Alert #227: 6/3/2014

BurnLounge’s Loss is Industry’s Gain

9th Circuit Rethinks Webster v. Omnitrition

Inside Wake Up Now

Objective, Controversial Review Now Posted

9th Circuit Affirms, BurnLounge is a Pyramid Scheme – However… 

… it’s what they defined as not being indicative of a pyramid scheme that is most interesting, and reason for celebration.

Back in 1994 a couple of distributors filed a class action lawsuit against Omnitrition claiming they were an illegal pyramid scheme. Omnitrition won by summary judgement, meaning the court felt there was such little chance the plaintiff’s could prevail there was no need to waste the court’s time. The plaintiff’s appealed to the 9th Circuit Court and won. However, unlike how many MLM critics like to portray this victory, all it did was overturn the lower court’s summary judgement and send it back for trail – it did not find Omnitrition guilty of operating a pyramid scheme, evidenced by the fact that Omnitrition, now 20 years later, is still in business. There was eventually a private settlement, and thus there was never a trial.

But here’s where it got sticky. In the 9th Circuit’s decision they didn’t simply declare the summary judgement overturned, they included what’s called dicta. That is, extra commentary. In this extraneous text it was declared that only those products retailed to non-participants in the income opportunity should be commissioned. That is, reps should not be considered “end user” customers, thus those products personally consumed by reps should not be commissioned. In spite of the fact that dicta is defined as “Opinions of a judge that do not embody the resolution or determination of the specific case before the court. Expressions in a court’s opinion that go beyond the facts before the court and therefore are individual views of the author of the opinion and not binding in subsequent cases as legal precedent”[1], MLM critics, and future plaintiffs in cases against MLM companies, absolutely adored this supposed “legal precedent” that “outlawed” paying commissions on distributor’s personally consumed product.

It appears the 9th Circuit Court has changed their mind.

In their declaration of affirmation[2] that BurnLounge was an illegal pyramid scheme, under the section where they discuss the meaning of “ultimate user” they state: “In Koscot, the FTC found a cosmetics MLM business was a pyramid scheme because it focused on recruiting new participants, rather than encouraging retail sales to consumers, and new participants had to buy large amounts of inventory, ostensibly for resale. When participants in Koscot bought inventory, they could have used some of it personally, arguably making them ‘ultimate users.’ In Amway, though some internal consumption of inventory was common, Amway was not found to be an illegal pyramid scheme.” In other words, not only are they now completely omitting the concept of not counting any personally consumed products from the legality equation, they are basically describing two cases where one company didn’t have enough of it to be legal (Koscot), where as another (Amway) did! Once again, much like the FTC’s guidance letter to the DSA in 2004[3], they are focusing on the motive for buying the products, not who buys it. In fact, they even quoted from this FTC letter where they stated: “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.”

Perhaps now the infamous language within 9th Circuit Court’s Webster v. Omnitrition decision that forbade commissioning products consumed by distributors can go where it should have gone a long, long time ago. Away.




Wake Up Now Review 

Unlike my previous Empower Network review, which was 51 pages and took almost six months, this one was only 37 pages and took about six weeks. One of the major differences is that Empower Network wouldn’t stop disclosing tons of internal data, and willingly allowed me to grill them for over six hours of interviews. Other than a couple of helpful links about their comp plan sent by their VP of Sales, Wake Up Now (WUN) has refused all requests to participate in my investigation.

The last time this happened was back in 2002 when Prepaid Legal (now LegalShield) refused to assist me in my efforts to get my facts straight. After I published the review I received a letter from their attorney suggesting that I should “get my facts straight”. I asked for a list of specific facts I didn’t get straight, which I would have gladly gotten straight. Not only did I never hear from them again, over the next six months most of the aspects I criticized were corrected or improved.

I said after my Empower Network review that is was the last one I was going to write, for free. EN received literally several thousand dollars worth of compliance consulting as a result of that review, at no charge. Since then I’ve been hired by companies who’ve asked that I turn my magnifying glass on them, but the WUN review was the first where a company, or in this case a group of companies, hired me to do a review of a competitor. I informed them that there was no guarantee the review would be negative, and that I would not deliberately slant it that way. I was instructed to “call it like you see it”. And that’s exactly what I did.

You can read the review here:

Since the review did end up being generally negative I’ve been accused for being a “hired gun”, and manufacturing a negative review just to suit the agenda of my clients. However, no one has yet to offer a rebuttal to any negative point I made in the review. In fact, WUN supporters have tried their best to divert attention away from the facts, opinions and conclusions I presented, and instead have focused on who the companies are that hired me, and how my same criticisms may apply to them. My response is, what if my clients were Fortune HiTech Marketing, BurnLounge, and Zeek Rewards? While that may certainly be ironic, how does it in any way diminish the veracity of my actual review? Either my criticisms of WUN are accurate and well reasoned, or they are not.

If you feel I did get anything wrong, please specify in the comments section below the article.

Perhaps I’m just rationalizing, but I look at it this way: Attorney’s are hired to write negative reports, called Complaints, all the time. And they, in fact, are hired to deliberately make their reports as negative as possible. Or, as positive as possible if they’re hired by the defendant – even if they don’t personally believe what they are writing. And no one cares, no should they. A prosecuting, or plaintiff’s, attorney is legally, ethically and professionally obligated to aggressively present their case against someone in the most negative, damaging way that is appropriate for the circumstances.  That’s their job. I, on the other hand, was hired to make a case for what ever it was that I found, good or bad, nothing more, nothing less. Even if the review was glowingly positive, I still get paid. That’s why, if I were inclined to deliberately fudge the review one way or the other, it was actually to my advantage to make it positive. I still get my fee, and gain tons of credibility.

My fear is that my WUN review made no one happy. Although I did cite some serious financial and legal concerns, it still may not be negative enough to make those who funded the review happy, but was surely negative enough to make WUN unhappy. So I might have just made everyone unhappy.

Oh well. I called it like I saw it.

New Online Radio Show: MLM After Hours

Check out this great new program sponsored by the MLMIA and co-hosted by Peter Mingles and MLMIA founder Doris Wood. On each one hour show a regular panel of industry authorities (including myself) discuss and debate various hot topics related to our industry. The show is live on the first, third, and fifth (if there is one) Monday of each month, and airs at 7:00 pm PST, 10:00 pm EST. The next show will be June 16th.

Last Monday’s show focused on the “independent contractor” issue, and the question of how much control should a company have over an independent distributor’s business?

Listen here:

To hear past shows:

Please check it out, and tell your friends. Thanks.


Len Clements
Founder & CEO
MarketWave Inc.

Alert #220: 4/19/2013

Income Claims 
INM Podcast Rebooted

Income Claims

The subject of Part 6 of my Inside Network Marketing video blog series deals with what we can and can’t say about our incomes, or anything related to our level of success.

This isn’t as simple a topic as you might expect, so this one’s a little long (37 minutes). What ever you have to do to get through it, do it. When ever there’s a lull in legal actions sparked by income claims we, as an industry, seem to get lulled into a false sense of security. Income claims start to become bolder, more blatant, and much more common – and that seems to be exactly what’s happening now. It’s just a matter of time until someone is made an example of. Please have your team watch this so, hopefully, it won’t be you.

INM Podcast is Back – With a Twist

I don’t intend to make a habit of doing 37 minute video blogs (my goal is to keep them all under 15 minutes – so far I’m 3 for 7), but most subjects really require a long form discussion to completely cover. That’s where the INM audio podcast comes in. But this time around we’re spicing things up a bit.

There are two major changes to the INM podcast format. First, I’ve added a co-host. There were essentially four requirements I was looking for in a co-host: 1) Had to be smart; 2) Had to have a sense of humor; 3) Had to have two X chromosomes. Oh, and she had to agree with everything I say. Cathy Wilcox only met three out of four of these criteria – you’ll learn early on in the first show which one she lacked – but I hired her anyway. Her only condition was that we spend no more than 5 minutes each show discussing Dancing With The Stars. Reluctantly, I agreed.

Okay. Not so reluctantly. Hey, it’s a recorded podcast. Just fast forward.

Also, there’s going to be a segment called “The Kitchen” – as in, if you can’t stand the heat stay out of. Every interview subject will know going in not to expect a lot of softball questions or air kisses being blown there way. I did try this once before, a couple years ago, but, big surprise, had a hard time finding willing interview subjects. But now, there are some individuals who, allegedly, have the courage to face the heat.

The first edition of the new INM podcast will be online this weekend. I’ll Tweet it’s posting.

You can check out the INM podcast, in its previous format, here:

We’re still about two to three weeks away from a major industry altering announcement (no hyperbole) – so stay tuned. Also, Part 7 of the INM video series will deal with Corporate Claims. Look for that in the next few days as well.

Len Clements
MarketWave, Inc.

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.


Alert #218: 3/21/2013

Part 3 and 4 Now Available  
What’s an Illegal Security?
Zeek Rewards: Case Study 

What’s an Illegal Security?

And why should anyone involved in M.L.M. care?

Truly Special should have cared. International Heritage should have cared. More recently Funky Sharkshould have cared. Zeek Rewards reps really should have cared.

This could apply to any company, or more likely to distributor groups within a company. For example, company’s that offer “founder’s positions”, or “shares of the company”, or distributors who hype “spill over”, or promise they’ll “do all the work for you”, or will “build your downline” for you.
And there’s a lot of them.

Case Study: Zeek Rewards
Why Zeek rewards? Because they hit a triple. The trifecta. The hat trick. They were accused by the SEC of being all three – a pyramid scheme, a Ponzi scheme, and an illegal security.
In this video I’ll explain why Zeek Rewards was very likely not a Ponzi Scheme, probably was a security, and was one of the most obvious, slam dunk pyramid schemes I’ve ever seen.

Len Clements
MarketWave, Inc.


Alert #217: 3/4/2013

Pyramid Scheme or Ponzi Scheme 
What’s The Difference?
Also, Industry Trends Update

What’s a Ponzi Scheme?

Many people, including those within the media, often use the terms “pyramid scheme” and “Ponzi scheme” interchangeably. In fact, these terms are not synonymous. A Ponzi scheme is structurally, mathematically and legally quite different than a pyramid scheme.

In part one of my four part video series I describe what defines an illegal pyramid and how they differentiate from a legitimate M.L.M. program. However, even if your company passes this test it doesn’t exempt it from still being declared a Ponzi scheme (or the sale of an unregistered, thus illegal, security, which I’ll cover in part three).

I often recite the line “If you go through your M.L.M. career with blinders on, sooner or later you’re going to get blindsided.” This is a great example of how that can happen. By not fully understanding how all three of these illegal schemes are defined (pyramid, Ponzi and security) you are setting yourself up to be blindsided by a state or federal legal authority shutting down an opportunity you were sure was on the up and up – just like what happened to Zeek Rewards reps (which I’ll be using as a case study in part four).

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

Part three, “What’s an Illegal Security?” will be posted by the end of the week, so stay tuned.

Industry Trends Update
One of the most significant metrics I use in judging the general attitude within the overall population regarding M.L.M. is a propriety algorithm that searches the internet for a wide variety of terms and phrases that are distinctly pro-M.L.M. (i.e. “I love network marketing”) vs. those that are definitively anti-MLM (i.e. “I hate network marketing”). After the search is completed (it usually takes 8-10 minutes – that’s a long time for a 2.66 GHz Quad-Core Mac with 50+ MB download speed), I calculate the ratio of the two totals using an aged, single processor human brain with limited memory, assisted by an Office Max desk calculator.
The good news is that the total number of pro-terms always outnumbers the con-terms, usually by about two-to-one. The bad news is that this ratio has been slowly trending down since it’s all time peak of 2.32-to-one in June of 2010.
Pro-Con MLM Terms Ratio
The number of unique visitors to the Wikipedia page for “Multilevel Marketing” is another good indicator of public interest trends.
Wiki Visitors


Although the number of people checking out this Wiki entry has almost tripled since the beginning of 2008, this is not necessarily a good thing. While this does indicate increased interest in our industry, the Wiki page itself has become a somewhat anti-M.L.M. site. It is now controlled by a small but diligent faction of anti-M.L.M. Wiki editors who give much credence and deference to other industry critics and their devoutly anti-M.L.M. websites, but will disallow any reference to most industry authorities, or their website, that might neutralize the critical content. As evidence, note the 48 footnotes, of which 14 direct the reader to a source supportive of M.L.M., 13 are neutral or balanced, and 21 point to anti-industry sources, including the websites of Robert FitzPatrick, Jon Taylor, Tracy Coenen, and even the 19 year old, utterly discredited article “What’s Wrong With Multilevel Marketing” by Dean VanDruff. FitzPatrick and Taylor are cited twice. However, when ever I have made any attempt to make the Wiki page fairer, more accurate, and more balanced by revising, rebutting or removing unjustified, misinterpreted, or outright wrong information, with footnoted references to authoritative advocate sites (not just my own), the edited sections are promptly reverted back to their original text. The explanation is usually that these sites are not credible because they are biased. And FitzPatrick’s, Taylor’s, Coenen’s and VanDruff’s are not?To be fair, the Wiki page is not nearly as biased towards the negative as it was just a few years ago, when there were only two footnotes referencing pro-M.L.M. sources.

Here’s a homework assignment for all of our industry trade associations (all four of them): Create a fair, balanced, objective, well sourced, and verifiably accurate, M.L.M. Wiki page, then have 1% of the 1% most active networkers (that’s still well more than 1,000 people) each spend just a few minutes, once or twice a week, making sure the fair, accurate and balanced version stays intact. I’m guessing the four or five anti-M.L.M. Wiki editors won’t be able to keep up, and will eventually give up.

Then, if another 82,392 people visit this Wiki page (which was last months total – March is on pace to hit a record 90,000), they’ll get both sides of the story.

Len Clements
MarketWave, Inc.


Alert #216: 2/25/2013

Pyramid Scheme or Legitimate MLM
What’s The Difference?

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

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

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

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

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

And, of course, they’re wrong.

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

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

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

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

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

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

Len Clements
MarketWave, Inc.


Podcast #26: Industry Updates & Rants

Host: Len Clements; Co-Host: Randy Mitchell; News: Cathy Wilcox

The facts regarding all the class action lawsuits and the FBI’s alleged “criminal investigation” of Herbalife, as well as the FTC, SEC and AG investigations. Also, the final word on Vemma’s non-MLM stance, and closing arguments regarding the BK Boreyko interview (show #25).

Related links:

 ABC News Report on Ackman’s Payoff to Herbalife Whistleblower

Len’s Bill Ackman Exposé

Len’s Barry Minkow Exposé

Who is “Danica and Val”?

Podcast #22: Shameful MLM Products

Host: Len Clements; Co-Host: Cathy Wilcox

Income Claims [V1-N7]


A detailed recital of all rules and regulations regarding income claims as they relate to the network marketing (MLM) industry. Included are the limited conditions within which income claims can be legally made.


Referenced links:

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: