Alice goes ballistic when she finds out her next mortgage payment is not only gone, and she now owes Empower Network $1,500, but it was due to a refund on a return that wasn’t even eligible for one.

Solutions are few, each with their own perils. Empower Network could simply stand firm on the 72 hour refund limit, and piss off more disgruntled “wussies”. The Davids, having positioned themselves at the top of the whole Empower Network organization resulting in them becoming “internet millionaires”87 have plenty of their own liquid capital to douse fires with, and they’ve exhibited a willingness to do so, when needed. But for how long? If returns rise even one percentage point annually, resulting in roughly another $250,000 in requested refunds, buying everyone’s satisfaction is going to get costly. The only other option is to return to a No Refund policy, and the resulting deluge of complaints to the Florida Attorney General’s office and the FTC.

State Registration

There are five states that require MLM companies to formally register before they are legally allowed to conduct business in those states. They are Montana, Louisiana, Georgia, Massachusetts, and Wyoming. As of July 5th, 2013, Empower Network had been operating for over 20 months in each of these states without being registered.88

I suppose Empower Network could make the argument they are not a multilevel marketing company – but they don’t. Although Wood confesses to not believing they were in the beginning, he was informed by their legal council very early on that, in fact, they are. By even the most narrowly focused definition there are, without question, multiple levels of people marketing the Empower Network products and income opportunity.

Again they can’t feign ignorance of the law. In Wood’s aforementioned 2009 blog entry regarding how to judge an MLM’s legality, he states: “Will the company buy back inventory and sales kit materials from distributors who cancel their participation in the program, as long as these items are in resalable condition? (This policy is required in states that have adopted multilevel distribution statutes.)”89

This not only reveals Wood’s awareness, back in 2009, of the need for a generous refund policy, but also that there are specific states with MLM regulations.

When confronted with this information I was told that they believed a previous law firm they had worked with had taken care of these registrations, and that a compliance consultant they had only recently hired (wow, you mean I could actually get paid for doing this?) had “caught it” and “got it done”. Allegedly registration forms were submitted to all states on or about July 2nd.

As of August 8th, 2013, Empower Network was still not registered, thus not legal to do business in, Montana,90 Georgia,91 and Massachusetts.92 Louisiana responded that Empower Network’s registration paperwork has been received but had not yet been approved because the information provided was “incomplete” and had been returned. Wyoming said on 8/6 that they had “no record” of ever having even received anything from Empower Network. When I called back the next day to ask if the same issue might have occurred as in Louisiana, I was informed that “Empower Network is now registered in Wyoming” – which doesn’t lend a lot of credence to Montana, Georgia and Massachusetts’s claim of having not yet received anything.

The registration process is obviously underway – albeit 20 months late.

Sales Tax

There is a battle waging on both a state and federal level as to what is taxable online. On a federal level there is currently an effort to push through a bill called the “Marketplace Fairness Act”93 that is designed, allegedly (and in my opinion, ostensibly), to place online sellers such as Walmart and Amazon, who must charge sales tax to all, on a level playing field with smaller online marketers who do not (to those who reside out of state). Yeah. I’m sure this is all about being “fair” to billion dollar mega-corporations, not about the $11 billion94 that states lost, just in 2009, by not being able to tax interstate transactions.

But I digress.

Besides this bill, which has already passed the Senate by a vote of 69-27 (but is expected to fail in the Republican dominated House), there are also a number of states that have enacted new law regarding specifically sales taxes on “digital goods”. They are: Indiana, Ohio, Nebraska, Utah, South Dakota, Tennessee, Kentucky, Mississippi, North Carolina, Vermont, Wisconsin, Washington, Minnesota, Massachusetts, and Louisiana. Eight States rejected taxation of digital products, including a few big ones. They are: California, Florida, Massachusetts, New York, Nevada, Virginia, West Virginia, and Wyoming.

So, in those 15 states that do charge sales tax on digital products the question is this: Is access to video and audio training taxable? That is, you only purchase the ability to view the training, but do not necessarily take possession of it (i.e. do not download it). So, once again, I employed the “Ask” technique (a fact gathering strategy so few critics and online commentators seem to be aware of).

Indiana, Nebraska, Utah, South Dakota, Tennessee, Mississippi, Vermont, Wisconsin, Washington, and Minnesota all responded definitively. There response was “Yes.” Most provided direct access to their specific statutes confirming taxability if someone in their state purchases:

1) Electronically transferred digital audiovisual work, digital audio work, or digital book;
2) For “less than permanent use (i.e., streaming)”;
3) Whether for one-time use or through ongoing subscriptions;

The simplest and most definitive clarification, supplied by several states, was that any sales of digital media “are subject to tax when delivered electronically if the same type of products are taxable when delivered on tangible storage media.” That is, would all of Empower Network’s videos and audios be taxable if sold on DVDs and CDs? Obviously, they would.

Ohio also passed digital sales tax legislation, but it does not go into effect until January 1st, 2014.

Louisiana also responded affirmatively, but their direct response seems to somewhat contradict certain statements in their online language, which in itself is ambiguous. Massachusetts, North Carolina, and Kentucky did not respond to my inquiry.

Keep in mind, this is just a survey of these states that have enacted specific regulations on the taxation of digital product. All other states are still free to impose sales tax on such digital products by applying their existing statutes. According to Wikipedia, “Some states presume that downloads are automatically covered by their existing tax statutes based on the common law definition of tangible personal property, which is anything that holds value on its own that is not real property.”95 Although most appear to apply only digital goods that are taken possession of (downloaded), not all offer such an exemption to access only streaming of content.

This issue involves more than just not paying sales taxes, with all that that entails. Although this only applies to about 20-30% of all states, they are among the relatively less populous. If we optimistically assume only 10% of Empower Network’s over $75 million in sales were made to a residence of these states, that’s an oncoming tax bill of around $4.5 million, not counting interest and penalties. Then there’s the cost of adding a tax collection and payment system, and the addition of several hundred dollars to the already challenging cost of going “All In”.

Also, the only thing that’s arguable here is whether or not access to streaming video training is taxable. Even if we discover that I’m 100% wrong – that is, the representatives in each of these states, some of which were the actual auditors who’s desk the buck stops on, are all 100% wrong – there’s still the issue of the downloadable audios and downloaded PDFs which make up almost all of the $100 monthly Inner Circle Training and a good portion of the $500 Costa Rica Intensive. Then there’s all the blogging tools and components that make up the $25 monthly Fast Start program. There’s no question that these are taxable in every state that taxes digital products.

To be fair, the taxation of online digital goods is a living creature in the midst of its metamorphosis, and its DNA still hasn’t been fully mapped. The line up of states just described, and how each interpret the taxation of digital goods, could be very different in a few months (there might even be one or two that have been categorized differently by the time you read this). But there is no question that in, at the very least, ten states, and for as long as Empower Network has existed, they should have been charging, and someone should have been collecting and paying, sales taxes.

Empower Network does not, nor have they ever, charged sales tax on any of their products.

Corporate Issues

Empower Network first incorporated in Delaware in September of 201196 and officially launched the following month, on Halloween. It appears, based on its registered street address.97 to have been operated out of a small home in a residential neighborhood. Which means nothing. Apple Computer was started out of a small home in a residential neighborhood. By May 8th, 2012 they moved to what appears to be a low rent office complex, and by February of 2013 their corporate address leads to an office suite with a shares meeting room and receptionist. They also have support facilities in the U.S. and Costa Rica with a staff of 97 (43 employees on site and 54 working virtually).

As the story goes, the Empower Network ovum was supposedly fertilized around late Summer of 2011 when a dozen people paid $2,997 to spend a couple days with David Wood at his Costa Rica home to learn how to make money online. David Sharpe was also in attendance. Online archives suggest a much earlier insemination with an Empower Network Zygote forming in March of 2011.98 By September 1st, 2011, two months before Empower Network’s official launch, there appears to have already been a small member’s list forming.99 Wood acknowledges there was a false start earlier in the year.100

Empower Network was co-founded by both CEO David Wood and President David Sharpe. Their rags-to-riches story basically follows the same arch, going from poverty and homelessness to millionaires in less than four years.

David Sharpe

Sharpe, 29, offers a somewhat incongruous time line where all along his career path, as he documents it online, he seems to have difficulty keeping track of his back story. He’ll join one opportunity as a “Broke 26 Yr. Old Punk Kid” who “Went From Swinging A Hammer To Making Over $10,456.89 A Month”.101 to another, less than two years later, where he had joined MLM “five years ago” and was at the “top of the leader boards”.102

Just after joining Bellamora in January of 2011 as one of their founding distributors Sharpe was claiming he had just entered the MLM arena “roughly a year ago”.103 A first year he describes as “very successful”.104 He claim to have joined Bellamora with a “proven track record of success”, yet by the end of April he was using the online headline:

“This is exactly how I went from flat broke to the youngest top income earner in Bellamora…”105

In his own Bellamora promo videos he claimed he was a “top income earner, a top leader, inside the industry”, yet literally four breaths later he states, “A few short months ago I was broke… I kind of stumbled on the network marketing industry. I had a little bit of experience and exposure but I failed miserably before.”106

What’s also notable is how quickly Sharpe’s views changed regarding “crucial things to look for when choosing an MLM company”. About eight short months before forming Empower Network he was telling Bellamora prospects:

“I’ll tell you exactly what must be in place for me to look at something, and what I evaluate when choosing a new MLM to build… the product has to be marketable and people have to be using it already. It can’t be a product people have to change their daily routine to use. If they do, it’s not a sustainable product.”107

Like daily blogging? He continues:

“Ten out of 11 billion dollar companies in the network marketing industry are skin care companies”.108

Companies, he says, that sell products that resonate with the aging Baby Boomer population – and in this case he’s right. That is, the same 49 to 67 year olds that, as a group, don’t have a great affinity to any form of computer technology, let alone blogging. He then went on to strongly praise Bellamora’s lucrative, high paying Unilevel compensation plan. The very type of conventional MLM plan he and Wood now claim pays “weenie commissions” and should be disregarded.

I wouldn’t put much weight on any of this as all networkers tend to pander to their particular audience at the time, and Sharpe did, in fact, go from poverty to prosperity in a relatively short time period. It just wasn’t quite as short as he sometimes suggested.

I did interview David Sharpe personally for over 1.5 hours, although not on my recorded podcast. He also graciously responded to my email asking for a concise career timeline. He responded (edited only for brevity):

“My first experience in the industry was back in 2005 as a distributor for Market America…My success there would be considered ‘just above average’ though.

“My next company was not for 3 or 4 years later. It was Liberty Freedom Network where I promoted a subsidiary company called ‘Wow Mobile’. Here, I was also an ‘above average’ distributor as far as results… on my way up the leadership levels… until the company stopped shipping products… and they quickly went out of business.

“I then got into online marketing, which is when I began to really thrive. I joined an affiliate company called MLSP (My Lead System Pro) and quickly rose to the top leadership levels.

“My next MLM was a company called Bellamora. I helped launch this company from pre-launch into live launch, and at the time of launch… had an active team of between 2,500 and 3,000… Several months after live launch the company tanked, due to shareholder disagreements (at least that’s what I heard).109

“This was the straw that broke the camels back for me. After two companies shutting down and seeing the aftermath of what happens in the field to reps and their families when bad leadership is running the company, I decided I was not going to actively promote another company unless I had a major role in the operations and decision making of the companies (sic) future – especially in regards to dealing with challenges that require perseverance and distributor treatment.

“So when Wood and I spent time together at an event he held, and he shared some of the initial ideas of Empower that we could build upon, I knew this was something I could get behind – mostly, because of our motivation, which was never to build to make a huge windfall of cash for the company. It was to give our teams a real fighting chance at success and results. (Hence the fact we launched a 100% commissions comp plan and paid for all the company expenses with our affiliate commissions…”.

Sharpe’s candidness suggests his omissions of both Numis Network and an online quasi-MLM scheme called “A Thousand a Week for Life” were likely innocent brain cramps and not deliberate. During our subsequent phoner he openly described his brief experiences with both.

From September to at least November of 2010 Sharpe was promoting Numis Network (numismatic coins) as his “primary” opportunity. His involvement in Numis appears to have been short-lived, and due to no fault of Numis, which at the time was doing well (Numis was recently merged into WorldVentures).

In June of 2011 Sharpe found his way to “A Thousand a Week for Life” where he made the claim that “Just over a year ago I was in financial ruin”.110 This program offers a series of downloadable internet marketing tools of somewhat dubious value (in my option) for an upfront fee of $149.80 and $124.80 every month thereafter.111 Sharpe’s sites related to “A Thousand a Week for Life” appear to still be active and functional,112 although he did confirm that he is no longer actively involved and “should probably take those down”.

Sharpe openly confesses to having once been a drug addict, and to now being clean and sober for almost five years. Other than one minor, albeit felony, arrest for using a fraudulent ID back in 2006113 he has no other criminal offenses.

David Wood

CEO David Wood, 32, provides us a back story a bit more linear and consistent.

By his own telling114 he ventured into the MLM arena back in 2002 by following his father into Amway. By 2005 he claims to have spent over $60,000 on his Amway business and managed to enroll only 15 people. He takes full responsibility for his failure (“I was unorganized”).

He and a number of his Amway downline then moved into Pre-Paid Legal. He earned $1,500 in his first week, only to see it slowly drop to around $250 a month over the next six months.115

Wood claims he then “took a break from MLM for about a year”, and elsewhere describes an “8 to 9 months break”, before joining Agel in May of 2005. Agel did, in fact, launch in May of 2005.116

Moving on, Wood testifies that he pursued Agel for about three-and-a-half years with his monthly income peaking at around the two year mark at $4,800, then dying off over the next 1.5 years while he was living in Alaska and his Agel downline was on autopilot.

Wood and his wife then moved to Hawaii and lived in a 1998 Dodge van for over two years.

By early 2009, Wood explains, van living (albeit in paradise) “got old”, and the itch for making money returned. I’ve found evidence online of various third parties claiming, around the end of 2012, Wood’s reemergence and quick rise to wealth occurred “2 years ago”, just before Empower Network was launched. Wood himself claimed on May 17th, 2011 that he was still living in his van “18 month sago”.117 So now he’s leaving his van in December of 2009. But there’s clear evidence he was already “the best team to join” in his next MLM venture, iLearningGlobal, in July of 2009.118 A month later he joined MyLeadSystemPRO119 where Sharpe would join him a few months later.

Wood’s achieved his first significant, prolonged success in iLearningGlobal where he was the “number one recruiter” with earnings up to $30k a month. iLearningGlobal abandoned the MLM model (and their several thousand reps) in March of 2010.120

From Mid-March, 2010 to at least Sept, 2011 Wood was promoting Numis Network.121

Wood, like Sharpe, portrays himself as an in-the-trenches egalitarian with no particular advantage over any other Empower Network affiliate. In a YouTube video uploaded a couple months after Empower Network’s launch Wood audaciously states:

“We actually make money the same way everybody else does. We’re not the gurus at the top of the mountain… the reality is, we started like you, maybe even in a worse situation than you.”122

I would defy David Wood to find even one person within their mountain of members who would reject the offer to switch positions and assume his possibly “worse” situation – literally at the top of that mountain!

At a recent live Empower Network event Sharpe exclaimed from the stage:

“I’m a guy, one guy, out of a room full of people who are all at the same place right now, in the same room, with the same tools, with the same chance.”123

The “same chance”? Really? So the apex position of the entire international organization, that is guaranteed to have 100% of all affiliate recruitment and sales volume occur under it, that is occupied by the two very popular co-founders who are literally the faces of the company, has the “same chance” as those in the audience? By setting themselves up in what’s referred to as the “Master Distributor” position, in less than 22 months they’ve made about eightmilliondollars!

Please understand, I have no issue with founders setting themselves up in the top position. In fact, I often recommend this strategy to my start up clients. I also understand, as both Wood and Sharpe have explained, what the spirit is of what they are going for here (i.e. We’re all in this together… we make money from the same comp plan you do, etc.). What I have a problem with is the implication that they’re on a level playing field, with the “same chance”, from an income opportunity standpoint.

Wood and Sharpe have also started taking a “reasonable” corporate salary in recent months, but in their defense the only way Empower Network was funded the first few months was from their pinnacle position’s commissions. That is, out of their pocket, which is still occurring, although to a lesser extent since monthly affiliate fees were introduced. Allegedly this is where much of the $3.2 million came from to develop their new “2.0” blogging technology. Considering affiliate fees over just the last 12 months would have garnered just over $9 million124 and the fact they’re selling an ultra-low overhead virtual product requiring no manufacturing, warehousing, or shipping, and with a support staff of only 97 (which is relatively small for a company doing almost $6 million a month in sales), the fact they covered any of it appears to be an act of philanthropy.

Corporate Image & Culture

Empower Network (i.e. Dave Sharpe and Dave Wood) has created an unusual, and surprisingly effective corporate image and brand. Wood walks the stage of every event barefoot, in Bermuda shorts and a sleeveless T, making Sharpe appear overdressed in his ripped, faded jeans and sandals. Their vernacular appears designed to resonate with both Gen-Y, Gen-X, and Gen-XXX. As previously mentioned, within one poorly lit, unscripted training video Wood throws out comments like “I was actually looking at the commission plan the other day and got a boner”.125 When congratulating an affiliate on Facebook for having a $40,000 week he exclaimed “Isn’t this shit gangster!”.126 During the aforementioned roll playing session within their New Member Coaching training, Wood confides, “That’s kind of why I joined. Fuck the bullshit, I’m getting 100% of the money!”. Sharpe often uses the F-word from the stage, such as his question to an audience in San Diego, “Are you fucking bad ass enough to meet us in Austin?”. In the above referenced Costa Rica Mastermind letter co-authored by both Sharpe and Wood they exclaim, “Most live events SUCK BALLS…”.127 The Empower Network theme seems to be based on the premise that if you go “All In” (for $5,125) you are “sexy” and a “badass”, otherwise you’re a “wussie”, or a “weenie”. And being the badasses that they are, Wood and Sharpe will “punch wussies in the face!” (I’d be more impressed if they punched badasses in the face).

Empower Network’s primary demographic, based on the numerous back stories I’ve listened to, appear to be residents of the Island of Misfit Toys. Dave Wood candidly describes them as an eclectic group that includes, “a baby boomer…an atheist… a Christian preacher… an ex-alcoholic.” He concludes, “We have the most diverse group on network marketing.” Yet, in spite of this rogue, rebel-with-a-cause culture Empower Network seems to have attracted no fewer elder participants than any other MLM company. Within the group of 104 survey subjects and those online images of so many others I’ve viewed, boomers abound, as well as quite a few more mature folks who would likely find their company’s CEO openly discussing his erections somewhat off-putting.

And yet, here they all are, and no one seems to be bothered by any of this one bit. In fact, they appear to find it hip and endearing. In spite of an image that would normally invoke trepidation and a lack of confidence in corporate leadership, somehow Wood and Sharpe have managed to induce parents of children to invest their rent money into Empower Network, another to sell her only car so she could go “All In”, and several others to abandon profitable MLM organizations to start over from scratch with Empower Network.128

How did they accomplish this? Here’s my theory.

Just a couple weeks before Empower Network launched, Wood & Sharpe conducted a conference call on the topic of “Hyptonic (sic) Selling Secrets”. Within this presentation they covered, “How to use hypnotic selling language to influence prospects and potential customers to buy your products and join your business.” The description of the call goes on to say, “When used and mastered, ‘hypnotic language’ can produce results for your bottom line that will astound you. ‘Gurus’ like Tony Robbins use ‘Hypnotic Language’ and ‘NLP’ (Neuro-linguistic programming)129 to influence auditoriums of people and millions of viewers to build million dollar empires… all with the power of words.” You are then asked to, “Download and listen to my partner (Dave Wood) and I train on how to effectively implement these techniques into your daily communication habits… then sit back, relax… and watch how these subtle strategies create massive windfalls of profit.” You’re then asked to enter your email for “more ‘mind control’ and influence secrets.”130

“How to ‘Hypnotically Force’ Your Prospects to Buy Now Through the Power of Video.”131

Wood and Sharpe are masters at more than just creating mantras (e.g. I’m All In, Get two a day) and buzzwords (e.g. badass, wussie). Cultish behavior is exhibited when audience members don Guy Fawkes masks132 and chant “The Year of Empower”133 while the leaders on stage fan though huge wads of hundred dollar bills.134

“How to create an almost ‘Cult Like’ following of people that are at the edge of their seats,
waiting to hear anything you have to say.”135

I wonder, as Wood and Sharpe teach these manipulative, mind controlling techniques to Empower Network affiliates, so they can “Hypnotically Force” their prospects to join and buy – has anyone considered the possibility that this same “hypnotic language” was used on them, to get them to join and buy?

When I confronted Dave Wood with the question, “Are you using these techniques on your own people?”, he candidly responded, without reservation, “Of course. I’d be stupid not to.”136

What’s the root word of “culture”?

Policies & Procedures

Empower Network is actually not that unusual in that their termination/suspension terms require affiliates to agree that:

“…under certain circumstances and without prior notice, Company may suspend or terminate your use of the Site or Service, including without limitation, if Company believes, in our sole and absolute discretion, that you have breached a term of this Agreement.” (emphases added)137

Their “Terms of Service” go on to state:

“Upon termination, your license to use the Site or Service, and everything accessible by or through the Site or Service shall terminate and the remainder of this Agreement shall survive indefinitely unless and until we choose to terminate them”

It doesn’t get any better:

“Upon termination of any part of this Agreement for any reason, we may delete or assume ownership of any Content or other things-including without limitation URLs, blogs, domain names, and email lists-relating to your use of our Site or Service that is on our servers or otherwise in our possession or control, and Company will have no liability to you or any third party for doing so.” (emphases added)

So, now who do you think actually owns your Empower Network blog?

When confronted with this policy language Dave Wood responded, “Have we ever done that? No. Would we? No. At least as long as I’m alive. Dave Sharpe would never do it.” He conceded, “Maybe we should look at changing the terms and conditions”. To that end, Wood requested that I provide a written list of all language within their terms and policies that I found objectionable for their further review. Which I did on July 16th, 2013. As of August 26th, 2013, no policy language has been revised or omitted.138

Empower Network’s restrictions on the sale, transfer, or assignment of an ironically titled “Independent” Empower Network Business (which presumably includes its bequeathment) include Empower Network’s “right of first refusal to purchase the business on the same terms as agreed upon with a third-party buyer.”139 Should Empower Network elect not to purchase the affiliate’s business they must still submit a $1,500 transfer fee “to reimburse (the company) for its expenses associated with the transaction.” Empower Network must also approve the sale, which is reasonable as long as such approval is not unreasonably withheld. That is, unless you’re selling to someone who already has an affiliate position in Empower Network (which they refuse to relinquish), or you’re giving it to Charles Manson, Bernie Madoff, or your pet cat. However, besides the obvious fact that a distributorship in an MLM program is yours, not the company’s, and you should be able to sell, give, or will it to whomever you wish without having to offer it to Empower Network first, I’m baffled as to why such an unreasonable and disagreeable policy would even be in place here. There is also a policy against having more than one affiliate position140 and the “company” is essentially Dave Wood and Dave Sharpe – who already have an affiliate position in Empower Network and thus would be ineligible to acquire another one.

The most egregious part of this policy is the $1,500 “transfer fee” to cover the “company’s expenses”. This process involves a support rep changing a few data fields. Even considering eWallet account transfers this obviously has no significant cost to it otherwise there would be a $1,500 enrollment fee. Most MLMs do have transfer fees, but they’re usually $50 to $250. Anything higher is just gouging. And to suggest this is to cover the company’s “expenses” is insulting.

Within their Policies & Procedures141 Empower Network reiterates that they may deem you in violation at their “sole discretion”142 and “may also elect not to renew an Affiliate’s Agreement upon its anniversary date.”143 This allows them to basically terminate someone on their anniversary date without even having to site a policy violation. This policy also acts as a circuit breaker for damage awards should a wrongfully terminated affiliate sue for back pay and future lost earnings (only back pay from the point of termination to the anniversary date would be subject to such damages).144 I’m not suggesting they would ever exploit this clause to terminate someone unjustly. I believe Wood when he says they’d never do such a thing. So… why declare in your P&Ps that you can?

They also have strict policies regarding “Online Conduct” that forbids “misleading or deceptive” websites.145 I wonder if this applies to the 80 websites I viewed (out of 94) that implied they were offering an objective, unbiased review of Empower Network, or exposing it as a “scam”, but were actually bait-and-switch affiliate sites promoting Empower Network?

Wood’s response: “I would have to look at it… We have a full time compliance department monitoring it. It would completely depend, so I would have to look at it. Somebody could say ‘Empower Network is a scam’, and then you click on it and it says ‘Just Kidding – let me show you the reasons why it’s not’, and I just think that’s funny, and I don’t think that’s deceptive.” He summarized, “I’d say that should be looked at on a case by case basis. I know we’ve got a full scale department of people who do nothing but monitor compliance issues and talk with reps and get people to fix things, and we’ve got a gigantic, gigantic log of it.”

Wood’s opinion of this practice was somewhat different a year ago when he produced their Fast Start training videos. Within Lesson #2 Wood’s laments, “Everybody around me was just writing reviews about companies. It was like, ‘Affiliate marketing review – is X product a scam? Network marketing review – is X company a scam? You know what? People see it and say ‘This guy is a boring asshole’.” He continues, “Do you see people liking posts like that on Facebook? Do you see them sharing them on their wall? Do you see people saying, ‘Oh yeah, I want to participate in the discussion under this post. No. What happens is somebody sees the post, they open it, and they hit the X button and they leave the site.” I agree with Dave’s original opinion of this practice.

Reminder: Of the top 100 search results for sites who’s URL’s contain, 94 were promotional sites for Empower Network. Of those 94, 80 were bait & switch “review” sites operated by “boring assholes”.

Empower Network’s P&Ps also forbid any suggestion that “one can be successful without diligently applying themselves.”146 They provide a list of “improper representations” that should never be made (e.g. “It’s a turnkey system”, “The company does all the work for you”, and “All you have to do it buy your products every month”). The list includes the suggestion that one should “Get all in”, presumably because this suggests that by making your self eligible for commissions from all products you might earn effortless income rolled up from those sales made downline to you.

Wood’s questioned, “Is that in our policies and procedures?” Once confirmed, he replied, “We got to look at that then. Because we say that… that’s just a disconnection between departments.”

But the concern really wasn’t about whether the policy against saying “Get all in” should be removed, but rather, should it be enforced?

Corporate Associations and Alienations

It seems Empower Network’s efforts to gain the trust and acceptance from various other symbiotic entities has been challenging.

According to Dave Wood their US based merchant services account (i.e. ability to accept credit cards) was “shut down twice in our first 120 days”.147 Although, to my knowledge, no clear and definitive explanation has been provided as to why their first MS provider dumped them (First Data), the reasons why they, or the associated bank, would choose to reject such potentially massive revenue are limited. I’ve found no evidence of any unauthorized charges or excessive charge-backs, so it’s more likely that Empower Network’s account was reassessed and found to be “high risk” (as MLM companies, those selling high ticket virtual items online, and any form of start up are often considered). Frankly, I’m impressed they managed to get a merchant services account at all considering they scored the high risk hat trick. Dave Wood’s suggested his own theory as to why First Data “got nervous”, which was “we were bringing in too many merchant accounts…”.148 Considering First Data has always been a very MLM friendly company149 and surely the potential number of merchant account applications was fully revealed to them (yes?).150 I have to believe there’s at least a little more to the story, which Wood and Sharpe may genuinely not be privy to.151

Wood alleges he was blindsided by a “left hook from the middle of nowhere” when CardFlex approved them and then abruptly shut them down. At the time Wood claimed no reason was given other than “business type”. In his interview he opined it was because, “we hadn’t been processing (merchant account applications) for maybe a month…”, then turned them off, “because they got slammed with thousands of applications.” There was some online chatter, never from Wood or Sharpe, about a private email from Wood to affiliates (that I’m not privy to) where he allegedly claimed CardFlex’s rates were too high. Although this was likely true (desperate “high risk” companies are often offered merchant services accounts at excessive loan shark rates), it suggests the separation was voluntary. Such online chatter is incorrect. CardFlex was also on my list as an “MLM Friendly” merchant services provider, so I knew there had to be more to this story. I contacted them and learned that their position regarding “legitimate” MLM companies had not changed. I further learned that Empower Network was rejected due to concerns specific to Empower Network and not simply due to their “business type”. The CardFlex rep would not elaborate (nor should he have).

For their first few months Empower Network was offering a number of payment solutions, including; AlertPay, PayPal, CardFlex, LinkPoint and PayPal was dropped in January of 2012 allegedly due to Empower Network’s inability to support billing questions.152 They discontinued the integration of (for those who wished to accept credit cards) in December of 2012 again citing Empower Network’s inability to offer customer support with billing issues.153 Although a reasonable reason, this begs the questions, Why were either of these implemented in the first place, and why didn’t this apply to all forms of payment directly between the selling affiliate and buyer (the large majority of them at the time)? The way this was spun seems to suggest it was Empower Network’s decision to voluntarily cut ties with and PayPal. That is very likely not the case. PayPal has a policy specifically forbidding “certain” multilevel marketing ventures.154 and Dave Wood has brazenly declared, “PayPal sucks, they hate us.”155 Elsewhere Wood stated, “What I’ve realized is that getting everybody merchant accounts is not a sustainable solution. It is not. It is not going to allow us to continue to do what we’re doing. Working through PayPal is not a sustainable solution. Alert Pay sucks.”156 Considering nothing more than the risk of massive numbers of complaints when billing is handled by tens-of-thousands of independent affiliates with their own merchant account, one must wonder why this was ever part of their business plan. But that’s what they were doing, not what they are doing. This issue has long since been fixed.

It appears Empower Network is now using a foreign based credit card processor in conjunction with their own in-house eWallet system.157

During Empower Network’s first three months they faced a lot of challenges that prevented them from processing orders and enrollments, which included multiple server crashes. To their credit they did weather this storm well, and ultimately found all the necessary solutions. However, it appears to have gone without notice that the entire time the large majority of affiliates were unable to process orders due to lack of a payment solution – during the first three critical months when many of the top prospects are enrolled – there were two Empower Network affiliates with their own private merchant account who never lost such enrollment and sales ability. Dave Wood and Dave Sharpe.158

To be clear, I am not at all suggesting Sharpe and/or Wood orchestrated all of this just to give themselves a tactical recruiting advantage early on, nor do I believe, or even suspect, that they exploited this situation for their own personal gain. Had they, the echoes of pissed off affiliates who lost good prospects to The Davids would still be bouncing all around cyberspace. There isn’t. Not one. However, industry best practices suggest that while placing founders and/or senior management atop the organizational tree is not bad form,159 allowing them to continue to recruit and sell in direct competition with their own affiliates is – at any time post-launch, let alone when the field’s ability to recruit and sell is crippled. If you had a choice of being sponsored by an inexperienced rookie, or by both Dave Wood and Dave Sharpe personally, which way would you lean? Think, a single Brad Pitt or Angelina Jolie running an online dating service that they were also members of. What’s more, Sharpe and Wood also now take a corporate salary derived from the $19.95 monthly fee used to cover company overhead (they did not for the first several months).160 In most MLM companies the field would revolt if they found management was recruiting or selling in competition with them. Such corporate cake having and eating scenarios routinely result in a backlash, sometimes so severe it wrecks the company.161 My visit to the corporate office of an MLM company back in the 90s, while looking for an MLM home to build in, resulted in a firestorm when word got out that I and my team (three other well known industry leaders) had joined that company, but none of the founders could find us in their downline. The assumption was that we were given a front line position to the company. Thus, corporate had just recruited us! In fact, we were not in anyone’s downline because we had never joined the company (and went on to join another opportunity instead). I’ve seen such gatherings of torch and pitchfork wielding reps at the gates of the home office many times over the last 23 years for what is usually considered to be such dastardly corporate behavior.

But no one seems to have a problem with this in Empower Network. Not one person. Not even a little. Which is a very unusual… culture.

In August of 2012 Facebook banned Empower Network user groups and Empower Network links from appearing within posts. They did not outright “ban Empower Network”, as some critics have claimed. Facebook does not appear to have any issue with Empower Network itself considering there are still numerous pages devoted to it. It looks like Facebook just got fed up with the prolific spamming and obnoxious hype by a vocal minority of affiliates.

In a personal email to affiliates regarding the Facebook action, Dave Wood declared, “’Move fast, and break things’ has ALWAYS been our motto.” Ironically, and perhaps intentionally so, this remark is borrowed from the quote “Move fast and break things. Unless you are breaking stuff, you are not moving fast enough.” Facebook founder Mark Zuckerberg said that.

“Screw you Facebook!” Dave Wood said that.162

Beginning late January, 2013 YouTube began blocking a large number of Empower Network affiliate’s videos claiming they had violated their policies against “spam, scams and commercially deceptive content”, and in several cases (usually repeat offenders) terminated their entire YouTube account “due to repeated or severe violations of our Community Guidelines and/or claims of copyright infringement”. Word on the cyber streets was that YouTube had “banned Empower Network”. Again, this was inaccurate. In fact, several banned accounts were reinstated by the affiliate simply appealing their termination. Besides that, a YouTube search for “Empower Network” back in February 19th, 2013 returned 18,700 results.163 As of July 1st it returned 85,300 search results. August 30th, 122,000. Dave Wood claimed this was an organized and malicious campaign to deluge YouTube with “flagged” videos. Actually, considering the number of competing companies and groups they’ve disrupted, I don’t find this far fetched. Wood issued a “BIG, SCARY WARNING” to whomever the perps were, threatening them with a lawsuit.164 Since then the blocking and banning seems to have subsided.

Empower Network’s relationship with Google is one they can’t live without, and there has already been signs of discontent, albeit small ones. There was a brief time a few months ago when peripherally related searches would have Empower Network lined out within the “More results for…” line (e.g. More results for empower network Google products forum). I have never been able to duplicate this result. I’ve also been hearing complaints about Empower Network sites being deindexed by Google causing them to appear much lower, or not at all, in the search results list. Although Empower Network sites do appear to have been tamped down a notch on search results, I can find no evidence of any orchestrated effort by Google to list their sites substantially lower, at least within the last six months and, at least, for now.

On a BIG, SCARY SIDE NOTE, if Google should ever deindex Empower Network sites resulting in their disappearance from search results, this could be a huge challenge. We already know YouTube is getting annoyed with them, and guess who owns YouTube?

Dave Wood recently quoted an affiliate who said, “We have to be doing something right for the universe to push back at us so hard.” Wood’s response was “Isn’t that true?”.165 Um… no. It’s not. The “universe”, whether you consider this the laws of physics, nature, or an even higher power, tends to favor the good. Can you imagine a universe that strongly opposes and impedes the positive and favors the negative? Empower Network’s early challenges were clearly due to poor planning resulting in a premature launch, with inadequate servers and no viable, secure, long term payment solution. Yet, reps are lead to believe their leaders are so powerful they can overcome all the obstacles thrown at them by a belligerent “universe”. Say what you will (or I will), these challenges were overcome because Dave Wood and Dave Sharpe are very good at overcoming challenges, even the one’s they created for themselves.

Growth Trends

All MLM companies are either growing or shrinking. They never stay level for very long. At this time circumstantial evidence suggests Empower Network may be approaching the top of their bell curve, but they are not “going down”, as certain critics have suggested. I’ve been tracking the annualized average of a combination of monthly incomes of all those affiliates earning $20,000 or more and those earning less than $500 (for active affiliates only) since mid-November 2011. The overall trend is still clearly tilting upward.

Empower Network Avg Earnings (Aug13)

The percentage of affiliates falling within the lowest two income segments (less than $500 monthly) has slowly but steadily risen.

EN Pct Bottom Ranks

Although I’m not a big believer in using web traffic in gauging a company’s growth, for what ever it’s worth Alexa also shows their mid-July event (where they introduced their new blogging platform) routed a five month downturn in traffic.166

Empower Network Alexa Reach (8:22:13)

Both Google Trends and Alexa show the number of searches for “Empower Network” to be gradually dropping over the same period of time, with a spike just after the July event.

The chart below depicts overall member growth (affiliates and customers) since inception. Red arrows indicate event months.

Empower Network Member Growth(8:13)

Actual monthly enrollment numbers for 2013 are:

January 9,478
February 10,017
March 12,582
April 15,457
May 12,190
June 9,962
July 11,190
August 11,198 (projected from the 27th)

Dave Wood noted that someone had “tweaked” their order page in June which “massively reduced our conversations for about three weeks.” Normally an enrollment glitch only postpones sign ups and squeegees them into the next period. However, a change that reduces “conversions” implies something caused visitors to not even be interested in enrolling who otherwise would have. However, even giving them that, considering the vast majority of enrollments are directed to the marketing site by a referrer, not “orphans” who just stumble upon it, surely a good portion of those folks would have revisited the subsequently untweaked version of the site, thus migrating their enrollment from June to July. Yet, in spite of this, and the fact there was an event in Denver from the 19th through the 21st that left ten days of heightened enrollment time, July enrollments were the second lowest over the last five months with only June’s compromised enrollments lower. But then, I could also proclaim July enrollments to be “the fourth best month in Empower Network’s history!”. And both arguments would be technically correct.

Wood claims several major hitters with massive lists joined in the first quarter of 2013 and blew up their enrollment numbers in March and April. Circumstantial evidence, such as the number of newer affiliates who started cashing in earlier this year, suggests this is true.

Here’s where I fall on this point: Let’s omit March and April as exceptional months not consistent with Empower Network’s normal growth trend, and June due to the one time negative event. This leaves us with an average of 9,748 enrollments in January and February, and 11,194 in July and August.167 Looking back, let’s add in a dash of January Boom (a seasonal spice that blooms for most MLMs post holidays) and some July Dip (another condiment experienced during the Summer) and all the more reason to believe Empower Network’s growth hasn’t reached it zenith.

It’s too soon to declare the Empower-Party over, and even the negative indicators may very well flip to a nice shade of Kelly green when the leaves start turning brown. One of Empower Network’s biggest challenges moving forward, besides possible legal scrutiny, are the number of knock-offs and copy-cats that are already forming. They will surely have a strong allure to those who were tardy to EN’s pecuniary party and see the opportunity to flip their organization (get their old upline into their new downline). My prediction: October will be among their best months, perhaps even a record month considering they have four events scheduled.168 Their growth will form a bell curve with sales coming down not long after Christmas trees do.

Compensation Plan

Empower Network’s “pass up” plan is based on what’s commonly known as an Australian, or “2-Up” compensation plan. In a basic 2-Up the commissions on the first two people you enroll roll up to your sponsor. You start earning from the third sales on. Likewise, the first two enrolled by the third person on that you enrolled get passed up to you. The 2-Up has gone in and out of favor within MLM for at least the 23 years that I have, and has been the plan of choice for many of the more questionable quasi-MLMs and money games. To my knowledge, no high profile, legitimate MLM company with tangible products of value has ever existed more than a couple of years with a classic 2-Up plan, which appear to be virtually extinct today. The few opportunities that still use any variation of this plan have all revised it in some way. For example, they roll up the second and third, just the first (a “one-up”), or they rotate who falls within your first two. For a complete exposé of the 2-Up pay plan, check out my article “The Australian 2-Up Plan: Illusions of Grandeur”.169

Empower Network has chosen to roll up your second, fourth and sixth sale, and then every fifth sale thereafter (a 3-plus Up). Another unusual aspect is that they apply a completely separate “power line” (or 3-plus up plan) to each product. This is, if you made a sale of a $25 “Fast Start” training to five people you would earn a $25 commission on the first, third and fifth sale. But if #1 is the first to buy a $100 “Inner Circle” subscription and #3 is the second, you would earn $100 on #1, but #3 would roll up since it’s your second sale of that specific product. Same with all other products. Even if the $100 commission was in your “Power Line” (would roll up to you), if you had not purchased the $100 monthly “Inner Circle” program (or sold one to a customer) the $100 commission would skip you and pass further up the line. Same with the $500 to $3,500 products – and Wood and Sharpe exploit this fear-of-loss angle to the hilt in Empower Network training.

It’s very important here that you understand a plan’s “weighting”, so please indulge a little side trip.

Plan Weighting

A plan can be front, middle, or back weighted. A front weighted plan spreads the payout more evenly. More participants make money, but those who do make less, on average, because it’s spread more thinly across more people. A “compressed” unilevel plan that pays 40% on the second level (e.g. pays five levels, 5%-40%-3%-2%-%1) would be a front weighted plan. A back weighted plan is one where fewer participants make money, thus those top producers that do make more due to the concentration of commissions on that smaller group. Most break-away plans, like those used by Nu Skin, Herbalife, and Shaklee, would be considered back weighted. They have the highest percentage of millionaires, but also the highest percentage of those making no profit at all. Of course, a plan cannot be all things to all people. When you add weight to one part of the plan you must remove weight from another.

In one of the numerous online videos produced by Dave Wood he laments how his income from his previous MLM company was “stuck” at about $30,000 per month.170 “It just wasn’t a lot of money”, she claims. “So the reality was the amount of money I was getting for my work was miniscule.” He then tips his hand by describing how he rhetorically asked himself, “How can I get myself doing the same thing I’m doing now, but rather than make $30,000 a month make a quarter million, and how can I get the guys making $10,000 making $50,000 and those making $2,500 making $10-$15,000, without doing anything more?” Even if Empower Network really was doubling the payout from 50% to 100% on the products sold (which, as you will soon see, they are not), this only gets Wood part of the way to his goal (e.g. from $30,000 to $60,000, but not even close to $250,000). To get his earnings from $30,000 to $250,000 per month, and other top earners five times the income, all with the same effort and same number of sales, there’s only one way to accomplish this: Heavily skew the plan’s weighting to the back end, so those few at the top will make substantially more – in lieu of the large majority making less. That is the only way.

One of the reasons a 2-Up type of plan has been popular with money games in the past is that it tends to be very back weighted, thus squeegees a lot of cash to the top of the tree where the scheme’s founders sit. In the late 90s a company called Art of Better Living launched with a 2-Up plan. I had worked with its founder for a short time when he operated ABL’s predecessor. During this time he described to me how, once he rose to the CEO position in an earlier company, the first thing he did was dump their 2-Up style plan because “it isn’t fair… it rolls all the commission to the top”. Then when he launched ABL, his own company, he chose a 2-Up style plan. One of the top leaders of ABL at the time indulged me in a relatively friendly on-line debate where he attempted to debunk my claim of 2-Ups being generally poor paying to all but the top few. He citing ABL’s total first month commissions of $60,000 to over 700 reps. He then cited the “top three checks” issued that month – $12,000, $10,000 and $8,000. I then thanked him for completely proving my point. That is, over 50% of all commissions paid to those 700 reps went to the top three people.

Granted the Empower Network plan is not the ABL plan, but the mechanisms that tend to migrate commissions upline are still in place.


If you do a Google search for graphic images of the Empower Network plan you may notice one peculiar monofilament.171 They rarely explain what happens beyond three levels, and if they do they never go wider than the first person you’re paid on (i.e. what happens in the above diagram if Mary sponsors four, who sponsor 12?). If this were to be revealed it would become evident that, yes, you are getting paid a “100% commissions”, but on a rapidly diminishing percentage of those sales in your downline. The above example seems to depict John with a three level team of 19 people, of which he is receiving “100% commission” on eight of them – and 0% on the other eleven. In reality, if we were to assume everyone in this scenario were to enroll four John would have 84 within his first three levels and be receiving “100% commissions” on fourteen of them (16.67%) and nothing on the other 70. Taken another level deeper John now has 340 in his group, and is getting paid on 30 of them (8.82%). By level five it’s 1,364 and 62 (4.55%), and by level ten he’d have over one million sales on his tenth level alone – and would earn a “100% commission” on one-tenth of one percent of them (0.01%).

“This is what’s happening if you ain’t in Empower Network.
You’re bending over and taking it from the rear with weenie ass commissions.”172
– Dave Wood

Empower Network reps, and founders, love to mock those “primitive” MLM programs that only pay their reps “20%, 30%, 40%, maybe 50% on one level”.173 When Dave Wood made the previous quote he was referring only to commissions earned in traditional MLMs paid directly to the seller from that one sale. He, like most Empower Network reps, are loathe to acknowledge how MLMs typically pay on deeper levels. You’ve already been given a clue as to why. In those archaic, “old school” MLMs, if the plan paid, let’s say, 10% down five levels, and you were to amass the same 4×4 progression to 1,364 people (per the example above), you would be getting paid only 10%, that’s true – but on all 1,364 sales! Not 100% on 62 of them and 0% on the other 1,302. Put another way, you would earn 10% of 100% of the sales rather than 100% of 4.55% of the sales.

Bottom line: In this scenario, if both teams produced $500,000 in volume within those five levels, Empower Network would pay you $22,750. The old, obsolete MLM would pay $50,000. This is in spite of Empower Network applying 100% of most product sales volume into the plan and conventional MLMs only 40-50%. I’ve calculated several different progressions and Empower Network always starts to fall behind in total earnings at about the fourth or fifth generation.

Wood defended this point by resorting to the “that’s perfect math, they never really form like that” argument (I’m paraphrasing), and then cited how many affiliates had earned a check within a series of income ranges.174 I countered that the progression was not a factor, and that any progression, even a random one, or one extracted from real world data, would create the same results. It’s simply a mathematical fact that the percentage of sales the 100% commissions apply to becomes minute after five or six generations, no matter what the progression is.

In spite of David Wood’s claim to the contrary175 the rolling up of commissions to the rarified few also seems to be occurring within Empower Network. I cobbled together numerous online claims as to Empower Network’s sales, commission and affiliate numbers at various points in time, and compiled the incomes from images of all those holding their oversized checks at events. From this information I was able to extrapolate income data that shows that, as of Jan. 19th, 2013 (the date of their Austin, TX event) Empower Network had about 80,000 affiliates and customers, had paid out in 2012 about $24 million in commissions, and the top 23 earners amassed approximately $7,865,931. That is, out of 80,000 people, one third of all the commissions paid in 2012 (32.8%) went to 23, or three one hundredths of one percent (0.03%), of them.

In the above extrapolation I included $1,840,833 as Wood’s and Sharpe’s 2012 income based on a video of them holding a giant check for that amount at the Austin event,176 and a passing comment made by Wood during a video of Wood describing “How to make $1 million in 2013”. In the video Wood asked Dave Sharpe if he’s excited about getting such information, then abruptly answers his own question with “Dave Sharpe isn’t excited about it, he’s like eh, I want to make $5 million. I made $1.9 million last year”.177 This makes the Wood/Sharpe affiliate position the top earning affiliateship for 2012 by three times the next highest earner (Lawrence Tam at $624,550178 and income almost as high as the next four highest earners combined.

No extrapolation was needed for June of 2013 as Empower Network freely provided the commission data. Of the $4,032,750 paid in commissions that month $1,418,950, or 35.2% of it, went to the top 25 earners (out of about 30,000 active affiliates). That’s well more than one-third of commissions going to 8 one-thousandths of a percent (0.08%) of comp plan participants. The Sharpe/Wood position earned $333,625, a little less than double the second highest earner’s $179,675, which itself was more than 14% greater than the #3 and #4 earners combined ($98,250 and $59,000 respectively).

According to Empower Network’s own Income Disclosure page, 91% of all affiliates earned less than $75 over the last 30 days (and averaged $27), and 97% earned, at most, $425 with a weighted average income of $29.55 – which means earnings were massively skewed towards the low side of that zero to $425 range. An annual analysis shows 91% of affiliates earning less than $75 in any single month over the previous 12 months, with an average annual income of $36.

Wood’s recital of the number of earners in various income ranges does show a larger than average number of affiliates are making at least something, but this is somewhat misleading in that it only takes a single sale, for a single month of their $25 product to generate a $25 commission. So although it is technically true that almost 7,900 affiliates, or about 30% of them, “earned a commission” in May of 2013, 3,607 of them (46%) earned one $25 commission, and 61% of them earned less than the $125 it would take to pay for their own two monthly products.

While it is true that in most MLM programs the large majority of commissions are paid to a small percentage of distributors, because only a small percentage do what they are suppose to do, well enough, long enough to earn any significant commissions, this doesn’t explain over one-third of the commissions going to a couple dozen reps. Wood offered a valid comeback to the issue of their top position making 86% more than the second highest earner. “I’ve sponsored 5,000 people”, he said. “And the next closest person isn’t even half”. Fair enough. That does explain, in large part, the difference between #1 and #2. But then, why does the #2 earner make 83% more than the third highest, who makes 67% more than the fourth highest earner? Are we to believe 25 people out of 146,000 (total as of May) received 35% of the commissions paid simply because they recruited so many more than the other 145,975? Even assuming this was true it would only raise an entirely new concern – if “anybody” can make megabucks in Empower Network, why are these few at the top so disproportionately successful? What unique advantage does one have to possess to be among them? Extensive blogging experience? A gigantic list? Great writing ability? What ever it is, this would indicate that it absolutely must be something.

But that’s not a concern, because I don’t believe that’s the explanation for this top-heavy income distribution, nor is it just par for the MLM course. It’s simply a top heavy, back end weighted compensation plan that’s designed to do precisely what Dave Wood envisioned – allow top producers to make several times more income from the same amount of effort.

Another serious flaw in these “pass up” style plans is the ability to manipulate how and to whom commissions are paid, or what’s often referred to as “bonus buying”. The most common way this occurs in pass-up plans is to simply enroll a shell (your friend, dog, house plant, etc.) for the lowest priced product in each position that rolls up commissions leaving all the paying positions for actual orders. By separating each product into its own separate pass-up plan Empower Network has cleverly plugged that loophole. But others not only still exists, they are magnified in the Empower Network plan. For example, you can enroll and qualify a shell position using a friend or family member’s identity (or better yet, your own business entity), then enroll yourself under it and have the lower position do all the subsequent enrolling and selling. The result is that all commissions are now captured, no matter where they fall in the series. They either pay your second position directly, or are passed up to your first position. Or, if you know a $500, $1,000 or $3,500 sale is eminent but it will land on one of your first even numbered (passed up) sales, buy the same product using a shell, make the sale under your original position (which is paid to your eWallet account instantly), then demand a refund via your shell position within 72 hours. Both examples require an extreme lack of ethics, if not an almost psychopathic lack of empathy for your sponsor – and an Everest size mountain of chutzpa. These strategies would not be used by “wussies”. One would have to be a real “badass” to even consider them. Nonetheless, such options are made fully available by the Empower Network plan. Sure, there is a strict policy against such tactics.179 But then, Empower Network also has strict policies against making unqualified income claims.

Another challenge to generating long term, residual income is the fact that all three of their highest commission generating products are one time sales. Continuous income from these products demands a never ending influx of new affiliates, or at least new buyers. This is why we’ve seen non-consumable hard goods (e.g. water purifiers, alarm systems) all but disappear from the MLM landscape. Whereas, selling something once, to one person, that continues to generate ongoing monthly income offers obvious and powerful advantages in the production of residual income.

Yes, there are two products that generate monthly commissionable volume, but one of them generates only $25.00. When an MLM company calculates your commission check here is a number of both sides of the multiplication sign. They multiply those comp plan percentages by commissionable sales volume, and it’s the sales volume side of the equation that has far greater influence on your income. After all, a plan could pay 10% down fifty levels and 500% of zero is zero. The average monthly personal volume generated by active distributors for tangible, consumable products (e.g. personal care, nutritional, etc.) is currently $117.180 The average payout, based on wholesale (distributor cost) is 44.7%.181 So if the comp plans were equal selling a $25 product would require you to build a downline over four-and-a-half times larger to achieve the same income. Even if the pay out is increased to 100% you would be earning about twice as much, but on about one-fifth the volume. This still puts you in a position of having to build a downline of more than twice as many affiliates and customers to equal the income from those “pills and potions” companies paying a “weak ass” 44.7% – because it’s 44.7% of well over four times the volume.

The $100 monthly “Inner Circle” product does seem to save the day. Except – 92% of all those on the $25 monthly Fast Start program would have to also be paying for the Inner Circle product to average $117 monthly. Empower Network claims only 29% of all Fast Start purchases upgrade to the Inner Circle. This produces an average monthly commissionable volume of $54, or less than half the commissionable volume produced in tangible, consumable product MLMs.

And the above three paragraphs only apply to the ever slimming sliver of commissions that are rolling up to you with no regard to the ever widening wedge of those you are earning nothing on.


This report – the last of which I will ever write (at least for free) – began as a simple 5-10 page review of Empower Network in response to a plethora of inquiries. I got a little carried away. The first draft extended 36 pages. Then I interviewed Dave Wood – for almost seven hours (over four were recorded), and Dave Sharpe for another hour-and-a-half. So I had to go back and incorporate many of their responses. And then, after presenting all of my concerns to Dave Wood, during both our recorded interview and hours of private discussion, he threw me a curve by immediately trying to fix a bunch of it, requiring more revisions. By this time, now over four months later, Empower Network was too close to unveiling their new blogging product to not factor it into this review, and I wanted to see what kind of effect their new compliance regimen would actually have. That took more time, and more revisions. Then, when I thought I actually saw a glimmer of light at the end of this seemingly endless investigative tunnel, Dave and Dave did something unprecedented – they granted me full access to their entire training line – all 209 hours of it! Another three weeks of analysis, and another week of revisions. Then more updated sales, enrollment and commission data. And more revisions.

Without question, Empower Network has been by far the most open and transparent MLM program I have ever formally evaluated. That’s out of over 90, over 23 years. There is little question that they absolutely believe they have nothing to hide. There was literally not a single thing that I asked for that they did not eventually, and usually promptly, provide. My only regret is that I never asked them for a breakdown of percentage of each product sold to only customers. And no, I’m not going to – because they’ll probably provide it, and I’m not making any more revisions!

I confess that I began this review with a negative bias, as I do most of them. I tend to focus my reporting on questionable, risky, or at least controversial review subjects. But this one was unique in that my opinion shifted substantially during the investigative process, and towards the positive end of the scale. Towards it, but obviously not quite making it all the way there. But, wow, you should have seen the first draft.

My position first began to change during the surveying of EN affiliates, but for all the wrong reasons. While they almost universally provided evidence that fully supported my initial concerns and criticisms, my deprecation of Empower Network began to lighten – because they were all so damn nice!

I have long ago abandoned the tactic of going “under cover” by using a pseudonym and pretending I’m a prospect (it was so often heartbreaking to hear the subject’s giddy enthusiasm at the prospect of enrolling my alter-ego). In this case I knew one of my faithful followers, who has assisted me with research in the past, was genuinely interested in finding a good Empower Network sponsor. So I gave him a set of email questions to ask during his sponsor shopping process. The responses he received were extraordinary in their generosity, detail and candor. With few exceptions these folks exhibited a boundless level of gratitude and graciousness. One went so far as to answer all of his questions by posting a personal response on YouTube, and referenced him by name. This was followed by a warning from his current MLM affiliation, which is a company that has allegedly threatened or terminated a number of their reps for their cross promotion of Empower Network. So that was, regrettably, the end of his assistance, and interest in Empower Network. But again, this was due to an Empower Network affiliate trying too hard to be helpful.

I said in an earlier segment that if Empower Network affiliates were to lucidly evaluate there products without bias I suspect they would mostly agree with my assessment. Not only do I not expect them to do so, and in spite of their otherwise benevolent demeanor, I’m anticipating my first death threat since 2002 (my reporting garnered six in the 90s). During the compliance session at the Denver event attorney Kevin Thompson stated, “I’m a nice guy, but don’t piss me off”. I suspect that applies to most Empower Network enthusiasts. Although I’ve tried to make this evaluation as pragmatic, fair and factual as possible with even my criticisms being constructive, I anticipate anything less than 100% approval and praise to be considered an act of sacrilege, and an affront to Empower Network’s… culture.

What most turned me around, at least to the extent that I was, were my conversations with Wood and Sharpe. Perhaps I’m not as impervious to their “hypnotic language” as I like to think I am and maybe a little of their mojo has infiltrated my psyche – but I really like these guys. I’m convinced they are, in their heart and soul, utterly convinced of their own altruistic agenda, their product’s value, and the legitimacy of their income opportunity.

And yes, you most certainly can use “hypnotic language” on yourself.

Len Clements
Founder & CEO
MarketWave, Inc.

  1. Empower Network was the most requested review subject from January, 2013 through May, 2013, and has only recently been overtaken by Rippln. 

  2. Involving both telephone, email and online discussions. 

  3. Three-and-a-half hours of which was a recorded interview which can be heard at: 

  4. This product was introduced in August of 2012 and replaced a $250 product. 

  5. Text of list taken from Empower Network promotional blogs. 

  6. In the early months this banner was present on all blogs by default. However, the user has always had an option to omit them. 

  7. Lesson #1 does not contain the phrase “All In”, but describes in detail the financial benefit of purchasing all Empower Network products, and the detriment to not doing so. 


  9. They do not stream and must fully preload before playing, at least for me – might be just a Mac thing. 

  10. Which I do not currently see anywhere on this product’s page. 

  11. Links to your website that appear on other websites. 

  12. No previous training product or lesson contains a basic definition of, or introduction to, backlinks. 



  15. Empower Network claims there are many. 


  17. According to a reliable Amway insider I knew at the time. 





  22. First ten pages based on Google’s 10 results per page default. 

  23. These searches found other sites that mentioned Empower Network, but they were either inactive or not on the Empower Network platform, thus were not effected by any SEO afforded those on that platform. 

  24. (1:57:51 mark)  







  31. Ostensibly providing objective reviews of Empower Network, or claiming to be exposing the Empower Network “scam”, all of which were actually a sales pitch for Empower Network. 

  32. e.g. 

  33. 111 in total, but seven either claimed they were about to go inactive, or just didn’t want to answer my questions (one suggested I was a “wussie” for even asking them). 

  34. During the interview Dave Wood asserts my searching methods were not random and prone to finding a disproportionate number of Empower Network marketing sites. I have considered his response and reevaluated our methodology and stand by the results. Every effort was made to produce fair and accurate data, and I strongly believe the results were sufficiently randomized. 

  35. e.g.; FTC vs. Skybiz; Michigan vs., and Maine vs. BigSmart. 

  36. YTB Travel settled both actions by agreeing to $1 million in fines and the removal of commissions paid from website sales. YTB Travel filed for Chapter 11 bankruptcy in March of 2013. 

  37. : Sec. 48-55. 



  40. SECTION 2 – 1 – Requirements to Become an Affiliate. 

  41. SECTION 5 – 2 – 1 – Failure to Earn Commissions. 

  42. SECTION 5 – 2 – 2 – Reclassification Following Cancellation Due to Inactivity. 

  43. As of August 20th, 2013: 

  44. (2:36:46 mark)  

  45. Based on a two month rolling average from March, 2012 through June, 2013. 


  47. This is based on the current number of Affiliates and Customers being 33,521 and 16,765 respectively. The fact that this results in the percentage of Customers being precisely one-third of all active product users is entirely coincidental. 

  48. 33,521 of which are Affiliates, and the remaining 33.33% are customers. 

  49. If you’re customer ever decides to because an affiliate (or cancels one of the two monthly products) they will no longer count towards your personal qualification and you will have to find another customer. 

  50. The survey Wood referred to was my aforementioned survey, not Empower Network’s, which he gleaned from our interview. The survey actually resulted in 79.3% responding as described. 

  51. This topic was first addressed in the Compliance video which went live in June, 2013. 





  56. (Sec. 40-3-107). 


  58. I have redacted the name of the person receiving congratulations because I know him and know he knows the rules regarding income disclosures. He likely cringed more than I did when he read this. I also redacted the name of the person who sent this because she was simply following the lead of her leaders. 

  59. FTC Dot-Com Disclosures; Section 5; “Multimedia Messages and Campaigns”. 

  60. According to 18.5% of all visitors to click through to this video. 



  63. SECTION 3 – 2 – 1 – General 

  64. SECTION 3 – 3 – 1 – Affiliate Web Sites 

  65. SECTION 3 – 3 – 4 – Social Media 

  66. SECTION 3 – 6 – 2 – Income Claims 

  67. SECTION 3 – 6 – 3 – Income Disclosure Statement 

  68. SECTION 3 – 6 – 3 – Income Disclosure Statement 

  69. SECTION 3 – 6 – 3 – Income Disclosure Statement 






  75. As of August 20th, 2013. 

  76. (2:58:44 mark)  


  78. Also, note again the practice of making the height of the screen image ever so slightly higher than will fit so as to not display the fine print Earnings Disclosure (which is in dark red text on a darker red background) without scrolling down just another inch. 





  83. Commissions from the second, fourth, sixth, and every fifth sale thereafter are rolled upline to the first eligible affiliate. 

  84. (1:46:20)  

  85. During 2012 USANA, Herbalife and Nu Skin reported refund rates of 0.8%, 1.1% and 2.6% respectively. 

  86. Section 3-28 of Empower Network’s Policies and Procedures does provide for such claw backs with affiliates agreeing to be invoiced for the full amount of the refunded product. 

  87. Evidenced by the above image of their $778,779.20 check depicting their “commissions earned” as of June 6th, 2012. 

  88. Montana’s statute requiring registration of MLM companies offers an exemption for companies that are members of the Direct Selling Association. Empower Network is not currently a member of the DSA. 


  90. No record of having received registration documents. 

  91. Not currently registered. No way of verifying if registration is in process. Can take “up to 21 business days” for approval. Assuming a receipt date of Monday, July 8th, 22 business days had elapsed. 

  92. “No record of receiving it at all” 




  96. FEI: 45-3306375 

  97. 3160 9th Ave. North, St. Petersburg, FL 33713 



  100. (1:23 mark 

  101. (there is a hidden “Terms of Service” link in the lower/right corner of the screen that identifies MLSP). 

  102., beginning of Oct. 11th video. 

  103., Jan. 21st video, 2:00 minute mark. 

  104., Jan. 16th video, 2:33 minute mark. 


  106.; Video, 0:17 Mark. 


  108., Jan. 21st video, 3:18 minute mark. 

  109. Bellamora launched in mid-January, 2011, and was gone by the end of April, 2011. 

  110.; 0:22 mark. 

  111. I see nothing significant here that you can’t also get from Constant Contact or AWeber for half the price. 

  112. (Sharpe’s pitch begins at 9:15 mark). 


  114.; Audio recording. 








  122. (0:36 Mark 

  123.; 9:30 mark. 

  124. Assuming an annual attrition rate of 50%, extrapolated from their known 71% attrition over their first 20 months. 

  125. (39:30 mark 


  127. I’m assuming this review is being read by mature adults, so will not insult you by replacing key vowels within all the naughty words with an asterisk. 

  128. Evidence of these examples are online, but I’m not referencing them here to avoid embarrassing innocent affiliates. 



  131. Bonus training video only available to members. Here’s a snippet of the page: 


  133. (2:16 mark)  

  134. (3:14 mark)  

  135. (The original page was completely revised sometime after my interview with Dave Wood). 

  136. (34:25 mark)  

  137. (Section 16: Termination)  

  138. Dave Wood’s response to all P&P issues begin at the 45.35 mark of the interview. 

  139. SECTION 3 – 18 – Sale, Transfer or Assignment of an Independent Empower Network Business 

  140. SECTION 3 – 16 – One Empower Network Business Per Affiliate and Per Household 


  142. SECTION 5 – 3 – Involuntary Cancellation 

  143. SECTION 5 – 5 – Non-renewal 

  144. See, e.g., Market America vs. Ray Rossi, et al.; 97-cv-891; North Carolina; 5/2000. 

  145. SECTION 3 – 3 – 1 – Affiliate Web Sites 

  146. SECTION 3 – 6 – 3 – Opportunity Claims 


  148. (3:58 mark)  


  150. Empower Network hired an intermediary who was responsible for setting up this account. 

  151. Having 5,700 independent affiliates all applying for their own merchant account within the first 30 days certainly would have raised a red flag – had First Data not been fully informed of what to expect. 




  155. (17:53 mark)  

  156. (4:19 mark)  

  157. Wood’s full response to this topic can be heard at the 53:08 mark of the interview. 

  158. (10:20 mark)  

  159. Many respected MLM companies partially compensate management and company founders this way. 


  161. e.g. Univite and Charles Givens Organization; to lesser extent Quorum and Karemore; all circa 1990s. 

  162. From the stage at their July, 2013 event in Denver. 



  165. (20:38 mark)  


  167. Based on a projected total for August, but only to fill out the last four days. 

  168. In Anaheim, Dallas, Washington, D.C., and Orlando. 


  170. (4:00 mark)  

  171. Common Thread – I paid $200 for these Verbal Advantage CDs. I’ve got to use these words for something! 

  172. (54:20 mark)  

  173. (1:01 mark)  

  174. (194:35 mark)  

  175. (26:00 mark)  


  177. (16:27 mark)  


  179. SECTION 3 – 14 – Bonus Buying 

  180. Based on a MarketWave survey of 23 companies (11 public and 12 private). 

  181. Based on a 2011 MarketWave survey of 32 such companies. 

Zeek Rewards Exposé

Len Clements © 2012

In the 21 years I have been analyzing and reviewing network marketing programs I don’t believe I have ever received more requests for commentary on any single opportunity, over any six month period, than I have for ZeekRewards. Nor do I believe there has been as many assumptions, and as much conjecture and misinformation published about any single network marketing program. ZeekRewards is confusing.

Let’s see if we can clear things up a bit.

The first challenge in reviewing ZeekRewards is that it has been in a constant state of metamorphosis. It’s like trying to paint a portrait of a butterfly while it’s still in the cocoon. And although we know it started out as a pretty ugly caterpillar, it’s still yet to be seen exactly what’s going to emerge. But after closely following, researching and analyzing ZR for over three months I think I’ve got a pretty good idea of what they are turning into – and it isn’t a beautiful butterfly. More like a malformed, brown moth. But the real question is, will it fly, or die?

Let’s back up (so my larvae analogy will make more sense).

Rex Venture Group launched, the non-MLM penny auction site, back on March of 2010. Then ZeekRewards launched in January of 2011. This quasi-MLM company offered penny auction bids to be used over on, and touted their “compounder” compensation plan. ZeekRewards initially had more red flags sticking out of it than the Russian Consulate. One of the largest was that they referred to their compensation plan as the compounder. Indeed, the ZeekRewards caterpillar was guaranteeing a “125% return” on the amount you spent on bids, and was routinely bragging about how your “bid account” would “compound daily”.[1] Many reps were blatantly referring to this as a “return on investment” or “ROI”.[2]

Let’s back up a little more.

Back in 1946 the Security & Exchange Commission (SEC) sued a company called the Howey Company.[3] The result of that lawsuit was the “Howey Test” which determines if something is a security of not. Securities, like stocks and mutual funds, are illegal to sell, or even offer, without a license and the company generating the return must be registered with the SEC. The Howey Test defined a security as: 1) And investment of consideration (anything of value, but usually money); 2) into a common enterprise (others are paying into the same enterprise); 3) where the return is generated solely by the efforts of others (the investor takes no part in, nor has any control of, the processes that generate the return). For example, you put your money into a mutual fund. Somebody else does all the work in determining what stocks to invest in, move out of, and in what amounts. It is also important to note that more recent legal actions have removed the word “solely” and now seem to be requiring that someone else merely do most of the work.[4]

So, asserting that you can simply buy a bunch of bids, kick back, and watch the cash roll in, would clearly pass the Howey Test. And this is a test you want to get an F in! Okay, that wasn’t exactly how it worked in even ZR’s larvae stage. But it was way too close. But now we’re getting too far ahead.

Renovation Begins

Around August of 2011 ZeekRewards hired “the top MLM consultant in the industry, Dr. Keith Laggos, PHD, and we hired the top MLM Law Firm, Gerald Nehra and Richard Waak, to analyze everything we are doing in light of recent litigation and advise us where we might be vulnerable to regulatory attack.”[5] Soon after they also hired MLM attorney Kevin Grimes (Grimes & Reese), and a few months later brought on Greg Caldwell[6] as their COO to handle compliance training, Peter Mingles[7] as their Training & Incentives Coordinator, and Dr. Clifton Jolly[8] to head up their Public Relations. ZR founder and CEO Paul Burks described the motivation for hiring this Dream Team by saying:

“Since we designed our pay system there have been some legal decisions that involved other companies’ pay plans but, because of similarities that those other pay plans had to ours we felt it was wise to get competent advise to avoid potential problems down the road.”

Mr. Burks goes on to say they hired Laggos, Nehra, et al to, “analyze everything we are doing in light of recent litigation and advise us where we might be vulnerable to regulatory attack.” I can only assume what “legal decisions” and “recent litigation” Mr. Burks is referring to, but he was not referring to any litigation against ZeekRewards. He’s most likely referring to the recent BurnLounge case, although their comp plan wasn’t that similar. AdSurfDaily’s was, but that litigation occurred well before the invention of ZR’s pay plan. This wouldn’t be the first time ZR management would offer an explanation that didn’t quite jive with the facts. But again, I’m getting ahead of myself.

One of the first things the new legal compliance team did was to enact a strict prohibition against using any terminology suggesting buying bids was an “investment”, or would “compound”, or generate a “return”, or any other such securities invoking lingo. To wit:

“Do NOT use the word compound or any variation of the term – ‘Compound’ is a term used by Albert Einstein in a famous quote about ‘interest’ and is not allowed “[9]

Of course, trying to extract all this naughty nomenclature from cyberspace is like trying to excise the fudge from a Rose Bowl size bucket of fudge swirl ice cream. Even ZR management apparently couldn’t find every remnant of their own infractions, as evidenced by section 34 of their current P&Ps where they offer a bounty of “10 compounding bids” for reporting violators, and the still active URL

Another bit of semantic romanticizing occurred when the previously titled “Retail Profit Pool” was changed to the new “approved terminology” of “Retail Point Pool”, now involving “Retail Revenue Shares”.

For the record, I am personal friends, to varying degrees, with Nehra, Waak, Grimes, Reese, and Laggos, and would consider Grimes & Reese and Nehra & Waak to be among the top MLM attorney’s in the country (along with Kevin Thompson). I do believe they’ve done the best they can do with what they have to work with. Having said that, even Albert Einstein couldn’t make 1+1 equal three.

So about the time all the online chatter began about what ZeekRewards was and was not, legally, structurally, and economically, was about the time it started to turn into something different. My argument for not joining the debate during this time was that it was tantamount to arguing whether this newly found species was going to be a beautiful, rainbow colored butterfly, a fuzzy gray moth, or a malaria riddled mosquito, while it was still inside the cocoon. Unlike so many other Zeek critics, I chose to wait to see what emerged rather than judge was it was, or was in the process of changing from.

I also, unlike a lot of MLM critics and commentators, try to get my facts straight before making any public commentary, and I try my best to get them from the company itself, with zero degrees of separation. In that effort I began the arduous process of arranging an interview with a senior member of ZR management on June 13th, 2012. After my eMail[10] had garnered no response for five days I tried again and received a prompt response from Chief Marketing Officer Dawn Wright-Olivares saying that the earliest she would be available was “late July” after their upcoming Red Carpet event. I responded that this was perfectly understandable (which it was – ZR management was certainly in a state of overwhelm around this time, and likely still is), but explained that I really needed to publish a review much sooner. In fact, and as I explained to Ms. Wright-Olivares, I was already receiving emails suggesting I was paid “hush money” to not comment on them, or was not commenting negatively because ZeekRewards was a corporate member of the ANMP[11], which I am a board member of. I asked if there was any other member of ZR management that would be available for an earlier interview. Ms. Wright-Olivares never responded to this follow up question. In was only after I passively/aggressively mentioned my challenge in procuring an interview in a MarketWave Alert[12] that I was contacted by COO Greg Caldwell by phone message to arrange an interview with Paul Burks. That interview was postponed to the following week, then postponed again. And again. The latter postponement was understandable considering they had just received a CID (Civil Investigative Demand) from the North Carolina (their home state) Attorney General’s office. More on that later. For now, I do believe their intent to have me conduct an interview with Mr. Burkes with, at his request, Kevin Grimes present, was sincere, and that they do have higher priorities right now than letting me ask them a bunch of uncomfortable questions. But I can’t wait forever. So here we are.

In the Beginning…

Rex Venture Group, founded and controlled by Paul Burks, has had a number of subsidiary companies throughout it’s 14 year history, most offering some type of multilevel compensation. These include New Net Mail, New Net Quest, Signed and Numbered International, Inc., Free Store Club, FireShaker, Lighthouse America, and of course Zeekler and ZeekRewards. The most prominent, and recent, Zeek predecessors were Free Store Club and New Net Mail, which offered a subscription program for discounted name brand products for $9.95 to $49.95 per month, with an initial buy in that reached $1,295.00. This got you a set of cookware, seven “Courtesy Subscriptions”, and a “Gold Affiliate Free Store Club membership”. It paid overrides based on a 2×21 matrix. Burks also promoted what he called the “Exact Marketing Method” which he claimed had a “95% success rate”. It would appear that no competent MLM attorney was working with Mr. Burks back then.

What’s a Penny Auction?

Basically, a penny auction is where there is a clock counting down the time the item is up for auction, and every time someone places a bid the sell price of the item goes up one penny, and 20 more seconds are added to the timer. The object is to be the very last bidder when the time runs out. Thus, it would make no sense to bid unless it was within the last few seconds before time runs out. Penny auctions entice you with stories of bidders who purchased a $500 iPad for $35, or a $2,500 HDTV for $300. How can the auction site afford to do this? Do the math. In Zeekler (a separate entity from ZeekRewards) a “retail” bid cost 60 cents and a “VIP” bid cost $1.00. High ticket items are usually offered only to VIP bidders, so at a penny a bid a sell price of $300 means 30,000 bids were place. That’s $30,000 to Zeekler, thus a $27,500 gross profit on the HDTV. And one very happy bidder, and hundreds of others who paid $27,500 for bids that got them nothing.

Penny auctions in general, of which Zeekler is one of several dozen in the US alone, don’t seem to be sliding in the right direction on the regulatory or media Good Will scale. Warnings are popping up everywhere, including AARP[13], the BBB[14], and the FTC[15], as well as other foreign markets from Malta[16], to Canada[17], to New Zealand[18]. And I’ve been making the case for years that it’s not just the FTC, FDA and SEC that you need to worry about, but rather the potentially greater damage that can be caused by ABC[19], NBC[20] and CBS[21]. Or Fox[22], or USAToday[23].

Most of the above news reports and warnings are asking the same question: Isn’t this just gambling? Well, that’s the million dollar question. There is certainly some small amount of skill involved, but not much more than there is in Blackjack or draw poker. Luck, and who has the fastest computer processor and internet speed, seem to be the primary factor. But one things is for sure. Penny auctions can be massively profitable.

What’s ZeekRewards?

ZeekRewards is the MLM program, separate from, the auction site. ZR sells bids that can only be used at There are free bids, Retail Bids (60¢) and VIP bids ($1.00). You can choose between monthly subscriptions of $10 (Silver), $50 (Gold), or $99 (Diamond). These subscriptions give you more business related tools and services, but do not include bids. There is also a “Free Affiliate” option, but “Free Affiliates are able to watch their bonus points increase but will not be awarded cash payments until they upgrade.”[24] You can join with an initial bid package of up to $10,000 – which appears to be a popular option.

The comp plan and rules have changed significantly, and frequently. Currently – with no assurances this won’t be outdated by the time you read this – you can join as a “customer” first, who are provided free bids by Zeekler.[25] The ZR affiliate who enrolls you as a Customer can also give you as many as 1,000 free bids to play around with.

There are six different income sources offered through the ZR compensation plan. The two most controversial and potentially troublesome are the “Retail Points Pool” (a.k.a Retail Profit Pool) and commissions from the 2×5 Matrix.[26] Both require you to be a “Qualified Affiliate”, which means you are on either the Silver, Gold or Diamond subscription program, have sponsored at least two Retail Customers (or “joined the Customer Co-op”), have “given away” at least 10 free bids as samples (must be VIP bids that you purchased), and has “placed a qualifying advertisement for for the current 24 hour period and submitted it through his or her ZeekRewards back office”.

The Matrix pays from 25¢ up to $3.50 monthly on every paid Affiliate subscription in your matrix, and also pays a matching bonus down two generations.

The (then titled) Retail Profit Pool distributes shares of up to 50% of the combined daily profits generated by both ZeekRewards and ZR states, “The payout from the retail profit pool will normally be from 0.5% to 2%, historically averaging about 1.2%…”. This is based on the number of “VIP ProfitPoints” you have in your account. The points are acquired is several ways, but primarily by purchasing non-free bids and giving them away.

Here’s an example provided by ZR (slightly paraphrased):

You purchased 1,000 VIP Bids ($1.00 each) and gave them away as samples to your own retail customers or to customers that were signed up for you by the Customer Co-op. Or, perhaps you sold $1,000 worth of Retail Bids to a customer. Either would give you 1,000 points in your VIP Profit Points Balance. The company (today and at the end of each day) tallies the days net profits and determines the day’s VIP Profit Share Award. Let’s say the company determines that today’s revenue allows for a 1.5% award. Assuming a 1,000 point balance, in this example, it would give you a $15.00 award. Now let’s assume that you have set your preference to use 100% of your daily award to purchase more bids to give away as samples to grow your business (and your VIP balance). When you go check your Retail Point Pool report the next day, you will see that your account balance will now be 1,015 VIP ProfitPoints (assuming the bids were given away to your retail customers).

Some, like your “Retail Store” and “The Shopping Daisy” appear to be throw ins that likely provide no significant income. Basically, you earn a percentage of the small affiliate commission paid by various online vendors, and your online shopping portal is one of literally tens-of-thousands that directly compete with one another.

There’s also “ZAP Commissions” which is essentially a type of fast start bonus where you earn 20% on all personally enrolled referred customer’s retail bid pack purchases from

Then there’s the “Retail Subscription Profits”. Here you can earn a 20% monthly “retail profit” from all personal “retail sales” on personally sponsored affiliate’s subscriptions. This begs the question, if the Silver, Gold and Diamond subscriptions have only one price – $10, $50 and $99 respectively – and contain only business related items that would be relevant only to ZR reps (i.e. a non-participant customer would never purchase), how is anything “retailed” here? Gratuitously slapping the word “retail” onto as many comp plan aspects as possible appears to be legal window dressing. And there’s certainly a need for it here, as will be explained later.

Each subscription level offers a commensurate amount of Personal Volume, or “PV”, which is used for rank qualifying. By paying for a Silver ($10, 10 PV), Gold ($50, 50 PV) or Diamond ($99, 100 PV) subscription each month you qualify as a Distributor (10 PV), Manager (50 PV) or Executive (100 PV). There’s also a Senior Executive rank requiring 600 PV monthly. Of course, this begs the question, Why not simply call each rank Silver, Gold, Diamond and then something more valuable than diamond (why doesn’t any MLM company ever use Palladium? It’s spot price is usually higher than platinum or diamond, and it’s a really cool title. But I digress). 

Cancellations, Rejections and Apprehensions

ZeekRewards seems to have had a hard time maintaining loving, committed relationships, at least on a corporate level.

Musical Credit Card Processors

First they got dumped by their credit card processor, allegedly due to an overabundance of fraudulent transactions involving the creation of fake accounts using stolen credit cards. Now they are running credit card payments through different foreign processors such as “Internet Paygate Seoul” & “Global Kamba” (S. Korea), “ZonaLibre1” (Panama), “Lucky Star Design” (Costa Rica), “Lamda EC” (Cyprus) and a processor in Hong Kong as well. Critics who question why ZR and Zeekler can’t hook up with even one US based processor simply don’t understand the challenges involved. I don’t consider this to be necessary suspicious, or deleterious. I know from personal experience it is very challenging for any young MLM company to procure a credit card processor without having to accept loan shark rates, let alone one with the stank of fraud still wafting from it, regardless of ZR’s lack of culpability.

Double Bank Boot

But we’re still at the top of the list. Next CCBill, an international online payment gateway, gave them the boot[27], follow by both of their banks! ZR spun their spurning this way:

“Zeek is currently in the process of moving to a bank that can handle our growing needs and while in transition will be closing our old accounts…”.[28]

“After many years of good, strong business relationship Rex Venture Group had to move to a much larger bank that could handle our volume that has greater experience with international business.”[29]

Although, technically, they don’t specifically say it was their decision to move to a larger bank that can better “handle our growing needs”, they do appear to be trying to create that impression. When I called both banks they would neither confirm nor deny that ZR was asked to take their business elsewhere, but the circumstantial evidence of this is glaring. To wit:

“Please be sure to deposit or cash any commission checks immediately so they clear before June 1st, 2012 or they will be returned to you with ‘account closed’ and will need to be reissued.”[30]

This notice appeared on Monday, May 28th, leaving only four full business days to deposit all outstanding commission checks. Not only does it appear these banks initiated ZR’s exit, but required that it be expedited. If this transition was in the control of ZR why not simply leave sufficient funds in the account to cover all outstanding checks?

“As you know, we are currently in the process of transferring accounts to our new banks. While we will be able to resume check runs when the transfers are finalized, we do not want to cause any additional delay to our affiliates who are waiting for their May 21st or 28th commission checks. Therefore we are going to be issuing a claw-back of all requested checks into a special Zeek portal where any affiliate who is awaiting a physical check can instead choose their preferred eWallet for their commission payment.”[31]

Again, if ZR was voluntarily moving to a bigger bank, why not leave the old accounts open while they set up the new account?

Keep in mind that ZR and Zeekler were actually defraying their banking activity between two separate banks: New Bridge Bank[32] and BB&T[33]. Both are FDIC insured, publicly traded companies with total assets of $2.1 billion and $174.6 billion respectively. NewBridge was, in fact, a relatively small regional bank and alone probably could not have done the job. But BB&T, founded in 1872 and with 31,800 employees, appears to have considerable “experience with international business”[34].

But to be fair, ZR was churning up millions of dollars in weekly cash flow, not to mention just as many phone “inquiries” by curious, anxious, or furious ZR reps (using only slight hyperbole). Even BB&T was only a small-to-medium sized bank compared to Chase, Bank of America or Wells Fargo (each with assets over $1 trillion and more than 250,000 employees). According to a very reliable source, ZR at one time claimed to have letters from each bank confiding their inability to effectively meet ZR’s growing needs. I was told those letters would be made public to end any speculation as to who asked for the divorce (i.e. ZR decided to leave since their banks admitted they couldn’t handle their growth). That was over a month ago and, to my knowledge, no such letters have been revealed. Nor do I believe they ever will. Consider: Would a publicly traded business ever communicate to their shareholders, even indirectly, that they had a client who was capable of significantly increase their revenue, profits, and share value, but instead of expanding their capabilities to satisfy this client they instead chose to inform them of their inability to serve their growing needs, thus tacitly suggesting they may want to take their business elsewhere? Or, might the letters have explained the concerns the banks had with ZR, and directly told them to take their business elsewhere? Quickly.

International Contraction

Then there were the ZR members in several foreign countries who were abruptly informed that their accounts were being closed and their Retail Point Pool points would be lost (although they were offered refunds on the bids they recently purchased). ZR subsequently offered the following cryptic explanation to a Serbian rep during a live chat:

“We do not have total knowledge of what happened. What I do know is that it is something with your countries government policies (not the Serbian people itself), that has required us to not list your country anymore.”

Allegedly, individuals requesting clarification have received the following email response from ZR:

“We apologize for the difficult position that this creates for you and us, but we are not able to do anything more than refund whatever purchases and subscriptions you have paid. We are being advised that we can not make any further comments about the issue. It is unfortunate political situation and we are all affected by it. We wish you well. thank you for contacting Zeek!”

Which was followed by this formal announcement by CEO Paul Burks on ZR’s official news site (emphasis is mine):[35]

“Lately there has been some online comments concerning some Zeek affiliates whose accounts were recently deactivated and a lot of speculation about why this was done. I just want to set the record straight about this unfortunate situation.

The United States Government has established an Office of Foreign Assets Control (OFAC) through the US Treasury Department. This Federal agency maintains a list of “sanctioned countries” that is published on this website:

Under US law it is illegal for a US based individual or company to do business with individuals of companies in those countries. The penalties for violating these sanctions range from very large fines up to 30 years imprisonment.

When we became aware that there were affiliates in our system who were from these prohibited countries we had no choice but to remove them from the program. It is understandable that they and their sponsors are frustrated and unhappy with this action but we had no other choice.”

Now let’s actually set the record straight – none of this is true.

Although ZR has never formally identified these “sanctioned countries” that they “had no choice” but to abandon, there were six countries that were removed from the pull down menu on the ZR application right when ZR reps from some of those counties began to complain. Those countries were Serbia, Croatia, Slovenia, Belarus, Egypt, and Macedonia. The problem is, there are no sanctions of any kind that prohibit anyone from the United States from enrolling someone from these countries as ZR affiliates. There are certain prohibitions against doing business with specific entities and individuals within specifically Belarus[36], but the other five countries are not even on the list that ZR linked to! Furthermore, Avon and Oriflame currently operating in all six countries, Herbalife in all but Serbia, Amway is in Croatia and Slovenia, and Vemma is in Serbia, Croatia and Slovenia.

I contacted the Office of Foreign Assets Control (OFAC) and confirmed the response that others claimed they had received. There is a “Specially Designated Nationals List” (SDN)[37] that defines restrictions and prohibitions against doing business with specific entities and individuals in several countries, but the Office of Foreign Assets Control (OFAC) “…does not currently administer comprehensive sanctions programs against the countries listed in your email… There are no broad-based sanctions against the countries listed below.” I listed the six countries ZR claimed they “had no choice” but to pull out of, because it was “illegal” to do business there.

To be clear, I would completely understand a company’s decision not to do business within those countries. They are havens for internet fraudsters, and if there’s even a one-in-one million chance of inadvertently hooking up with one of the “Specially Designated Nationals” on OFAC’s list, well, zero-in-a-million is better than one-in-a-million. Just don’t have them on the list to begin with, so innocent people don’t have to get terminated, and if you do have to eliminate these countries later, why not just tell the truth about why you’re doing it? Why make up some easily debunked story about how the government made you do it?

Sans a Montana

ZeekRewards is open in 49 states – all but Montana. They were open in Montana up until early June, 2012, when residents who tried to enroll (or upgrade) allegedly got this message:

“Sorry, this service is currently unavailable in Montana. The State of Montana has a unique set of laws and our lawyers have said no enrollments there until we get in compliance with Montana law.”

There is no mention of the Montana closure within Zeek Reward’s news site, and their Policies & Procedures still reference Montana as an open state. The only other official response from anyone within ZR management has been brief statements during live calls or interviews where they site Montana’s “unusual” regulations pertaining to MLM companies, and the extra “hoops” they have to go through.

Montana’s “Office of the Commissioner of Securities & Insurance”[38] tells a somewhat different story.

Let’s start with the supposedly unusually restrictive regulations within Montana. Within the Montana Code[39] they define a “multilevel distribution company” as a person that:

(i)    sells, distributes, or supplies goods or services through independent agents, contractors, or distributors at different levels of distribution;

(ii)  may recruit other participants in the company; and

(iii) is eligible for commissions… bonuses, refunds, dividends, or other consideration that is or may be paid as a result of the sale of goods or services or the recruitment of or the performance or actions of other participants.

They go on to define a “pyramid promotional scheme” as one that does not include a sales plan or operation that:

(i)    subject to the provisions of subsection (6)(c)(v), provides compensation to a participant based primarily upon the sale of goods or services by the participant, including goods or services used or consumed by the participant, and not primarily for obtaining the participation of other persons in the sales plan or operation and that provides compensation to the participant based upon the sale of goods or services by persons whose participation in the sales plan or operation has been obtained by the participant;”

They go on to define “compensation”, as it relates to pyramid schemes, as not including:

(i)    payments to a participant based upon the sale of goods or services by the participant to third persons when the goods or services are purchased for actual use or consumption; or

(ii)  payments to a participant based upon the sale of goods or services to the participant that are used or consumed by the participant.”

[All underline emphasis above and below is mine, and not original within the Code]

The “provisions of subsection (6)(c)(v)” cited above refers to the specific refund policies required of all MLM operations pertinent to residents of Montana, which simply “…allows a person at least 15 days to cancel… participation in the sales plan or operation”, and if they do cancel within that 15 day period they are “entitled to a refund” for any purchase they made of “required items”. This section also requires that a refund of “not less than 90%” be refunded for “any currently marketable goods or services sold to the participant within 12 months… that have not been resold or consumed by the participant.” This includes “Sales plan or operation promotional materials, sales aids, and sales kits… if they are a required purchase for the participant or if the participant has received or may receive a financial benefit from their purchase.”

In ZR’s P&Ps at the time of the closure (and as of this writing), specific to Montana, they offer a 90 day return policy, and a full 100% refund on all funds paid within 15% of cancellation.

Not only is none of this particularly or exceptionally challenging, Montana’s explicit recognition of personally consumed product by distributors as being commissionable[40] arguably ranks them among the easier to qualify for registration in[41] (among the five states that require MLM companies to register[42]). It would appear ZR merely has to extend the return policy to 12 months, and make some other minor language changes to satisfy this section of the code. This would suggest there’s something else preventing Zeek from getting past Montana’s gatekeeper.

I contacted the Montana Attorney General’s office and after being transferred five times I reach the Commissioner of Securities and Insurance which, I was told, was the department reviewing ZR’s case. Their Communication’s Director, Lucas Hamilton, confirmed that ZeekRewards had “not complied with the state’s security regulations”. He went on to say, “Our law requires that representative make more money from selling goods than from recruiting”. The implications made here will become clearer in the upcoming section related to legal concerns, where the Montana situation will be revisited within that context.

North Carolina Discredit Union

On August 2nd, 2012, reports started to appear online that the North Carolina State Employee’s Credit Union (NCSECU) had begun issuing warnings to their customers that Rex Venture Group was “fraudulent”. Allegedly the NCSECU was initiating these contacts, and in some cases by telephone. Here is an example of one such emailed warning:

“ZeekRewards is indeed a fraudulent company. Please refrain from entering into any type of business with this company as there have been several claims of fraudulent activity reported with ZeekRewards. Numerous reports of fraud have been given to the Better Business Bureau and other reports of fraud are listed on scam reporting websites. Please visit the links below to familiarize yourself with the company and some of the things that have been said about them. — Jeremy Pittman, 801 E Team Leader/AO, mlo# 784404,
801 Contact Center” (phone number and email address, which has been redacted).

When I first saw this, on a Zeek-critic website, I immediately questioned the validity of the email. It was hard to fathom that someone in a professional capacity would blatantly refer to a business as “indeed a fraudulent company” and discourage their patronage. He might as well have added an addendum, “Please have ZeekRewards attorneys send their lawsuit to this address…”. Instead he added a link to, suggesting he actually believes this is a reliable source of information.

After others emailed the NCSECU regarding this issue, Mr. Pittman began responding with this commentary:

“It has come to our attention that our responses about ZeekRewards are being used to present arguments concerning the company. We have officially taken the position that NCSECU is not confirming our denying fraud, but that we’ve received several reports of fraud. One of our internal departments has conducted research on the company and received several negative findings. It is the credit union’s stance that we should always try to keep our members’ best interests at heart.

The information is not to bash or incriminate ZeekRewards, but merely to inform our membership of the potential dangers of investing in their company.

One of our Senior Vice Presidents had the following to say about the company:

‘SECU has not indicated that Rex Venture Group is fraudulent. SECU recommends to members that they always conduct due diligence in investor education, and we are advising members to conduct due diligence of Rex Venture Group.’

Additionally, SECU recommends that members contact the NC Attorney General’s office with consumer complaints or the NC Secretary of State’s office with any investor concerns. ”

Jeremy J. Pittman,
801 E Team Leader/AO, mlo# 784404,
801 Contact Center.”

I have contacted the NCSECU and confirmed that Jeremy Pittman does work for them (but not in their “Risk Management” department), and the above email exchange has been verified by investigator Troy Dooly.[43]

ZR’s COO Greg Caldwell has been in contact with the NCSECU and has published this response (in part):

“…the person responsible admitted he really didn’t know anything about the laws regarding direct selling or how to identify a legitimate network marketing company or opportunity. Like all our critics, he was behaving unprofessionally by acting on false information.”

This might explain Mr. Pittman’s drastic change in tone from “ZeekRewards is indeed a fraudulent company” to “the information is not to bash or incriminate ZeekRewards”, and why all requests for comment from the NCSECU is now answered with this statement from Leigh Brady, their media liaison:

“SECU works closely with the NC Attorney General’s Office and the Secretary of State’s office to encourage consumer and investor education. We will always suggest that our members perform due diligence on any possible investment. While SECU has not indicated specifically that ZeekRewards or its affiliates are fraudulent, we are encouraging members to perform such due diligence on this company and its affiliates.”

Obviously, someone at the NCSECU jumped the gun here. To unilaterally warn their clients that a company is a “fraud” and should be unconditionally avoided, and to initiate those warnings unprovoked, is highly irresponsible. While the matter will now likely rest with the NCSECU’s final, tamer stated position, you can’t unring the bell. And in cyberspace, they ring forever.

North Carolina Attorney General

When an AG’s office begins an investigation of an MLM company, or takes formal action against one, it can sting like hell, but it’s rarely deadly – unless it’s the AG of your home state. The other 49 are like branches of the tree. You can lop one off and, as long as it’s not the one most of your leaves are attached to (i.e. your California, Florida or Texas branch) you can survive, at least for a while. But your home state is where you’ve planted roots, and I’m sure you know what happens to a tree when you cut off the roots.

I’m not at all suggesting the NC AG, specifically the “Department of Justice”, is going to do anything to kill the ZR Money Tree. But they may. They’ve recently issues a Civil Investigative Demand (CID) asking a lot of questions about how ZeekRewards works.

I contacted the NC DOJ regarding this issue and received this response from Noelle Talley, their Public Information Officer:

“So far we have received 8 complaints and 23 inquiries about ZeekRewards and related companies as well as numerous phone calls. The complaints generally seek refunds and say the company has not lived up to its promises.

Yes, we do have concerns about ZeekRewards and related companies and have said so publicly. Our Consumer Protection Division has asked them to provide us with documents so we can examine their business practices.”

Greg Caldwell’s response (as published on Troy Dooly’s website[44]) essentially states that only 8 complaints, all of which have been addressed, is actually a low number considering the size and growth that ZR has experienced. And he’s absolutely right.

If the NC DOJ examines the Zeek X-Ray close enough and finds all the same dark spots that I have, this won’t end well for ZR. If they just say, eh, it might be a smudge, let’s watch it and see if it gets bigger (as government officials are prone to do), then ZR will be okay for a while. Until it gets bigger.

Better Business Bureau

Rex Venture Group and its affiliate companies currently have an “F” grade with the BBB, which should be given very little weight. I won’t rehash my exposé of the BBB grading system here[45], except to say it’s blatantly rigged to favor those who pay for BBB “accreditation”, and unjustly disfavors MLM companies. In fact, within the section that explains an MLM company’s low grade they will often site “the industry in which the company operates”. Unless, of course, they pay for BBB membership. Then they amazingly have absolutely no problem with “the industry in which the company operates” and routinely award an “A” or “A-“ grade. The BBB also does not like to be ignored. If they request “basic information” and you do not respond, expect to be docked at least a full grade.

However, this does beg the question, why doesn’t ZeekRewards simply pay the $500 to be accredited, or at the very least, provide the BBB with the basic information they have requested?

ZR does have 37 complaints within the last 36 months, 35 of which they’ve satisfactorily resolved, or attempted to resolve.[46] Most (25) relate to “Problems with Product/Service”. To place their total in perspective, this would place them 17th among the top 100 MLM companies who’s BBB files I analyzed in December of 2010[47] and tied for 16th in my May, 2009 analysis.[48] So unlike the number of complaints filed with the NC AG, this total, although not an exceptional amount, is relatively high. What’s also curious is that, according to the BBB’s Rex Venture Group profile page, “37 complaints closed with BBB in last 3 years” and “37 closed in last 12 months”. This would suggest that virtually all 37 complaints occurred within the last 12 of ZR’s 17 months of existence. What’s more, the total was 10 on April 7th, 14 as of June 8th and 29 on July 28th, just 15 days ago. Although I do believe most could be easily explained by the “growing pains” ZR has experienced over that time, they’ve been lamenting their growing pains for months now. While it’s expected the total number of complaints will rise as the total number of participants do, the rate of increase should begin to slow eventually, not expand geometrically.

With Friends Like These…

As if ZR didn’t have enough PR challenges to deal with, now they have to console their already nervous reps who have been told the FTC is going to close down all penny auctions within the next six months. This was the claim by Dr. Keith Laggos[49], on a recent ZeekRewards conference call. Dr. Laggos claimed:

“The FTC has been taking action against all 32 penny auction sites. They put out letters to the top big four banks asking them not to, to encourage them not to open up accounts for penny auctions. They call them illegal gambling. [The FTC] consider it illegal gambling online and they’re trying to stop it… [The FTC] sent notices to all the major [credit card] processors in the US [telling them] that they do not want them to process a penny auction site as of July 5th.”

Here’s what is most bizarre about these allegations. Keith Laggos was hired by ZR as their MLM/compensation plan consultant, was still working in that capacity at the time of the call, and claimed to be earning over $40,000 per month as a ZR affiliate. Laggos fully acknowledged at the beginning of the call that the audience was “all in Zeekler”, and then proceeds to pitch Lyoness to all those on the call! Laggos asserted that:

“If you put $10,000 in Zeekler [and] if nothing happens over the next year you’ll probably make 30 or 40 thousand dollars if that’s all you do… You put the same amount of money in Lyoness and not doing anything else… you could probably make a quarter-million dollars.”

During the Q&A section of the call Laggos stated:

“If you put someone in for $10,000 [in] bids… make sure you tell them that there is a future challenge lurking in the near future. I do [that] when I sponsor someone into Zeekler for that reason. I have business ethics.”

Dr. Laggos commented on a ZR training call that “Penny Auctions are low cost, and can make or save you money”.[50] While technically true, it doesn’t account, of course, for the hundreds or thousands of losers that participate in each auction where one person “made or saved” money.

On the same ZR training call Laggos claimed that ZR’s second “Company of the Month” feature[51] will focus on their “long term focus”, and “that’s your insurance… that you can not only make money in the short term, but in the long term… year after year after year, for the rest of your life.”[52]

Of course, both of these comments were made back in February, before Keith started promoting Lyoness to ZeekRewards affiliates on their calls.

When asked if he had made ZR corporate aware of the FTC’s campaign against penny auctions, and the pending FTC closure of them, Laggos replied:

“I given them a dozen emails and texts about all this stuff, and we’ve had a couple of conversations about it… Paul [Burks] didn’t know, for some reason, that the FTC was putting an edict [for] shutting down the processing on July 5th until I told him.”

Considering the circumstances in which this information was imparted, and that it was obviously designed to scare ZR reps into joining him in Lyoness, I’d normally take such information with a lake of salt. However, considering it’s coming from Keith Laggos I have to believe there is some truth to what he is saying. Having said that, how, when, where, and to whom he said it to I find shocking and appalling.

Needless to say, Dr. Laggos is no longer a paid consultant to ZeekRewards. No word yet from ZR’s compliance department as to whether or not he violated section 38 of the ZR Policies & Procedures[53]:

“REX Representatives shall not sell or represent non-REX products or represent marketing opportunities from other companies to other REX Representatives. Non-REX products or opportunities may not be promoted in any way at official REX events, meetings, conventions or other gatherings.”

Legal Issues

There are a number of legal issues to consider here involving a lot of legal theory and precedent. Obviously the big three are, is ZeekRewards a Ponzi scheme, a pyramid scheme (which is technically and legally different that a Ponzi) and/or an unregistered security? But there are some peripheral issues to be considered as well.

Let’s take these in ascending order of importance, starting with a picked nit.

Important Legal Stuff

ZR includes a substantial section of text titled “Important Legal Stuff” near the bottom of their corporate site’s home page. However, it is all displayed in a barely visible dark gray font on a black background. If it’s so important, why deliberately present it in such a way as to make it virtually unreadable?

Lack of Transparency

Besides ZR’s penchant for not giving complete or accurate explanations for various things they do, one of the most eyebrow raising is their prohibition against “public meetings”. In a January 10th, 2012 post[54] on the ZR news website they exclaim:

“NO Public Meetings. If it is not a corp sponsored event…there are absolutely NO public meetings allowed. We cannot ensure compliance and so therefore we STRICTLY PROHIBIT them. Any affiliate reported as having public meetings will be permanently removed from the program.”

Hmm. How is the content of the presentation relevant to the venue? You can make violative claims just as easily in the living room of your home as you can in the meeting room of a Holiday Inn. It would seem the only difference is that public meetings can be monitored more easily by the media, law enforcement, and the company, thus demands more prudence and accountability. Such an unusual policy can create the perception – to the media and law enforcement – that they have something to hide.

Compensation Plan

The original ZR plan was a 2×21 matrix, meaning no one can have more than two positions on their first level, and pays down 21 levels (thus each level down holding a maximum of 2, 4, 8, 16, etc.). Historically the “forced matrix” has had a horrible track record with only one company, Melaleuca, achieving any significant, long term success with it.[55] The biggest knock on the matrix is that it can force you to place a good builder several levels deep in your downline if your first few levels are filled, thus potentially losing several levels of their sales volume that will be pushed beyond the bottom pay level. The matrix plan, and to a lesser extend the binary, are also vulnerable to “spill over” hype, where the claim that “your upline can build your downline for you” by having to place all their enrollees under you. Due to the SEC’s afore mentioned “Howey test”, you never want to suggest anyone can make money by simply joining, then letting someone else do all the work. Keep that in mind for later.

What’s odd here is that about the time ZR hired their attorney/consultant All-Star Team they changed their plan from a 2×21 matrix to a 2×5, allegedly at the behest of Keith Laggos. According to Paul Burks[56]:

“A 2X21 Matrix, by itself, can possibly be seen as violating Interstate lottery laws. Especially with no qualifiers in place where someone who is lucky enough to have an active upline can get enough spillover to earn thousands of dollars a month for doing nothing.”

This is odd on multiple levels (slight pun intended). First, I have never seen a single example of a compensation plan paying down too many levels causing any kind of legal action by a state or federal regulator. Not one. Ever. I have seen them go after companies for hyping the spill over, but that still applies whether it pays down 21 levels or 5 levels. In fact, you can still receive “thousands of dollars a month” from a five level downline built primarily by your upline if you’re “lucky enough to have an active upline”. Yes, ZR did add personal qualifiers to prevent you from doing literally nothing, but those qualifiers could have been added to the 2×21 matrix. What’s more, ZR added two generations of matching bonuses to the new 2×5 plan creating the potential for it to actually now pay deeper than 21 levels!

But this is nothing more than a curio. Let’s get to the important stuff.

5cc Program Cancellation

ZR affiliates have always been encouraged to give away the bids they purchase. When you purchase bids you convert them to points in your Retail Points Pool by selling them or giving them away. Not only is the emphasis on giving them away, they are often referred to as “sample bids”. Bids purchased at retail from Zeekler do not apply to the ZeekRewards pay plan. Affiliates must purchase such “sample bids” from ZeekRewards for the bid volume to count.

So, to facilitate this massive bid give-away ZR would collect and distribute the contact information of people who requested free bids to play around with on So if you didn’t know anyone who wanted free bids, or you had given away the maximum amount to all those who did, you could tap into the 5cc Program and buy your “customers”.

Then, on February 27th ZR announced that they would be discontinuing the 5cc Program. However, they would still be collecting these freebie bid seekers, only now you could get access to them for free by qualifying for them. The initial qualifier was the enrollment of two Preferred Customers (who stayed a PC and did not enroll as an Affiliate for 30 days).

“We will no longer be charging 5cc subscribers for 5cc customers… The reason for that is that federal law has changed and we have been informed that we are no longer legally allowed to provide customers or leads for purchase.”[57]

Where to begin.

Let’s start with the admittedly nit-picky fact that the “New Business Opportunity Rule” was not a “law”. A law needs to be approved by Congress. This was an FTC rule, or regulation. Yes, it essentially has the same effect as creating new law, only without an act of Congress, and that’s certainly something for constitutional scholars and libertarians to rant about, but not relevant here.

Secondly, the 112 page NBOR[58] not only clearly and repeatedly cited the exemption of all “multi-level marketing” operations from the Rule, they specifically declared and/or defined this exclusion 29 times![59] Yes, the FTC did narrowly define a “seller assisted” biz op as one where the seller (ZR in this case) is “providing outlets, accounts, or customers to the prospective purchaser”. I’m thinking that if someone were to bring an MLM company who is selling leads and/or customers to the attention of the FTC, they’d probably point out the twenty nine times where they said “We don’t mean MLM companies!”.

Thirdly, providing customers is not illegal. In fact, there is not one word within the entire final rule that even remotely suggests illegality in the offering of leads or customers by an MLM company to its distributors. The repercussions to having the NBOR applied to an MLM company is that it would be subject to additional disclosure. Nothing more. Basically, the company would have to provide disclosures similar to those required of franchisors.

Fourthly, the NBOR did not say a company had to “sell” leads or customers, it merely had to be “providing”, “furnishing” or “assisting” in the procurement of leads or customers. So when ZR announced, “you can receive customers though us…FOR FREE!” by qualifying for them, this didn’t even resolve the threat, albeit infinitesimal, of having the NBOR applied to them!

Here’s where it get’s even weirder. In the same post on the corporate controlled ZR news site (footnote 47) the writer, identified only as “Zeek”, states:

“I am attaching the law and the article written by Atty. Rick Waak to support your education and understanding on this matter.”

But not only does the small section of the “law” that is quoted make no mention, even indirectly, of illegality in the providing of customers, neither does the article by attorney Richard Waak. I spoke to Mr. Waak regarding this matter and although his commentary was restricted by his attorney/client relationship with ZR, he did confirm that there was nothing illegal about providing customers, nor has he ever suggested otherwise, to anyone. When I asked if he had ever advised ZR in such a way as to cause them to believe otherwise, he said only that his article “speaks for itself”. And it does.

To be clear, I have no issue with the discontinuation of the 5cc program. Even if this does create even a remote possibility that the NBOR could be invoked, the disclosures and other paperwork required are laborious and potentially costly. Again, a zero-in-a-million chance of having it apply is better than a one-in-a-million. So the advice of their attorney’s to just drop the 5cc program was sound. I just don’t get the point of doing it when you’re alternative puts you right back where you were, and I don’t understand how this could have been so badly misinterpreted as to be falsely presented as a legal requirement due to a change in the law. Keep in mind, this isn’t just a simple, one time, misunderstanding, or misstatement in this one post on their news site. Dawn Wright-Olivares reiterated during a March, 2012 interview that the 5cc program was dropped because, “We don’t want to be breaking any laws.”[60] My original theory was that the fib, “We have no choice but to drop the 5cc program because the new law makes it illegal” (paraphrase) sounds a lot better than the more truthful, “We chose to drop the 5cc program because there’s a slim chance it may cause us to have to provide more disclosure”. But then, why would ZR do this and then, within the same announcement, link to a section of the NBOR and an article by one of their attorney’s that completely exposes their fib?

Taxing Tax Issues

Let’s say you had 5,000 points and $10,000 in your ZR account, the latter from 6,000 VIP bids you purchased and gave away (thus adding 6,000 points to your account), and $4,000 from pool points you earned, carried forward (i.e. didn’t withdraw) and converted to points, and you have withdrawn $2,000. Also, 3,000 points just got flushed, because points only stay in your account for 90 days. What amount will be added to your total income on your 1099 at the end of the year?

Based on a February 20th training call I listened to (three times), it seems their resident tax expert, Howard Kaplan, isn’t even sure. Near the beginning of the call Dawn Wright-Olivares opines about the exceptionally large incomes that have been reported on affiliate’s 1099s and all the questions they have received about how this number was determined, and how to report it. When Mr. Kaplan begins the Q&A section of the call he specifically states that the 1099 income does, in fact, include all points received, even those that are cycled out after 90 days.[61] “It’s all there, you earned it, but you had to give it back”, he says, therefore it’s okay to record retired points as an expense on your return. Dawn then interjects that, “Points are something that you earn for giving away or selling bids… But points are not earning.” She goes on to clarify, “What is in your 1099 is what you earned in dollars. It has nothing to do… with the points that you earn.” So points are counted as earnings on a 1099, and expired points are a deduction in your schedule C as an expense, according to their tax expert, but their then COO[62] claims points are not at all earnings, and not included in any 1099, even though you “earn” them. This exchange is then followed by Mr. Kaplan doing a complete reversal on his original response and agreeing with Dawn.[63] Then, the entire exchange is transcribed on the ZR news site[64] where the answer to the question “Do I claim the bonus points?” is “Yes”.

I’m no tax expert, but here’s what I think they both should have said: We don’t know!

To my knowledge there is no tax code, nor case precedence, as to how “points” accumulated in an MLM penny auction program, that are used as the basis for determining commissions, should be accounted for on a tax return. The answer will eventually be determined by the IRS, but until that happens it is, in my opinion, irresponsible to give a definitive answer to such questions.

I do know enough about tax law to know that the IRS considers Taxable Income to be a lot more things than just cash. For example, someone who wins a new car on a game show has to include the fair market value of that car as income. Even U.S. Olympic athletes who win a gold medal have to pay taxes on the value of the metal (about $675)! The IRS publication dealing with Miscellaneous Income[65] doesn’t address bid points, obviously, but does cite “Prizes and Awards.” In IRS publication 525, Taxable and Non-Taxable Income,[66] the closest they come is this section regarding “Prize Points”:

“If you are a salesperson and receive prize points redeemable for merchandise, that are awarded by a distributor or manufacturer to employees of dealers, you must include their fair market value in your income. The prize points are taxable in the year they are paid or made available to you, rather than in the year you redeem them for merchandise.”

No, this is not precisely what ZR is doing, but considering it’s at least in the ballpark, and the IRS is moot on what ZR is doing, it at least provides us with a clue as to what their thinking might be when this is inevitably challenged.

Consider this equation, with “P” representing your Points, and “SP” your “Share Percentage”.

P X SP = Income

If you have 1,000 Points and the Share Percentage today is 1.0 %, you earn $10.00. If the Share Percentage doubled to 2.0% tomorrow, you earn $20.00. But, what if SP stayed 1.0% and only your Points doubled (because you bought and gave away another $1,000 in sample bids)? You would now earn $20.00. In fact, not only do both values on both sides of the equation have a monetary value, the Point side is equally influential in your actual earnings. One percent of anything gives you 1% of that thing, One percent of an apple is 1% of an apple. One percent of a chicken results in 1% of a chicken. And in the above example 1% of a “point” does not result in 1% of a point, it results in 1% of one thousand dollars!

How is this any different than any MLM company who pays 10% on all the BV, or “Bonus Volume” – that is, the points – in the weakest leg in a binary plan, or on a certain level in a Unilevel? Points that were generated by the purchasing or selling of product.

It seems extremely clear to this logic wielding, third grade math applying, non-tax expert layman that of course the points have a monetary value – and Mr. Kaplan actually got it right the first time.

So here’s the bottom line, literally: Is ZR counting the total points earned on 1099s, or only the cash amounts withdrawn? If the latter, will the IRS agree that earned points are not earned income?

If it’s the former, then there’s going to be many more ZR affiliates questioning why their 1099 income was so much higher than the cash amounts they withdrew – and not claiming the full amount of their earnings on their 1040. In ZR’s defense, it appears many affiliates don’t understand that when they reinvest their earnings (i.e. don’t withdraw all or part of their Point Pool income and allow it to accumulate in their account), that this is still income. This would apply to anyone, and is not unique to ZeekRewards, Penny Auctions or MLM. If you got paid $50,000 into your ZR account and had the cash withdrawal set at 10%, thus using $45,000 of it to buy more bids and increase your point total, your 1099 is going to reflect the entire $50,000 as earned income, even though you only pulled out $5,000 in cash. ZR has went to great effort to educate their affiliates on this matter, and it is the responsibility of the affiliate to understand it. And no, this $50,000 would not be “illusionary” income, as some ZR critics have suggested. It was absolutely income, and the affiliate had the option to receive it as cash. Just because they chose not to does not negate it’s monetary value.

But then, whether or not it was legally commissionable income in a multilevel pay plan, or an investment into a Ponzi or pyramid scheme, or an unregistered security… well, that’s another matter entirely.

Pyramid Scheme vs. Ponzi Scheme

Before we continue, it’s important to understand the distinction between these two types of schemes. A Ponzi scheme is fundamentally, mathematically, and legally separate and distinct from a Pyramid scheme, although the terms are often, and incorrectly, used interchangeably.

A Ponzi scheme, named after the 1920’s era con-artist Charles Ponzi, is one where more than 100% of each dollar invested is paid out, thus requiring additional investors to pay off previous ones. For example, Charles Ponzi promised a 50% return on investment within 45 days. So if Paul gave him $1,000, he needed to come up with another $500 to cover his promised $1,500 return. How he did that was by finding Peter, another $1,000 investor, and using half of his investment to pay off the first investor (as in “Robbing Peter to pay Paul”). But now the second investor will be expecting a $1,500 payment, so Ponzi had 45 days to find another $1,000 investor. His investment, added to the remaining $500 from the previous one, allowed him to pay off the second investor. Although now, with no money left in hand, and needing two more $1,000 investors to pay off the $1,500 promised to the third investor, he had to find two more $1,000 investors. This was not a problem since the first two happy investors were giddily telling everyone they knew about the success they just had with Ponzi’s amazing investment opportunity[67].

In a pyramid scheme the total amount promised in payments is never more than the total amount paid in. For example, in the “Airplane Game”, a classic pyramid scheme from the 70s and 80s, you had to fill a 2×3 matrix with people who agreed to pay $1,500 for nothing more than the opportunity to participate (there was no product). Once this was accomplished you cashed out with $10,000, or what amounted to 47.6% of the promoter’s total $21,000 take. When each of your two first level players cashed out and received their $10,000 it required eight more participants each, or $12,000. So again, the promoter was always able to pay off those who cashed out with cash-in-hand, and keep a little for himself.[68]

Let’s put this in network marketing pay plan terms, if only for a moment. If a plan actually paid 20% down seven levels, a 140% total pay out, that would likely be a Ponzi scheme regardless of the value of the products sold. The plan pays out more than it takes in. If a plan paid 10% down five levels, a typical 50% pay out, it cannot be a Ponzi scheme since it does not pay out more than what it takes in. No more than 50 cents is paid out of every dollar paid in. However, such a plan could still very well be considered an illegal pyramid. More on that in a moment.

For a more detailed delineation, check out these articles:

Ponzi vs. Pyramid

Pyramid, Ponzi, and Investment Schemes

Is ZeekRewards a Ponzi Scheme?


When ZR first hit the scene so many knees jerked in unison that it practically altered the rotation of the Earth. They were offering a 125% return, or 1-2% per day, and they were paying it! Of course it had to be a Ponzi scheme, right?

Wrong. In fact, this part of the ZR business model is ingenious. Start an MLM company called ZeekRewards, collect an army of people who will place literally millions of small advertisements all over the net, and buy literally millions of bids to give away, all designed to attract customers to a penny auction site called While the penny auction site is selling items to hundreds of winning bidders and raking in 10 to 40 times their cost for each one, all day long, seven days a week, they can easily afford to plow “up to 50%” of Zeekler’s daily profits into ZeekRewards. Imagine if Apple Computers were to start an MLM division selling a mineral supplement made from silicon, and then applied 50% of all Apple profits into the MLM comp plan. It would probably pay out more than 100%, and it wouldn’t be a Ponzi scheme.

Is ZeekRewards a Pyramid Scheme?

Although it’s perfectly legal for me to say “no”, it could actually be deemed libelous if I were to definitively say “yes” (Just ask MLM über-critic Robert Fitzpatrick[69]). However, my own legal council has advised that I say, “In my opinion this company may be legally vulnerable, based on how they appear to me”.

So… in my opinion this company may be legally vulnerable, based on how they appear to me.

First of all, ZR has picked an historically unfriendly state to base their home office in. North Carolina has not been an MLM fan ever since the infamous David Crowe based American Gold Eagle in that state (1989-1991).[70] Besides being one of the six states to pile on in the Equinox case, they are one of the original states to create MLM legal precedence back in the 1970s and early 80s when they prosecuted such companies as Dare to be Great[71] and Challenge[72]. North Carolina’s AG also closed down The Tax People (aka Renaissance) in August of 2000. When it comes to identifying pyramid schemes they know what to look for, and how to find it, even when it’s well hidden. Let alone when the company is sky writing it right over the state capital building.

Before I explain why ZR is, in my option, based on how they appear, legally vulnerable, it’s important here that you understand how state and federal authorities define an illegal pyramid scheme. It is not simply the absence of a product, nor even the absence of a product of genuine value. Equinox[73] and Jewelway[74] had perfectly fine products, yet both were declared illegal pyramid schemes by the FTC.[75] Nor is it a matter of how much a participant is encouraged to purchase, or what percentage of product is sold to non-participant customers. In fact, based on myriad legal precedence and specific guidance offered by the FTC, the primary factor is the motive for buying the product.

In a letter to the DSA[76], in response to their request for guidance, the FTC states:

“Much has been made of the personal, or internal, consumption issue in recent years. In fact, the amount of internal consumption in any multi-level compensation business does not determine whether or not the FTC will consider the plan a pyramid scheme. The critical question for the FTC is whether the revenues that primarily support the commissions paid to all participants are generated from purchases of goods and services that are not simply incidental to the purchase of the right to participate in a money-making venture.”

They go on to specifically declare:

“…a multi-level compensation system funded primarily by payments made for the right to participate in the venture is an illegal pyramid scheme.”

To paraphrase the FTC, are the participants buying the products because they actually want them, and would purchase them even if there were no income opportunity, or are they buying the products primarily to meet certain quotas and qualifications in the compensation plan?

North Carolina’s “Pyramid and Chain Schemes Prohibited” statute[77] defines such a scheme as:

“…any program utilizing a pyramid or chain process by which a participant gives a valuable consideration for the opportunity to receive compensation or things of value in return for inducing other persons to become participants in the program…” (emphasis mine)

How “compensation” is defined here, and in most state’s pyramid statutes, is key. In the North Carolina code, compensation in an illegal scheme excludes:

“…payment based on sales of goods or services to persons who are not participants in the scheme, and who are not purchasing in order to participate in the scheme.”

In other words, if compensation is based on sales to those who are not participating in the income opportunity (i.e. retail customers), or those who are participants but are not purchasing primarily, or solely, to meet prerequisites to earn income, then this would not define an illegal pyramid scheme. So again, we must consider the motive for buying the products.

In most MLM programs this is subjective. That is, subject to being a mind reader. Are all those distributors buying that $35 bottle of fruit juice because they actually want the juice, and they would still be buying it even if there were no commission to qualify for? That’s good. Or, are they buying four bottles every month because the comp plan has a $140.00 personal volume requirement to get paid? That’s bad. Did the women who purchased $5,000 of personal care and cosmetic products do so to have enough inventory to sell at all the home parties she plans to have? That’s good. Or, did she buy that much to achieve the higher paying “Executive” rank in the pay plan? That’s bad.

In the case of ZeekRewards, the motive for purchasing bids is glaringly obvious. ZR leadership has clearly stated numerous times that affiliates are buying bids not to actually bid with, but to give away! They encourage affiliates to give bids away, add incentives to their pay plan to motivate it, and openly describe how the vast majority of bids are, in fact, not being used for bidding. Dawn Wright-Olivares routinely trains affiliates to use their bids as samples to “attract customers”. During a February 21st training call Dawn recited her “hamburger analogy” where she states, “If you bought that burger from ZeekRewards, you’re buying that burger as a sample, not to consume[78] (emphasis mine). On the same call their tax expert, Howard Kaplan, instructed affiliates to write off their bids as a business expense, “since we are using the bids to give to customers to help build our business income.”[79] During an interview with Troy Dooly[80] at an ANMP[81] event in Las Vegas, Dawn unabashedly declared that Affiliates were not even allowed to use the sample bids they purchased to bid with![82] Paul Burks posted on the ZR news site that is was “VERY IMPORTANT” (caps are original) that affiliates understood that “using your bids as samples to attract customers creates a potential tax deductible advertising expense. I’m not a tax lawyer, so consult with your own advisor about that issue, but that could be HUGE!”[83]

There’s absolutely no question what the affiliate’s motive is for buying bids from ZR. It is overwhelmingly obvious they’re buying bids primarily, of not solely, to participate in the income opportunity, and would never have purchased these bids if no income opportunity existed.

It is common knowledge throughout the MLM industry that paying commissions or bonuses on sales aids, training, back office access, marketing websites, or any other type of business building tools is legally taboo. All such distributor-centric items clearly have no value to non-participants in the income opportunity, and require the recruitment of distributors for this sales volume, thus commissions, to occur. ZR might counter that they also require the enrollment of two non-participant customers to qualify for income, but that doesn’t get them off the hook. For example, in FTC vs. FutureNet[84] the FTC stated:

“The compensation received by FutureNet Consultants… from purchases of goods or services by members of their downlines is not primarily based upon the sale of products or services to users who are not participants in FutureNet’s marketing plan. Although defendants purport to require the acquisition of two new customers each month as a condition for the payment of compensation, they do not ensure that products or services purchased by distributors are primarily resold to ultimate users who are not part of the marketing plan… The compensation received by Internet Consultants from their own and their downline’s recruitment of new Internet consultants is unrelated to the sale of products or services to ultimate users.”

As part of the Final Judgment and Order against FutureNet, the founder of FutureNet was banned for life from participating “in any multi-level marketing program or prohibited marketing scheme within the United States”.

In MLM attorney Kevin Grimes’ article “BigSmart Not So Smart”[85] he discusses the legal challenges with this web mall scheme where the FTC ultimately found the commissionable sale of the internet site itself, rather than the products purchased via the site, to be a sales tool only of interest to participants in the scheme.

“[BigSmart] offers its distributors the opportunity to sell the company’s products… through internet malls set up by the company… commissions are based on the sale of the malls rather than the sale of goods and services that are offered through the malls.

Legitimate MLMs never pay a commission on the sale of catalogs, marketing literature, starter kits, and other sales aids. Only retailable products and services are properly commissionable. Bigsmart however, generated most of its commissions from the sale of malls, which are… not retailable products since the only persons who would have any interest in purchasing a mall are those who wished to participate in the Bigsmart compensation plan. Other than the value the online mall presented by virtue of the attached income opportunity, the malls were otherwise devoid of intrinsic consumer value.” (emphasis mine)

Now take a look at the contents of ZR’s three Premium subscription packages, which cost $10, $50 and $99 respectively, and which generate a monthly 20% “Retail Profit” to the affiliate who enrolls anyone who signs up for one.[86]

Note that each subscription includes your “own unique personal e-commerce enabled retail store with even higher profit margins and deeper discounts in your wholesale store!”, and your online store, “is fully stocked with high-value merchandise and whenever someone makes a purchase YOU earn the profit!”.[87] This is essentially a web mall similar to BigSmart, and the online sales site itself is a significant part of the package that is sold by ZR – and commissioned! BigSmart charged $99.95 per month for their online store ($1,199.40 per year), and ZR’s Diamond package costs $99.00 monthly ($1,188.00 per year).

The proverbial nail-in-the-coffin for ZR might very well be this section of the FTC’s Pyramid Scheme guidance document:[88]

“The focus of the program is recruiting new representatives and selling the products to new members as they join, not selling to customers. You’re told that the more you buy, the more you’ll earn.”

Unquestionably Premium Subscriptions are only sold to “new members” of ZeekRewards, bids are only purchased to use as a marketing tool, and the more bids you buy, the more you earn.

ZR removes all doubt about what the motive is for ZR affiliates to by bids with the statement:

**Please Note: Affiliates in your 2 x 5 forced matrix who upgrade before you do will not create commissions for you. The sooner you upgrade or qualify the less the chance of missing out on potential earnings! The purchase of a Premium subscription generates automatic rank qualifying PV.”[89] (emphasis original)

Affiliates in an MLM opportunity should be buying the company’s product because they actually want the product, not to qualify for more income in the pay plan.

It is true that ZR affiliates can buy bids to bid with themselves, but as ZR says:

“ONLY Zeek sample bids purchased in the ZeekRewards back office are eligible for the Cash Rewards program payments. Retail bids purchased on the Zeekler Penny Auction site do not qualify for Cash Rewards.”[90]

ZR’s compensation plan actually creates a powerful disincentive for affiliates to buy bids from ZeekRewards to actually bid with.

I have heard some ZR defenders claims ZeekRewards cannot be an illegal pyramid scheme because the purchase of bids is “optional” and they offer an option to participate for free. However, in North Carolina Court of Appeals v. Challenge, Inc.[91] (section 4)[92] the court states:

“The defendants argue that Challenge is not an illegal pyramid scheme because participants are not ‘required’ to sell courses to themselves to advance in the organization, and an Independent Sales Agent does not pay valuable consideration for the chance to receive compensation upon the introduction of other participants. This argument is not convincing since the statute is violated if an individual ‘pays’ consideration, regardless of whether he is required to pay it. The Challenge modus operandi is such that it would be grossly impractical not to pay the consideration for the opportunity to participate. The evidence is uncontroverted that all participants in North Carolina who advanced in the program did so by purchasing the seminars for themselves in order to meet the $5,000.00 requirement to become an Independent Sales Agent.” (emphasis mine)

In the FTC’s letter to the DSA, they succinctly describe their thinking as to fees paid by downline reps that would only be purchased by downline reps – such as fees paid for Premium Subscriptions, and for bids that are used strictly for business building purposes:

“In a pyramid scheme, participants hope to reap financial rewards well in excess of their investment based primarily on the fees paid by members of their ‘downlines.’ Downline members pay these fees to join the scheme and meet certain prerequisites for obtaining the monetary and other rewards offered by the program.”[93]

But, Zeek has customers. Lots and lots of them!

Do they? Zeekler claims that their penny auction site “has become the #2 largest trafficked Penny Auction site in the World”. Allegedly they have over 600,000 registered “customers” in 22 countries. Unique “customer traffic” has gone from 22,000 visitors in May of 2011 to 317,000 in May 2012. Their ratio of customers to affiliates, they claimed in May, was 25 to 1.[94] This appears to be yet another way in which MLM companies have this masterful way of saying things that are technically true, but not entirely true. First of all, if you sign up as a customer first Zeekler will give you at least 25 free bids. Then your sponsor can give you even more free bids (up to 1,000) when you enroll as a ZR affiliate. So it’s a common practice (and openly encouraged) for those who want to enroll as affiliates to take the token step of enrolling as a customer first just to get extra free bids. Secondly, ZR counts all those who simply receive free bids as customers whether they use them or not. Therefore, the number of “customers” is being grossly inflated.

In an August, 2011 post on the ZR news site[95], Paul Burks states:

“In the MLM industry there have been numerous court decisions addressing what is called ‘garage qualifying’ or ‘front-loading’. That means permitting affiliates to purchase large amounts of inventory that they never use or sell simply to qualify for the pay plan. It is generally understood, industry wide, that affiliates must use or sell at least 70% of their purchases before they can purchase more. Our automatic daily repurchase system, with no requirement that the bids be used or sold, was a potential problem. Some affiliates were accumulating thousands of unused bids.”

But, there is still no requirement that the bids be “used or sold”! The above prohibitions against front loading and stockpiling of products requires that the distributor use the products themselves, or sell them. If literally 100% of ZeekRewards affiliates never used a single bid they purchased to actually bid with, nor did a single Preferred Customer they gave free bids to ever place a single bid, this would not effect the affiliates income by one iota! ZR affiliates might as well be purchasing those red, white and blue plastic poker chips. What’s more, ZR allows you to buy as many as ten-thousand bids, for $10,000, even if you have no intention of using a single one for its intended purpose – to bid with. When you buy thousands of dollars worth of products just so you will make more money in the comp plan, that is most certainly a front load.

They are so clearly not purchasing bids to be used on a penny auction website, they are essentially purchasing points to be used in an MLM compensation plan.

If there’s still any doubt left that ZeekRewards is a recruitment based income scheme, where recruiting is, in fact, required to earn income, here’s one of the most ironic statements ever written considered it’s part of a post titled “Compliance, Compliance and More Compliance…”:

“Do NOT advertise that there is no Sponsoring or recruiting necessary to earn income. It is a fraudulent statement and is grounds for removal from this program.”[96]

That’s not a typo, folks. If you tell a prospect that they can actually make money in ZR without recruiting – it’s a terminatable offence!

Is ZeekRewards a Security?

This one is not as definitive as the pyramid question (in my opinion, based on how they appear to me). However, in spite of a number of adjustments ZR has made at the advice of their legal/consulting team, I do believe this is a risk that is still in play.

The primary reason I believe ZR is still legally vulnerable here, in my opinion, based on (yada, yada, yada), is the fact that no matter how much they demand that affiliates stop presenting ZR as a security, no matter how many times they tell them, in so many ways, to stop using terms like “investment”, “compound”, and “return”, no matter how much “compliance training” they now offer, no matter how strict there zero tolerance policy is towards such policy violations, no matter how many affiliates they actually terminate for violating them – they won’t stop doing it!

I’ve gotten the full-on Zeek pitch three times, all since these security-lingo sanctions were enacted, and all three basically presented an opportunity for me to buy bids, do about “five minutes of no-brainer work a day”, and then kick back and watch the cash roll in. At one time (around late January) one even said there were services available where you could hire out the ad placement function, and ZR offered a deal where they would give you the customers to give the free bids to, so you had to do nothing but “buy bids and masturbate” (his words).

In Zeek’s defense, they quickly put the kibosh on the “we’ll place your ad for you” schemes, and the customer acquisition deal he was referring to was the 5cc program, which is also gone. This might provide a much more valid explanation for why the 5cc program was discontinued. That is, per the Howey Test (the test you want to fail, mentioned way back on page one), you have to apply some “effort” in the creation of the income to not be a security in the eyes of the SEC.

In the beginning ZR required only the effort of placing a free, online ad. Otherwise, you did just buy bids and… celebrate. Soon after they hired their compliance team they changed the plan from just having to buy bids to get pool points to giving away bids for them to convert to points.

So here’s the million dollar question: Does the placement of advertisements and the giving away of your product count as “effort” as it relates to the SEC’s definition of a security?

I already know Montana’s Commissioner of Securities & Insurance[97] opinion. Although their Communications Director was limited in his ability to discuss any specific company, or to give legal advice, I was allowed to ask him questions based on “hypothetical” scenarios. When I presented one to him with only hamburgers being substituted for bids, and asked if the placing of a free online ad each day or the giving away of most or all of my hamburgers would constitute effort as it pertains to the Howey Test, he said he would check with their legal department and get back to me. He did. The answer was “no” and “no”.

I am not a legal expert on this subject, but have researched it thoroughly and interviewed two attorneys on the matter. Here is my understanding as to why these functions will likely not be considered effort in any state, or on a federal level: The effort you apply must be effort towards the specific activities that generate the return, not effort to participate in the return.

For example, let’s say I’m getting a 20% annual return on my own investment portfolio, which I manage myself. Several of my neighbors ask of they can give me some of their money and have me invest it for them. Since I’m aware of the three pronged Howey Test, and know this is already “an investment of consideration” and it’s into a “common enterprise” (me), I need them to apply some effort so as not to meet the definition of a security. So, I tell them all sure, I’ll invest your funds for you, as long as you all paint my garage. That would not be effort towards the creation of the return, that would essentially just be their barter fee for my services. Now, if they all got together and assisted me in my research of various public companies, and had a say in which ones we bought stock in, then that would be a legal investment club and, in most cases, need not be registered as a security.[98]

The managerial processes and mathematical algorithms that ZR performs to generate Point Pool share payments to affiliates does not change in relation to the ads posted or the bids given away. Let’s call these internal steps “A, B and C”. As the SEC states (see footnote 95), a security is one where the participants, “expect to make a profit from the entrepreneurial and managerial efforts of others”. In Zeek’s case the ad is utterly irrelevant in the production of Point Pool earnings. Whether your ad gets no response, or 1,000 responses, you still earn the same share of the pool. ZR is still performing steps A, B and C. Same with giving away bids. Yes, you have more points in your account for them to perform steps A, B and C on, but they are still performing steps A, B and C.

ZR CEO Paul Burks stated:

“Paying Daily Profit Shares based on the amount of an affiliate’s purchases creates the potential for an SEC challenge for offering a ‘passive investment’. This was especially true when a specific earning percentage (125%) was being mentioned. Even with the complete Legal Disclaimers that we were using they still felt we could have problems later.”

Changing all the processes that affiliates perform does not change the processes that ZR performs. Requiring affiliates to now give away the bids they purchased, or removing the cap on the return, or eliminating terms like “investment”, “return” and “compounding” from ZR lexicon, is only changing the packaging, but not the content. ZR was generating this fixed 125% return then by performing steps A, B and C, and today they are still performing steps A, B and C.

Mr. Burks goes on to say:

“Eliminating the 125% cap on profit sharing also accomplishes a couple of important results. First, it prevents anyone from accusing the company of paying a fixed ‘return on investment’. That is NOT what we do, but it is important that we remove any appearance that we are doing that! Second it gives you a raise! Based on the current rate of daily rewards you should earn substantially more in daily rewards over the 90 days, based on 100% repurchase, than you have earned using the 125% cap.”

Yes, it prevents anyone from accusing them of paying a “fixed” return on investment, but not from paying a return on investment. All they’ve done here is make the return a floating amount. It has not been eliminated.

Next Mr. Burks borrows Ms. Wright-Olivares’ hamburger analogy:

“If you purchase a burger at McDonalds you give the guy at the counter some money and he gives you a burger. Then, you own the burger and the store owns the money. You didn’t ‘invest’ in a burger expecting to get a return. You just bought a burger. You get to eat it or give it to someone else to eat.”

Right. And that’s exactly why this is not even remotely analogous to what ZeekRewards is doing!

You are not going to McDonalds to buy hundreds, thousands, or tens-of-thousands of Big Macs solely to give away, in an effort to earn more Big Macs, and a share of McDonald’s profits.

To their credit, ZR did make several adjustments in an attempt to widen the berth between themselves and a security, but they never completely severed the umbilical cord. They did a decent job of improving the wrapping paper, but not the content. At least, not nearly enough. In my opinion, based on how they appear.


I did not begin this investigation in earnest until late May. I figured it didn’t make a lot of sense trying to evaluate the structure and condition of something who’s structure and condition was constantly evolving. It seemed the noise and dust from all the renovations began to subside around then, so I pulled out the magnifying glass and went to work. By mid-June I had gained enough knowledge to at least be conversant in Zeekeze, and to know what questions to ask, and what concerns to address. I had compiled enough questions and concerns that would only be appropriate to ask ZR management that I felt an interview was warranted. I always attempt to give the subject of my reviews an opportunity to address all such concerns before going public with them. So that’s when I began my quest for an interview, which I described back on page 3. Over about a six week period we tentatively set up four different interviews with two different ZR corporate members, with the caveat that attorney Kevin Grimes be present during the interview with Paul Burks (which I gladly agreed to). Then the Civil Investigative Demand (CID) was made public on August 6th, and used as an excuse – and in this case a good one – for why the interview had to be delayed again.

But, here’s where I have a problem (well, another one). I have since discovered that this CID was initially issued on July 6th, exactly a month before it was made public! ZR has known they were under investigation by their state’s AG that whole time, including the period when I was led on about a pending “exclusive” interview with Mr. Burkes.

So, on August 8th I decided I had been patient long enough and began writing this review. I still sincerely wish I could have interviewed someone from ZR before I wrote it. Maybe rhetorical questions wouldn’t have outnumbered answers. But I did try.

To their credit, ZR has at least attempted to make the necessary renovations, but ZeekRewards is a fixer-upper that just can’t be fixed. To make all the necessary changes to really bring this juggernaut into compliance would require essentially ripping the guts out of the income opportunity. For example, ZR should never have allowed commissionable points to be created by merely purchasing bids, as they did in the beginning, nor should they have stopped at requiring them to be given away to create these points. Bids should not be commissionable until somebody actually uses them to bid with!

But then, this would only exacerbate the already troublesome practice of affiliates dumping several hundred dollars worth of bids into Zeekler on auction items worth a fraction of the winning bid price. And yes, that absolutely is happening. Why wouldn’t it? If you had, say, $10,000 worth of VIP bids and you needed to give them away or use them to bid with to convert them to points in the Retail Point Pool, why not just bid up a $250 Macy’s gift card to $1,000? If you give $1,000 in bids away you get nothing. At least this way you get a $250 Macy’s gift card. Or course, you would give these bids to a family member who would do your bidding. This practice is already corrupting the bidding at Zeekler, and creating “bid inflation”. Can you imagine what would happen if they made it mandatory to use your bids to bid with to convert them to points, rather than give them away?

And by the way, did I mention that you can bid for cash? What are they thinking?

In conclusion (finally), I want to make two things very clear. First of all, having listened to them speak for cumulatively over 10 hours, having met them personally, and trusting others opinions who have directly worked with them, I have no doubt in my mind that Paul Burks, Dawn Wright-Olivares, and the rest of their corporate team, have no intentions of operating an illegal scheme, or to scam anyone. I believe they honestly believed, early on, that they were doing nothing improper. And when they were informed that perhaps they were, they have gone to great lengths to renovate and restore their unsturdy house. But when it’s a house of cards with a foundation made of quicksand, even the greatest legal, consulting and public relations minds on the planet are going to have a huge challenge saving it.

Which leads me to my second final point. I have great respect for Kevin Grimes, Gerry Nehra, and Richard Waak. I have no doubt that they’ve done the best they can do with what they have to work with. Their working on behalf of ZR by no means should be considered their endorsement of it. They were hired by ZR to do a job, and they are doing their job. Even Bernard Madoff had a defense attorney. And regardless of his unceremonious firing, as an MLM consultant Keith Laggos does knows his stuff. Although I didn’t get the chance to really know him personally, Greg Caldwell seems to be a stand up guy with a good reputation, and has produced some great compliance training, especially on income disclosures.

So what’s the future hold for ZeekRewards? In my opinion, based on how they appear, it won’t be a long one. The North Carolina investigation is absolutely not “routine” as some ZR supporters have suggested (a very small fraction of NC businesses get issues CIDs), and NC is very good at teasing out all the same stuff I’ve found. This may even result in a Temporary Restraining Order (TRO) which will be lifted only after ZR makes several demanded changes. Changes that, as I described above, may then cause ZR to die a natural death of attrition. Best case they’ll have to make some unpopular changes without the TRO. However, I actually think the FTC or SEC is a bigger threat considering the size and scope of ZR. But if I were a betting man (which I’m not, which is why I can live in Las Vegas), I’d put my money on ZR being taken down by ABC, CBS or NBC. ZeekRewards is a 20/20 segment just begging to happen. And then the feds will go grab their magnifying glasses. This is, after all, an election year. This is all assuming, of course, the FTC doesn’t take down the entire penny auction niche first. Which I also believe, as does Dr, Laggos, will eventually happen (but I don’t have any secret sources).

In the mean time, I maintain the same recommendation I have been issuing for the past year…

Don’t join ZeekRewards.


Yesterday morning I sat down at my desk to finish this review. I had about two or three pages of the “Is ZeekRewards a Pyramid Scheme?” section to complete, and a small section within “Taxing Tax Issue”. They were not completed only because I was waiting for the answers to three key questions. For example, I had asked three different experienced ZR reps what was the current maximum number of free bids you could give away to one person, and received three different answers (50, 500 and 1,000). So I asked a few more folks who were knowledgeable of Zeek stuff. When I checked my email to see if any had responded yet, there was one. He began by asking, “Have you seen this yet?”

I have to admit to feeling a bit of ambivalence upon hearing the news that Zeeks’ home office was closed. Three months and 31 pages of typing for nothing. Couldn’t the SEC have waited just a couple more days?

But this really isn’t a joking matter. This is going to create hardships for so many people, so much greater than some wasted time expended by a two-finger typer. Lives are going to be wrecked by this. I know people personally, good people, innocent people, who walked away from other well paying opportunities to pursue ZR. One was making over $50,000 a month. How do you replace that? I’ve heard so many stories of good people who resigned from other MLM programs that were paying them a living income, that they were supporting their families with. I have two friends that I personally warned not to join Zeek, that did anyway. Truthfully, I feel absolutely no gratification at all in this. I feel nothing but sadness, and anger.

I’d spend yet another page describing my anger, but turns out it’s practically identical to MLM attorney Kevin Thompson’s. So here’s his:

There’s been some online chatter over the last 24 hours about bashing Zeek affiliates for their ignorance and greed, and the inevitable vultures who are already trying to recruit them. Normally I’d have little sympathy for the victims/perpetrators of such schemes (and, by the way, exactly how many levels down from the company do you stop becoming a perpetrator and become a victim?). But in this case even if they did do a due-diligence of ZR, which we tend to chastise such victims for not doing, they likely would not have been dissuaded from participating – they would have been encouraged to! The educated, experienced and trusted sources many of them would seek such guidance from were reassuring them it was safe! The ANMP, a trade association whose focus is distributor education and protection, showcased ZeekRewards at their last event as a model of corporate compliance, and their Executive Vice President, Peter Mingles, was a staunch supporter, promoter, and participant. They were featured twice as “Company of the Month” in Network Marketing Business Journal, where they were touted as a safe, “long term” opportunity. Well respected industry authorities such as Troy Dooly was at times somewhat critical, but generally defended and supported them (and much to his credit has publicly apologized). Ted Nuyten’s popular site lists ZeekRewards as the #3 “Top Direct Selling Company” in 2012, and Dawn Wright-Olivares as the #1 “Field Leader” (with 45% of 47,760 votes cast), along with a favorable review of ZR, and an interview with Ms. Wright-Olivares that includes not a single challenging question.[99]

With this stable of enablers, and ZR’s promotion of their all-star legal & consulting team, Zeek affiliates and prospects didn’t stand a chance.

Rather than go on for another 20 pages reciting and analyzing the SEC’s charges, I’ll just give you a link to them…

… and summarize them like this: The only thing I got wrong (maybe) was the point that ZR was not a Ponzi Scheme. According to the SEC they were. And they are a pyramid scheme – for exactly the reasons I described. And they are an unregistered security – for exactly the reasons I described. And the only reason I was off on the Ponzi issue was because I assumed, like so many penny auctions, was making huge profits. As it turns out, according to the SEC, not so much. In fact, according to the SEC’s findings, 98% of ZeekRewards’ total revenue was coming from ZR affiliates, not Zeekler customers (actual bidders). The SEC claims, “of approximately 10 billion VIP bids purchased by or awarded to investors, less than one-quarter of one percent have been actually used in auctions on the penny auction website”. Furthermore, ZR has three billion profit points outstanding, and in July of 2012 ZR had total revenue of $162 million and total cash payouts of $160 million. The SEC also reports that Paul Burks has withdrawn about $11 million, and still has about $4 million. This might explain why he was fined $4 million.

For the record, I solemnly swear that did not go back and change one word of any part of this review that I had already written before ZR was closed. If I were to do that I’d probably lighten up a little on Paul Burks for not following through on the interview. What has also been revealed since the closure was that his wife has recently suffered some serious medical issues, and he wasn’t spending a lot of time in the office the past few weeks. Otherwise, right or wrong, what I saw is what you get.

And I assure you, it sometimes takes me about an afternoon to write one coherent paragraph. There’s no way I wrote 34 pages in the last 34 hours.

And frankly I’m still not convinced Zeek Rewards was a Ponzi scheme, and the SEC wasn’t entirely accurate on their complaint.[100] For example, they reference the 5cc program and the ad placement services as still being in play. They haven’t been for months. They also suggest that since ZR had revenues in July of $162 million and paid commissions of $160 million, if Zeeksters were to increase their average withdrawal percentage by just a tick ZR would, in fact, be paying out more than they are taking in. But, ZR would have just lowered the share percentage.

At this point the feds are working from a lot more intel than I am, so who knows.

Still… two out of three ain’t bad.


Len Clements
Founder & CEO
MarketWave, Inc.

[2] Although ZeekRewards corporate has been accused of going so far as to use such terms, I can find no reliable evidence of this.

[6] Owner & President of White Hat Solutions, a “Corporate Investigation & Security Consulting” company.

[7] Founder & CEO of PM Marketing, a premier provider of leads and training to the MLM industry.

[8] Founder & CEO of Advent Communications, a premier public relations firm serving the MLM industry.

[10] To

[11] Association of Network Marketing Professionals;

[25] There is some confusion as to what the number of free bids is, but the most common amounts states are 25, 100 or 250.

[26] Two positions wide on the first level, five levels deep.

[40] While most states are moot on this point (and no state has specifically declared distributor purchases as non-commissionable), Texas, Kentucky, Oklahoma, South Dakota, Louisiana, and Ohio have also specifically declared personally consumed products by reps as being a bona-fide sale to an end user.

[42] Montana, Louisiana, Georgia, Massachusetts and Wyoming.

[43] Troy Dooly has been a great source of objective information about ZeekRewards – you can find his commentary here:

[49] Publisher of Network Marketing Business Journal and author of the textbook “Direct Sales: An Overview”.

[50] ZR Monday Training Call; 2-6-12; 14:58 mark.

[51] Vol. 27 Issue 4, April, 2012.

[52] ZR Monday Training Call; 2-6-12; 7:15 mark.

[55] Arguably Nutrition For Life could be included, which did survive from 1989 to 2003 with a matrix plan.

[61] At 14:00 minute mark.

[62] Dawn Write-Olivares is now ZR’s Chief Marketing Officer.

[63] Discussed at the 35:00 minute mark.

[67] Which Ponzi claimed was based on profits earned from international postal reply coupons.

[68] And it usually is a guy. Check out my article “Silent Sirens” at

[70] American Gold Eagle was under investigation in NC when it failed due to Cease & Desist orders filed in other states.

[75] Equinox was also charge as an illegal pyramid scheme by six states, including North Carolina.

[78] Stated at the 5:01 mark.

[79] This is discussed at both the 24:24 and 28:20 mark.

[81] Associates of Network Marketing Professionals

[86] $1.00 from every new Gold and Diamond subscription and renewal is also applied to a pool each month and paid out to qualified Diamond/Executive Affiliates.

[91] North Carolina Court of Appeals, Edmisten v. Challenge, Inc. (1981), 54 N.C.App. 513, 284 S.E.2d 333

[94] The Network Marketing Business Journal, Vol. 27 – Issue 4 (April 2012).

MLM gniniarT: Why Is It Provided Bass Ackwards?

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 ( Unrelated to the college itself is “The Networking Project” ( 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?

Is Bill Ackman the Next Barry Minkow?

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[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,, and the [sarcasm on] oh so reliable [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” 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]


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.

Silent Sirens

The Scarcity of Women Among the Scams

By Len Clements  ©2007, 2008

As told in Homer’s Odyssey, the song of the Sirens was so enticing that all those who sailed past their island’s shore would be compelled to dive into the sea, to their ultimate destruction. The great Ulysses himself had his men bind him to the mast of his ship and fill their own ears with wax to avoid the lethal temptation of the Siren’s song.

There are as many snakes within the MLM industry as there are atop the head of Medusa, and they sing their own alluring song leading us to believe our ship has come in – then once aboard, driving it straight into the rocks. But unlike Homer’s Sirens, this chorus is made up predominantly of men.

Literally hundreds of scams, money games and pyramid schemes have come and gone over the years, and I’m hard pressed to come up with a single one that was operated by a woman. Women certainly may have participated, but more from the perspective of victim than perpetrator.

Even the recently eradicated “Women Helping Women” pyramid scheme was, when it’s various incarnations are traced backwards to it’s origin, founded by a man. Based on the classic “Airplane Game”, this more feminine version was born in Canada in the late 1990s.  It was originally called “The Dinner Party” which morphed into “A Woman’s Project” only after a small group of women adopted the “gifting club” concept as a way to generate funds for local charities. Even when women do start pyramid schemes it’s to help other people make money! Yes, there were other women who later corrupted the scheme’s altruistic intentions by redistributing the monetary “gifts” among themselves, but this only begs the question; how many levels down from the apex of a pyramid does one stop becoming the perpetrator and become the victim? This scheme stretches back many years, and those women who were recently prosecuted were well down the chain.

Indeed, for every woman in a garish orange jump suit picking up trash along the interstate there are ten men to thump the scales of justice to the other side. And this applies to not just bunko and confidence games, but literally all types of unethical behaviors, illegal or otherwise. For example, researches found that 50% of all women have, at some point in their lives, cheated on their husbands or boyfriends. Not surprisingly, it was 70% for men. However, 80% of women fantasized about cheating on their significant other, while this was true for 98% of men. Women are even less likely than men to cheat in their imagination!

In a survey of almost 10,000 American high school students, 98.6% of girls agreed with the statement “It is important to be a person of good character.” Only 95.7% of boys said they agreed (or, more likely said “sure dude, whatever”). Cheat on a college entrance test? Two-and-a-half times as many guys “strongly agreed” it was okay. And more to the point: “People who are willing to lie, cheat or break the rules are more likely to succeed than people who are not.” Men who agreed: 28.2%.  Women who agreed: 16.0%.

There are myriad reasons why men are much more likely than women to commit a violent crime (eight times more likely in the case of murder) besides a divergence in ethics and honesty. But even the gentler, more cerebral white collar crimes are predominantly committed by men as well. For every one Martha Stewart there are 4.4 Michael Milkens, literally. Among the 1,016 prisoners held in federal penitentiaries in 2000 who were incarcerated for white collar crimes, only 230 (22.6%) of them are women. Of all consumer complaints filed with the Internet Fraud Complaint Center in 2001 where the gender of the perpetrator was defined, 82.3% of them were men.

For the record, women make up 51.1% of the U.S. population (140 million women, 134 million men, 6 million lonely pro-polygamists).

Research also reveals that the number of women committing white collar crimes (i.e. work place theft, embezzlement, fraud, forgery, etc.) has increased considerably over the past twenty years – by about 30%. One popular theory suggests that the increase in single-mother households (3 million in 1970, 10 million in 2000), and women’s increasing socioeconomic independence from men, have both contributed to women’s willingness to commit pecuniary crimes. On the surface this would seem to indicate the ethics edge women have over men might be eroding. But alas, even this apparent foible in the female favor is fallacious. While it is a statistical fact that the number of white collar crimes by women over the last 20 years has indeed risen by about 30%, over roughly the same period of time the number of women in full-time executive, administrative and managerial occupations has also increased considerably – by about 30%. More women are getting busted for white collar crimes simply because more women are now in a position to commit white collar crimes.

There’s just no two ways about it – most crooks are, were, and likely always will be, men.

This begs another question. Why?

Looking at this logically (I’m a man, I’m good at that), we can safely assume the perpetrator of an economic crime either sincerely believes they are doing no wrong, or they are acting with full knowledge that their scheme will cause harm to others. So if a woman starts a pyramid scheme believing it will cause no harm to others, she must be really horrible at math and be utterly void of any common sense. It’s pretty obvious, after all, that most people will lose money in a pyramid scheme. It takes a pocket calculator and third-grade level math to figure this out.

So going with the alternate assumption that those who start pyramid schemes, or any kind of monetary scam, do so with full knowledge they will cause harm to others, why are women so much less inclined to do so?

My theory? Empathy.

Empathy and sympathy are often, and incorrectly, used interchangeably. Although closely related, they are not synonymous. Sympathy is the feeling of compassion or sorrow for another’s pain. Empathy is when you feel the same pain.

So you see, us guys are fighting millions of years of evolution here. We are inherently wired to be the hunter, the provider, the taker. Even the taker of life, whether it be to defend one’s territory, or simply to provide food for the clan. Men had to get over how the poor deer would feel as we’re slaughtering it not long after the amphibious thing that would become a deer first stepped hoofed fin on dry land. We’ve had to learn to ignore the feelings of our enemies as we clubbed them to death or filled them full of spears, arrows, and eventually bullets. It’s hard to kill things you feel empathy for. This might explain, at least in part, why only 13% of those in the military, or 4.6% of licensed hunters are women. Or, why over three times as many men are diagnosed as psychopaths (the inability to feel empathy towards others). Not only are more psychopaths men, they’re also a lot better at it. The “Psycho Hall of Fame” includes such charmers as Timothy McVeigh, Ted Bundy, Adolph Hitler, John Wayne Gacy, Jeffrey Dahmer, and a long list of others. Arguably the most famous female psychopath would be Aileen Wuornos, which most folks would have never heard of had Charlize Theron not won an Oscar for playing her in a movie.

While men have spent the last million years killing and conquering, women have been back in the cave caring and nurturing their young. After tens-of-thousands of generations closely monitoring the state of babies and young children who can’t yet communicate verbally, you get pretty good at being empathetic. So, in general, it’s much easier for women to feel how the person they are about to swindle is going to feel once the dirty deed is done.

When it comes to scam artistry the statistics may certainly favor women proportionally, but even among men the pro (-ffessionals) vastly outnumber the con (-vics). The jerks just stand out. They’re more newsworthy. When was the last time you heard this promo: “Men who don’t cheat on their wives, work hard for their money, and raise well mannered children – next, on Oprah!” Unfortunately, being special just isn’t – special.

Having said all that, within the network marketing industry today the Siren song is still too often sung in a deep baritone. While instinct and genetics may be an explanation, it’s not an excuse. Perhaps empathy need be forced at first, but it is something that can be practiced and a greater sense of it can be acquired, and with no reduction in testosterone levels. You can still enjoy a Bud and a Bears game and be an empathizer. Try it, guys. Next time the nose tackle breaks his leg, try to feel his pain.

Don’t worry, ladies. We’ll get the hang of it.

Professional Network Marketing

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: Be sure to visit John’s weblog: where (almost) daily he posts commentary and resources for authentic, intelligent, sincere and credible network marketing.

MLM Failures: Who’s Really Responsible?

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!


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!