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.


Alert #219: 4/3/2013

Health Product Claims 
Industry Trends Update
Special Offer for Alert Subscribers

Health Product Claims

The subject of Part 5 of my Inside Network Marketing video blog series deals with what we can and can’t say about dietary supplement products, and why. This is likely going to be upsetting to some, and shocking to most. Please remember, I’m just the messenger.

The tag line “If you go through you’re M.L.M. career with blinders on, sooner or later you’re going to get blind sided” never applied more than to this subject. If you’re marketing a dietary supplement, juice, or weight loss product you really need to get this information – because you’re likely not getting it from your company. There are some who know the rules but look the other way because all those crazy claims generate more sales. But most, I’ve found, honestly don’t know the rules, thus are unable to impart them accurately to their distributors. There’s a prominent company right now that claims they are allowed to use a third party study that suggests a substance in one of their products might prevent cancer. A top field leader for another company has been training reps for years that it is their “first amendment right” to make medicinal claims about their juice if it’s a personal testimonial. They’re both very, very wrong.
I’m not saying this is right, it’s just the way it is. Until someone changes the rules we’ve got to play by them, like them or not. But first, you have to know them!

Industry Trends Update

Once again the trends are a mixture of good and bad news. The “M.L.M. Index” (top 12 public M.L.M. companies by market cap) beat the S&P in March for the third straight month, rising 4.63% to the S&P’s 1.24%. For the past three months the M.L.M. Index has risen 17.83% while the S&P has increased 7.22%. Although the S&P beat the M.L.M. Index over the past 12 months, 10.49% to 1.87%, this period includes Herbalife’s 46.12% drop (induced by a bogus short seller attack), and Nu Skin’s 23.52% drop (due to a Wall Street perceived guilt-by-association). Thanks mainly to Mannatech (+76.34), Tupperware (+52.67%), Medifast (+31.34%), Primerica (+30.13%), and USANA (+28.41%), with a little help from LifeVantage (+6.65%), the overall trend was up. Keep in mind, stock market investors are primarily trend analysts who are voting on what companies they believe will be more valuable in the future, not based on their present value.

Google search results for the acronym “M.L.M.” (without the periods – I’m adding them only to avoid spam filters which don’t like to see M and L and M together), are not heading in the right direction. Of the top 100 results, 35 are pro-M.L.M., 7 are con. This is down from 69 pro-sites at the end of February. Over the last several years such a search routinely displayed at least 80 pro-sites. The drop to 35 is not due to an increase in the number of con-sites, which actually dropped from 13 to 7, but rather a recent, massive increase in the number of sites having nothing to do with our industry. For example, Martin Marietta Materials (which has the ticker symbol M and L and M), Metropolitan Lutheran Ministry, and MLM-Martin Architects.

Based on a propriety algorithm, the ratio of online pro-vs-con M.L.M terms and phrases has dropped slightly from 1.83 to 1.80, which continues a slow downward trend from it’s peak of 2.39 in September of 2010.

The number of visitors to the Wikipedia page for “[the industry that shall not be named]” continued its rapid accent to 92,128 in March (another record), up from 82,392 in February, and it’s all time low of 32,263 in January of 2008. Although this Wiki page has become somewhat more balanced in recent month, it’s still predominantly a con-site due to it’s largely disproportionate references to anti-M.L.M. critics and their portrayal of them as credible information sources.

Here’s the updated Trends page:

Special Offer for MarketWave Alert Subscribers

This Monday, April 8th, John Fogg will begin an 8 part training series titled “The InterNetwork Marketing on Facebook Intensive”.

Facebook has been a popular tool for networkers, but is often abused. Facebook has strict rules about how their platform can be used by marketers, and what they define as right and wrong are sometimes separated by very fine lines. Even if you follow the rules it doesn’t mean you’ve mastered the rules of good marketing. For example, Facebook has no rule against being obnoxious.

John has had a lot of success marketing on Facebook and knows how to do it right.

As you can see HERE, this course is normally $397. That’s not an arbitrary “list price”, its the actual price that most participants are actually paying. However, John is offering a “$300 scholarship” to all MarketWave Alert subscribers! That means your cost is $97.

For more information, or to enroll, go here:

I’ve got a major announcement coming – like, industry altering – so stay tuned. Also, Part 7 of the INM video series will deal with Income Claims. Look for that in the next few days as well.

Len Clements
MarketWave, Inc.


Podcast #22: Shameful MLM Products

Host: Len Clements; Co-Host: Cathy Wilcox

Nutritional Product Claims [V1-N6]


What we can and (mostly) can’t say about dietary supplement products, and why. This is likely going to be upsetting to some, and shocking to most. Please remember, I’m just the messenger.

Referenced links:

Alert #198: 10/10/2011

FDA Draft Guidance for Supplement Industry
The MLM Sky is Still Not Falling!

Us Baby Boomers, and what ever they call those that came the generation before us (Gen W?) will surely remember the story of Chicken Little (a.k.a Henny Penny; Chicken Licken), who tried desperately to inform all who would listen that the world was ending. His hysterical exclamation “The sky is falling!” has become, as defined by the character’s Wiki page, a “common idiom indicating a hysterical or mistaken belief that disaster is imminent.”

There seems to be a lot of Chicken Littles within our industry, and the dietary supplement industry as well. About once a year now, on average, we’re told the falling of the sky is imminent, and either the dietary supplement segment, or the MLM industry as a whole, is doomed. Unless, of course, we all rally behind those heroes attempting to save our profession. In some cases we’ve even been asked to send them our cash so they can afford to better fight those deep pocketed bureaucrat devils.

And then, time and time again, the sky stays right where it is.

The biggest peeve I have with these Chicken Littles who keep crying wolf is that it tends to make so many of us lame ducks. Why would anyone want to join, or encourage others to join, a profession that supposedly is about to be “devastated”? How can any distributor get excited, and committed, to an industry that, allegedly, keeps coming under attack by “jack booted government thugs” who are going to “beat down your door”? These are actual quotes from well respected industry leaders. Shouldn’t they be trying toincrease recruiting and decrease attrition?

I would understand if these warnings had any merit, but… well, it would take about seven pages to make my case why they don’t. So rather than give all your spam filters seven more pages of excuses to flag this Alert, I’ve attached it as a PDF here:

I’ll also be discussing this topic live on a future ANMP training call as well as’s inaugural “OnAir with Keeper” internet broadcast on Monday, November 1st, at 4:00 pm PST (7:00 EST).

Thanks for listening.

Len Clements
Founder & CEO
MarketWave, Inc.

P.S. If you have had any experience with any of the speakers, trainers or consultants listing at can you please log in and post a rating? Testimonials are optional but encouraged. I’m about to begin a major media blitz directed towards and would greatly appreciate your help in filling out the content. Thanks.

Regulatory Red Flags

How Many Is Your Company Waving?

By Len Clements © 1997

This industry is over half a century old. There is nothing new. Pretty much everything has been tried and what you see today are just variations and enhancements of the same thing that’s already been done. So, if you want to know how well a certain type of product fairs in the MLM marketplace, or how a certain compensation plan gimmick will effect distributor earnings, or if a certain aspect of an MLM program will raise the ire of a state or federal regulator, all we have to do is look back at all the companies who have tried it in the past and see what happened to them.

Here are some examples of a few not so new ideas that are either hot, or making a comeback. By the way, not being an attorney, judge, or agent for any regulatory body, I must make clear that I am not declaring any of these acts to be illegal. What I am saying (suggested wording complements of my literary attorney) is that, in my laymen’s opinion, they may cause the company to be legally vulnerable.

Now that I have the C.Y.A. provision out of the way, let’s begin…


While some companies have masterfully depicted their “coding bonuses” as not coming from any distributor training fee, others are openly bragging about their “Huge up front training bonuses.”

Why is this a red flag? Let’s go back to the FTC v.s. Amway decision in 1979, when the FTC accused Amway of being an illegal pyramid. Amway won that case (fortunately for all of us) and the test which they past, which is right in the language of the decision, was simply, “Can the last person in make money?” In the case of Amway, the court said, Sure, the last person in, who has no downline, can still make money by buying the product at wholesale, marking it up, and reselling it to someone who is not an Amway distributor. This is, to this day, the defining criteria of a legal network marketing opportunity.

Okay. So, can you buy a $495.00 distributor training package, mark it up even more, and resell it to someone who is not a distributor? Obviously, this would be absurd. The only ones who buy the training packages are distributors, therefore the only way you can earn bonuses from this volume is by recruiting more distributors. As even the most novice MLMer surely knows, you can’t earn money from recruiting! No, not even indirectly.

Now, if you were to ask a distributor who represents an opportunity that does offer training bonuses how they can do that (and oh yes, I have, many times) they will usually quote the company’s rationalization of, “Well, we have all these other products too — and you certainly can retail those to non-distributors.” Which is kind of like saying, Hey, it’s okay that I rob banks because I give a lot of my loot to charity. Just because you have a lot of legal ways to earn commissions and bonuses doesn’t make the possibly illegal ways any more legal.

Or, they might respond by telling you about how they’ve already been investigated by the FTC or some AG. This response was given to me recently by a distributor for a company that is about four years old, which added training bonuses just three months ago. So it’s very likely the “code” didn’t even exist the last time any regulatory agency looked at them. Plus, investigations usually are very specific in their intent. If an investigator goes in looking for evidence of misleading income claims or front loading, then that’s what they look for — not indirect rewards for recruiting. What’s more, such a retort may even raise yet another red flag since it could easily be interpreted as an indirect claim to regulatory approval of their training bonuses (a BIG no no).

Recent cases that provide precedent would be, for example, the Final Judgment in the case of California v.s. Destiny Telecom. Here in (part 5, section g) the state demanded that there be no commissions paid on anything directly or indirectly related to sales aids or training (ironically, to my knowledge, Destiny never did either of these things). In the case of the FTC v.s. World Class Network, it was determined that a training package on how to be a travel agent, which was arguably a product that could have actually been retailed, was not a commissionable product via an MLM system of compensation (WCN can still direct market the product). The state of North Carolina has ruled in more than one case that only verified retail sales to non-distributors can produce commissionable volume. Yes, it’s true that this essentially makesevery MLM company illegal in that state, but none-the-less you certainly would have a hard time convincing the NC AG that you can retail even one of your distributor training packages to non-distributors, let alone all of them. Recently the Pennsylvania Attorney General’s office filed suit against Nu Skin due primarily to their Big Planet division selling and paying commissions on their $300.00 training packages (this issue has since been resolved). And if there were any doubt left, the Federal Trade Commission recently closed down FutureNet due mainly to their up front training packages. This action has since been resolved with the FTC and the “Final Judgment and Permanent Injunction” signed my FutureNet should eliminate any possible argument over this issue. In the “Definitions” section, part F, “Compensation related to recruitment” is defined as “…compensation paid to participants in a multi-level marketing program as a result of or relating to any type of training provided to either new or existing participants.”


When you pay money to your MLM company for a product or service, you must take possession of that product or service before any commissions or bonuses can be paid to your upline on that sale. For example, if you send $200 to the company as a down payment or layaway towards a product, let’s say a gold coin, and then the company pays your upline from that $200 payment, but you haven’t actually received the gold coin yet, what has happened? That’s right — nothing but an exchange of cash. You paid money in, the company sent part of your money to your upline, and you didn’t get anything in return for your money. Kind of like a pyramid scheme, isn’t it? Sure, you may pay off the product and eventually get it, but that’s not for certain. The only safe way to administer this would be to hold the commission until the product is paid off and actually shipped.

Along the same lines, a company should not be paying commissions on product vouchers or certificates until the vouchers are actually redeemed for real products. Otherwise, all you have is paper going back and forth — and most of that paper is money.

Examples of precedent in this case would be American Gold Eagle (vouchers), Club Atlanta Travel (travel certificates), Gold Unlimited (layaways), Passport to Adventure and International Metals & Trade (down payments towards product certificate), and many others. Each of the above was attacked by either a state or federal regulator specifically on this issue (and in some cases on other issues as well).

When I bring this issue up with MLMers who represent such systems, they usually site the few remaining companies that use a similar system without consequence (so far). Well, Jessie James robbed 36 banks. So, using the same logic, I could have pointed to Jessie right after bank number 35 and used him as an example of why I believed robbing banks was legal. “Hey, Jessie’s doing it, and no one is stopping him!”


Again, an MLM opportunity must have a product that people can resell to others who just want the product. If the distributors themselves are the only ones buying the product, then the only way you can make money in the program is to recruit distributors, right? Remember, can the last person in still make money? If no one ever recruits another person, and you don’t sell the product and make a profit, then you simply can’t make money.

Not only that, but any network marketing venture absolutely doesinvolve selling, in many other ways than just retailing the products (like, selling people on the idea that MLM is an honest, respectable way to earn a living, or that they should choose your MLM program over the 1,200 others out there, etc., etc.). So, to claim otherwise could be considered misleading or even fraudulent.


MLM companies have tried for years to play semantic games with their product pitches to make them safe from FDA, of FTC, attack. But, at every new turn of phrase there was Big Brother standing in the road waiving his index finger slowly back and forth and shaking his head (and with what appeared to be just a hint of a smile on his face and a thank you note from a doctor sticking out of his pocket).

Today, quite simply, nothing is safe to say anymore. Nothing.

Many companies and distributors are still trying the approach where they claim a certain substance has a certain benefit, and that their product has this substance in it, but they are not claiming that their actual product has this benefit. In other words, A=B and B=C, but they are not claiming A=C. To no one’s surprise, the FDA and FTCare doing the math!

Even the personal testimonial, once considered safe haven when relating the benefits of a product, is coming under attack.

You would think with the number of major, well publicized hits some MLM companies have taken over the last few years that we as an industry would be toning down our product pitches considerably. Yet in just the last few weeks I’ve seen ads that claim everything from “effortless” weight loss to “cures” for cancer, arthritis and AIDS! One tape I just listened to — a corporate produced tape — has a woman on it claiming one of their products “reverses the aging process.” No, she didn’t say the appearance of aging, but the actual aging process! Some companies now are claiming they have a product that will reverse the aging process by as much as 20 years! This an be especially dangerous when given to a 19 year old.

And, by the way, don’t think that federal regulators only go after companies that make fraudulent claims about their products. Rarely, in fact, do they claim the company’s product benefit claim is not true — they just claim that there is no, or not enough, substantiation. So, the product might actually do what they claim it does, but the MLM company just doesn’t have enough scientific proof.

In other words, even if your product works you can’t say it does.


Like product claims, there’s no really safe ground here as well. You might think that revealing your income would be okay as long as you could prove the income was factual. Not only is this not true, but the act of displaying a commission check as evidence of earnings is considered one of the most taboo acts in this industry (although its practice is making a comeback of late). What’s more, there is at least one case that I know of where someone was prosecuted on a federal level for revealing his actual income. And let’s be clear on this: he was not prosecuted for providing inaccurate or fraudulent information — he was prosecuted even though he was telling the truth!

Recently, some state and federal actions have resulted in MLM companies prohibiting their distributors from making “false or misleading” income claims and prohibited income “projections” all together. Okay, so what exactly is a “misleading” income claim? If I said I made $50,000 last month, and I was truthful, then is that misleading? Perhaps, if you’ve implied that income is easy to achieve or misrepresented the time and effort it took to achieve it. So, what exactly do I have to say to not do that? How many disclaimers do I have to include? At what income level is all this disclosure not necessary? If I only claimed to have made $50 last month, do I even have to say anything else? If not, then where between $50,000 and $50 is the line drawn?

Do you see the dilemma here?

What confuses the issue even more is that answers to these questions are being determined totally arbitrarily by regulators and usually on a state-by-state basis.

Since your prospects can’t pay their bills with theoretical dollars, nor from their upline’s income, the whole subject of current earnings and projections shouldn’t even be an issue. It’s best to just keep your discussion to the mechanics of the pay plan, the value of the products, and to what your prospect is going to do to achieve their own personal income goal.


These are deals where you make a one time out of pocket purchase and then, supposedly, you never have to order anything again to stay qualified for commissions from that point forward.

In reality, a portion of a future commission check is retained by the company and products are then sent to you. For example, you make a one time $100 purchase and begin building a downline. When you reach a certain point (usually it’s the completion of the first “cycle” in a binary plan), you earn, let’s say, a $1,000 check. But the company keeps $400 of that and applies it towards a product purchase, and they send you the products and a $600 check. The $400 qualifies you for the next pay cycle. At a certain point enough others beneath you follow you into the second cycle with a $400 share of their first check, and you earn perhaps $5,000. But, the company keeps $1,000 of that and sends you $4,000 plus $1,000 in product. The $1,000 then qualifies you for the third cycle, and so on.

So, what is really happening here? Well, remember that first $1,000 check? That was your money. All of it! What occurred is the same as if you received the whole $1,000 check, deposited it in the bank, then sent the company a $400 product order — with your money! So, yes, you do make more product purchases than just the first one.

What really raises the red flags, besides the fact the very claim of a “one time” purchase is fraudulent, is that, once again, the last person in can’t make money. Ask the question this way: If all recruiting were to stop today, could this company continue to pay overrides to all of their distributors? Well, if no more “one time” payments were received to keep new money flowing through the cycles of the plan, then overrides would dry up within one pay cycle and the whole scheme would come to a grinding halt.

Not only that, but the company may be hard pressed to convince state AG that the $1,000 product purchase to enter cycle three was for the purpose of obtaining product for personal consumption and retail to non-distributors. In reality, of course, the $1,000 purchase is almost transparent to the distributor. They accept it as an automatic part of the system because that’s what has to happen for them to get paid more money from the next cycle.


When you pay someone to build your downline for you, and they promise to place any number of distributors in your downline for that fee, there are two possible violations of law. One involves securities law, and the other involves basic laws of mathematics.

Isn’t it obvious that if a company were to promise even one person in every participant’s downline, they’d have to have an infinite number of enrollments? What do you think happens when the absolutely inevitable point is reached when the organization has fanned out so far that there are hundreds, perhaps even thousands, at the base all waiting for their big, free downline? It becomes mathematically impossible to provide it, so they quit. The organization begins to unravel upward as fast as it was formed (and the unfortunate MLM company the scheme was attached to get’s deluged with product returns – which is why most responsible companies forbid the promotion of such deals). This event is so predictable that there is a name for it. It’s called the “Window Shade Effect.” It describes what has occurred in literally every single downline building scheme that has ever existed. Which is why such schemes have a 100% failure rate throughout MLM history.

Yet, I see more such schemes popping up today than every before.

Where securities law comes into play can be explained by a review of the Howie vs. SEC decision (1948). From this decision came a clear definition of a security, which has three aspects: 1) an investment of “consideration” (in this case, plain ol’ money); 2) a “common enterprise” (a lot of people all paying money into the same scheme); and 3) there is income to be “derived solely from the efforts of others.” So, all MLM programs would seem to meet aspects one and two. However, most of us work our butts off building and managing or downlines, and moving product (right?!). So, we are not offering a security (like stocks, bonds, mutual funds, etc.). But, what if we all paid money into a deal that will build our downline for us, and all we had to do was sit back and wait for the check?

Several reps for such schemes recently defended this issue by claiming this downline building service was only an “option.” You didn’t have to have them build it. Okay. I see. So, only some of their distributors might be selling unregistered securities without a license. That’s not comforting.

It should be noted that, to my knowledge, no such scheme has ever been targeted for violating securities law, in spite of being so wide open to such attack. Very likely this is due to the simple fact that they go away so fast all on their own. Why bother?

Allow me to state for the record that some of what you’ve just read as it pertains to legal issues I personally do not agree with. I’m not implying any of this is right or the way it should be. So please, don’t yell at me if you disagree with the concepts. Hey, I’m a registered Libertarian. I believe we should do what ever we want with our own money. I think pyramid schemes should be legal as long as there is full disclosure and you know what the risks are. We have a right to be stupid with our own money. It’s our money! In fact, I find it so infuriatingly ironic that my state will declare a company an illegal pyramid, wipe out the incomes, and in some cases the livelihoods, of thousands of innocent distributors, simply because they purchased an overpriced prepaid calling card for $100 that they have no plans to resell. But, if I pay $100 for state lottery tickets, which I have a far, far greater chance of losing, they’ll take my money, smile, wink, slap me on the back and encourage me to come back next week and try again.

Opps, I hear my soapbox cracking. I better step down.

By looking at the past we can see the future. We can all learn from those before us what’s safe and what we should stay clear of. Yes, the legal climate is changing and the rules are getting a little blurry. All the more reason to leave yourself a good margin for error. Give any red flag a wide birth. Don’t, as some companies are doing today, drape yourself with it and dance in front of a snorting bull.

Sure, some companies have been waiving these red flags for years with no consequence. Some, when recognized, will simply be asked to please put away the red flag (eliminate the offending aspect of the plan). Others may be forced to make changes, get beat up a little, then get on with their business. I’m not at all suggesting that every MLM opportunity that employs any of the aspects discussed here is doomed.

Not all ticking bombs go off. But I still wouldn’t want to be sitting on one.

Network Marketing Products Claims

By Len Clements © 2000

Network marketing doesn’t have the greatest reputation. Indeed, it’s considered by many to be ripe with pyramid schemes and snake oil salesmen. Yes, I actually said that, right here in the pages of a popular network marketing magazine. Why? Well, because it is, God forbid, the truth! And when the MLM media tries to pull the wool over everyone’s eyes by hiding such dirty little secrets and presenting a glorified, Polyannish, everything-wonderful facade, nothing gets fixed. Like a drug addict in denial – we have to first accept that there is a problem before we can take action to cure it. So enough of this “everything’s wonderful” propaganda.

We have a problem. 

We’ll deal with the pyramid issue in a future issue (and, oh, we will), but since we’re on the subject of “cures” let’s tackle this challenge first. You see, we have an industry bursting at the seams with wonderful, healthy, effective, high quality products that we should be so proud of. The goods that we sell should, for the most part, be our very claim to legitimacy, respect, and acceptance. However, due to a very high profile minority, we are often looked upon the same way as those dusty ol’ pushers of “Doctor Jack’s Cure All Elixir.” Indeed, the claims being made by some today are even more outrageous than those that were attributed to snake oil itself! 

I held a contest in my newsletter recently where I described the basic pitch behind several MLM products. All but one was real, the other I completely made up. The readers were to then guess which was the bogus product. Among the possibilities was a topical gel that helped the body heal by emitted inaudible sound waves; a supplement that contained water with oxygen in it (so you could consume more oxygen that you breath); some capsules that, when consumed, align your body’s electrical matrix; another that introduces glowing phosphates into the bloodstream causing viruses to go dormant (their growth is inhibited by light); an antibody trainer that teaches your good bugs to recognize virtually all viral infections; a perfume made from sour milk; a product that boosts “longevity signals” to the brain causing a 50 year old man to turn 34 within 6 months; shoe insoles with strategically placed bumps that can heal numerous ailments by massaging specific parts of the foot; and even a breast enlargement pill that doubled as a treatment for PMS and hot flashes. Also on the list was some amazing little water crystals that; increased your car’s mileage and power, made water freeze at room temperature, made skin care products work 85% better, and cleaned your clothes for seven years without laundry detergent. Incredible! 

There’s yet another amazing product sold via several MLM companies today that allegedly treats practically every ailment imaginable. It comes from a common tropical fruit and has been used for over 2,000 years for it’s miracle properties, yet has only just now been discovered by modern scientists (yes, this one’s real). I’m picking on this particular product not only because of it’s current popularity, but because, well, it’s just so darn easy. After reviewing several distributor web sites, numerous display ads, informational cassettes, and listening in on a couple of live, national opportunity calls, it does indeed appear as if this not-so-pleasent tasting juice will not only fix any ailment, it will grow hair, increase your IQ, lower your golf score and make you lose all memory of the 70’s! Okay, I made up the part after “fix any ailment,” but sheesh, give it time… 

The testimonials for this product, like many others, seem to always fit whatever the prospect want’s to relieve – even if they are in direct contradiction. In one recent live call, a testimony was given claiming the juice helped with the subject’s insomnia. The moderator then called upon another user who gave this, verbatim, testimonial: “I’ve been on the juice for 2 weeks. Energy! That’s definitely the number one thing you notice. I mean, there’s no sleeping – if you want you could go 24 hours a day, but the main thing is there’s so much energy. I was having sleeping problems through the night too – you sleep like a baby.” No, I didn’t make that up. 

Yet another popular product was marketed for most of last year with the catch phrase “Stop Sickness and Disease Forever!” That was the antibody trainer listed above. According to the numerous testimonials and fax-spam I received, no matter what you had, this product fixed it. Tired? It gave you energy. In pain? It stopped it. Cancer? No problem. AIDS? Piece o’ cake. Common cold? Gone. 

Folks, think about it. Let’s use some common sense, logic and rational thinking here. If the water crystals, the antibody trainer, or the juice, or any products making similar claims really produced the results claimed, it would literally be the single greatest scientific breakthrough in the history of the human race. It would be the lead story of every newspaper and television station in the world, the inventor of the substance would by honored with a ticker tape parade on the way to picking up his Nobel Prize, it would be on the store shelves of every supermarket with lines extending out the front door to buy it, and the pharmaceutical industry would be spending billions to have it regulated as a drug! Not to mention the average human life span would double, with all that that entails. And, quite frankly, the product would not be introduced by a small, start up network marketing company, but rather by the major mainstream corporation that won the multi-billion dollar bidding war for the rights to it! 

You don’t always have to be a nutritionist or doctor to see what’s wrong with the picture either. Again, it just takes a little logic and common sense. Case in point: A marketer of a spray vitamin product claimed that a liquid vitamin dropped into the mouth would result in 80% adsorption. If introduced into the mouth as a spray, 90% absorption. Okay. So, isn’t the spray only a spray while it travels through the air? Once it hits the surface of your mouth doesn’t it become – a liquid? Or, what about this Human Growth Hormone craze? When the marketer begins to describe results similar to the swimming pool in the movie Cocoon, where 75 year old men become biologically 50 again, it only takes ten minutes on the net to discover that these results are related to controlled test subjects who were injected with pure HGH (at $300 per dose) – not from any over-the-counter HGH product that contains no HGH. No, they don’t have “Bovine derived” or “plant derived” Human Growth Hormone. Cows and plants don’t have human hormones in them. What’s being sold is a “precursor,” not the real stuff. To market a product in this manner is tantamount to selling a Hugo based on the performance data of a Porsche. And didn’t ya’ just know that an MLM company would suddenly discover an “Herbal Viagra?” I mean, with three billion guys on this planet, and millions of years of searching, I’m pretty sure that if a common plant could do the same thing as Viagra we would have discovered it by now. And the Earth would either be completely depleted of it, or completely covered with it.

And here’s the real disturbing part – even if the product really does do what they say it does, you can’t say it does it! The FDA and FTC have very strict rules about this. The FTC is concerned with “substantiation” of the claims. They’ll want you to prove the claims are true, and a study by a doctor or two, or a gazillion testimonials, is not scientific substantiation. What’s more, even if there was substantial scientific data to prove the claim (and again, if there was, see two paragraphs up) and the FTC was satisfied, then the FDA steps in and says, What you’ve just substantiated is that you’re selling an unapproved new drug! The FDA cares about how the product is classified, and to be classified as a drug, thus allowing for the miracle claims, requires many years of research, double blind studies, and millions of dollars. So, if one doesn’t getcha’ the other one will. 

Many multilevel marketers have tried to be sly with their language, thinking if they make the claim without really saying it, they can fly under the radar. For example, “Cardiologists use our product” instead of “our product treats heart disease,” or “Stick your tongue out at the Flu” rather than “prevents the flu” or “Bolsters the body’s own defense” rather than “antiviral.” However, both federal agencies go by the “net impression” of the claim. In fact, all examples above are those used by these agencies in their published marketing guidelines (see “Dietary Supplements: An Advertising Guide for Industry” at, or the list of Warning Letters Also, you’ll find that personal testimonials are not safe haven. The company is fully responsible for the claims made by their independent distributors. 

So… which was the fake product? It wasn’t the antibody trainer, water crystals, or soundwave gel (the top three vote getters), alas, it was one of those that received zero votes… the luminescent blood product. But then, one reader has since informed me that she has heard of such a product! Wouldn’t surprise me a bit. 

As an industry, network marketing can take a giant step up in respectability by toning down the outrageous claims being made about some of our products by some of our more over-zealous participants. We don’t need to do this to sell our goods. They’re good goods! So many of our products can easily sell on their own merits. Rather than making ridiculous claims, let’s just use the same method alkaseltzer successfully used in the 70’s… 

Try it, you’ll like it!