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 #226: 4/30/2014

New Podcast Posted

The Truth About the Herbalife Attacks

Is Vemma MLM? The Final Word

Is Herbalife Under “FBI Criminal Investigation”?


That, and a lot of other bovine poop circulating throughout cyberspace and the media, is one of the two major topics on edition #26 of the Inside Network Marketing podcast.

Is Vemma Still Not MLM?

Randy, Cathy and I (mostly I), make our final points regarding Vemma’s alleged departure from MLM and more towards “affiliate marketing”. We (mostly me) also deconstruct my recent interview with Vemma Founder and CEO B.K. Boreyko.

And seriously, it will be the last word on the subject. Everything that needs to be said has been said.

Barry Minkow: Where is he Now?

Those of you who were around way back in 2007-08 (in MLM years, that’s a long time ago) will probably remember Barry Minkow. He was the guy who blazed the trail for unethical short sellers like Bill Ackman to bash public MLM companies so as to profit from the resulting drop in their stock price. Barry tried this on USANA, Medifast, Pre-Paid Legal (now the privately held Legal Shield) and, yes, Herbalife. When he tried the same extortion scheme on Lennar (the second largest home builder in the U.S.) he was found guilty of stock fraud and sent back to prison – for the second time (he also perpetrated a massive stock fraud back in the 80s).

So where is he now? Back in prison – for the third time.


Len Clements
Founder & CEO
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 #24: Herbalife, Ackman, and Ray Liotta

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

Alert #214: 12/31/2012

Herbalife Hit With Another Bogus Attack by Short Seller

Is Bill Ackman the Next Barry Minkow?

I‘ve been getting a lot of requests for commentary on the recent “short theses” presented by investment guru Bill Ackman regarding Herbalife. Although there are those within our industry who may see this as Herbalife’s problem, they would be both ignorant and naive. Industry critics are exploiting Ackman’s work in an attempt to attribute his case against Herbalife to all M.L.M. companies, and if he’s ultimately successful in destroying Herbalife (his stated desire is to instigate an FTC and/or SEC investigation of Herbalife, and his goal is to have their stock drop to “zero”) it is virtually assured this bash-n-cash model will be applied to all publicly traded M.L.M. companies with any significant market cap.

As you may recall, twice convicted stock fraud felon Barry Minkow employed this tactic back in 2007 and 2008 and made a bundle shorting, then trashing, USANA, Nu Skin, Medifast, and Herbalife (he also tried it with PrePaid Legal, now the privately held Legal Shield, but for some odd reason just couldn’t get their stock to go down). Minkow isn’t doing this anymore because you’re not allowed to invest in stocks while your in prison.

I was going to hold off on this rebuttal to Ackman’s short thesis until I got my new website launched, because it will include video commentary, but I decided I’d like to get it out during both mine and Bill Ackman’s lifetime. Yes, after three months, we’re still rebuilding the site, but it is getting close. And it’s going to be a huge improvement over the previous site. Someday. Soon.

BTW, for those of you who paid for the exclusive contact listing within the Favorite Company Vote, you will receive a free month for each month, or partial month, the site was offline. Thank’s for your patience.

So, as I explain in the rebuttal report, I don’t have time to research and write over 60 pages of rebuttal points, over several months, like I did when Minkow first attacked USANA, but this eleven page response should provide more than enough evidence as to what Ackman’s true agenda is here.

Also, even if you’re not involved in Herbalife, or any public M.L.M. company, or just not interested in this issue, I’d still recommend you read the response. It could provide some great material as far as addressing objections like “99% don’t make money” and M.L.M. companies are all doomed to inevitable “market saturation”.

You can find the rebuttal report here:

Please provide any feedback that you feel can improve this rebuttal, including misspellings and typos. I’ve only proofread it seven times, so there’s surely at least 20 or more still in there.

Direct Selling Edge Conference

I know it’s late notice, but if any of you are interested in starting and operate your own M.L.M. company, or would just like to be educated on what it takes to do so correctly, or just need a tax deductible excuse to visit Las Vegas, check out the Direct Selling Edge conference, sponsored by Sylvina Consulting, to be held on January 10th and 11th in Las Vegas.

I’ll be presenting there as well as attorney Kevin Thompson, author and consultant Daren Falter, premier start up consultant Jay Leisner, and at least half-a-dozen other industry experts.

For more information click on either of the above links, or call 503-244-8787.

On behalf of all of us here at MarketWave (yes, I actually have employees now!), we wish you and your loved ones a very safe, healthy and prosperous New Year.

Len, Carolyn, Dave and Russ.
MarketWave, Inc.

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.

Alert #207: 6/10/2012

Inside Network Marketing Podcast is Back!
Fake MLM Gurus, Shorting Public MLM Companies, and Industry Trends Update

Inside Network Marketing Podcast
Yes, it’s been a while since my last podcast. Almost a year, actually. Unfortunately, being an industry advocate, watchdog, guru, or what ever you want to call it, doesn’t pay well. Actually, it doesn’t pay at all, so I’ve been focusing on keeping the lights on, gas in my Jag, and a supply of Marie Calendars frozen dinners in the fridge. But there’s just too much I want to say that just isn’t getting said, so I’m back to whacking hornet’s nests again. Or, in the case of this latest episode, sacred cow tipping.
It’s funny, sort of, that a few weeks back I was the victim of a home invasion. A guy actually kicked through my very large, thick front door. It took him about 8 or 9 attempts, and I remember the first thing I thought as the battering ramming began was, okay, who did I piss off now? As it turns out, he was just a low life looking to steal my stuff. Because I ignored his incessant doorbell and knocking concerto (he didn’t know the secret doorbell code that only my friends and family know) I suspect he didn’t even know I was home. When he made it through, all I had to do was make him aware of my Glock to turn him into a Roadrunner exit (big cloud with the word “Poof” in the middle of it). Since I was already on the line with 911 (a recording of which I’m getting a copy of), he didn’t make it far before the good guys got him. It was like watching an episode of C.O.P.S. in hi-def 3D.  
Anyway, maybe it’s because I’m now over half-a-century old, but I just don’t seem to care as much about how many people like me, or how much. I’ve been involved with this business, full time, for over 21 years now, and I’m just… so… tired… of the BS. Not just of the BS that’s slung at us from ignorant outsiders, which no one seems to want to do anything about, but more so of the BS that keeps bubbling up from within this business. Don’t get me wrong, I love network marketing. I love it like I loved Tribble, my champion purebred Persian, inbred, likely brain damaged cat that never used the litter box even once in her 13 years of life. There are some people and companies in this industry that really need a metaphorical whack with a rolled up newspaper. I’d love to do this in a gentle, tactful way, but I just can’t seem to figure out how to do that, and I don’t believe reading How to Win Friends and Influence People a fourth time is going to help.
In this latest edition of Inside Network Marketing (#18) I’ll be discussing David Einhorn, Barry Minkow, and the practice of shorting public MLM companies, like Herbalife and USANA. Then the fun really begins with a relatively restrained rant regarding fake M.L.M. gurus and how we all should be vetting our industry leaders – which we don’t seem to be doing at all.
So here you go. Let the flaming begin.
Industry Trends Update

At the beginning of every month the Industry Trends page at is updated HERE. Here’s some key results from this latest update:
1. Although the ratio of pro-MLM commentary to con rose slightly, from 1.93 to 1.96, the overall online chatter about M.L.M. dropped 5%.
2. Although M.L.M. stocks have outperformed the overall market over the past 12 months (10.59% to 2.66%), May broke a four month M.L.M. winning streak vs. the S&P 500, which dropped 8.6% from April. The M.L.M. Index dropped 19.2%.
3. The number of visitors to the Wikipedia entry for “Multilevel Marketing” and “MLM” in May was 62,644, the fourth largest on record. The highest was 66,656 in January of 2011. This is not necessarily a good thing considering a small but diligent contingent of anti-MLM Wiki editors now control this listing, thus it is no longer a fair and neutral representation of our profession.
Thanks for listening.
Len Clements 
Founder & CEO 
MarketWave, Inc.

Alert #188: 8/11/2011

Barry Minkow Hit with $584 Million Judgment
Five Year Prison Sentence  
Anti-MLM Critics Complicit in Fraudulent Scheme

Barry Minkow – Beneath the Iceberg

For those of you who are new to the profession of network marketing, or are experienced veterans who’ve been stranded on a deserted island the last four years, Barry Minkow started a fraudulent carpet cleaning and restoration company back in the 1980s called ZZZZ Best (pronounced Zee Best), went to prison for over seven years, found God, emerged from the Englewood Federal Correctional Institution corrected, and then turned from being a perpetrator of fraud to an investigator and exposer of it. Then, in 2006, another supposed ex-stock-fraud-felon-turned-good by the name of Sam Antar (his fraudulent company was called Crazy Eddie) paid Minkow $250,000 – $150,000 to attack Usana Health Sciences, and another $100,000 allegedly because Sam just admired Barry and wanted to give him a gift. Usana is publicly traded so, of course, both Sam and Barry bought put options on Usana right before Minkow published his 86 page Usana smear report so they could profit from the resulting drop in Usana’s share price – which plummeted 15% the day Minkow’s report went public. After banking $61,000 on his Usana puts, and watching how the media indubitably promoted his attack, and seeing how vulnerable a public M.L.M. company, or at least their stock value, was to bad publicity, he decided to try the same bash-n-cash scheme on Herbalife, PrePaid Legal, and Medifast. Each time Minkow would hire M.L.M. critics Robert FitzPatrick, who claims to be an “expert” on pyramid schemes, and Tracy Coenen, who claims to be a “forensic” CPA and “certified fraud examiner”, to assist him in the production of his stock price pounding propaganda.

Then he tried the same scheme on Lennar.

Lennar is the second largest home builder in the United States, with $3.1 billion in revenue last year. Lennar is also not an M.L.M. company, thus not nearly as vulnerable to prolonged attacks on their credibility. So, Lennar sued Minkow and his “Fraud Discovery Institute” accusing him of libel and stock fraud, and theydid not settle. And they won, thus the $584 million judgment. Along the way Minkow was also prosecuted on criminal charges that included insider trading and extortion. He lost, thus the five year prison sentence.

At one time, while Minkow was still actively bashing-and-cashing, I began the development of a website designed to expose Minkow as not having been reformed, and as still being guilty of fraudulent activity as far back as March of 2007. To that end I registered the domain name, playing off one of Barry’s favorate catch phrases, “You have to look below the iceberg”. Had anyone paid attention they would have clearly saw that what Minkow did to Lennar he had been doing to several other companies (including other non-M.L.M. companies, such as InterOil). Since Minkow’s sentencing a local news station in San Diego has uncovered other fraudulent schemes involving the church where he was the pastor and several of its parishioners (one claiming to have lost over $300,000 she lent to Minkow). All of this harm to so many of his victims, not to mention the almost $2.9 billion in losses suffered by innocent shareholder of those companies Minkow attacked, might have been avoided had fraud investigators, or at least commentators, turned their magnifying glasses around on Minkow himself rather than Minkow’s victims. Tracy Coenen, Robert FitzPatrick, Jon Taylor, Sam Antar, Gary Weiss, Michael Webster, Wesley Serra, Steve Rotolante, and so many others gratuitously and unconditionally supported and promoted Minkow’s activities every step of the way. Major news media, with far greater investigative resources that I have, incontrovertibly reported Minkow’s accusations to the public, often times interviewing Minkow personally and imparting greater credibility to him as a “reformed fraud buster”., Hugh Hewitt’s radio show, Neil Cavuto’s television show, Bloomberg, Reuters, CNN, CBS News, Fox news, and The Wall Street Journal, among others, all portrayed Minkow as a redeemed and trusted authority on recognizing and exposing fraud, which added substantially more weight to Minkow’s stock pounding hammer. Again, these are investigators who are CPAs, have post-graduate law and financial degrees, or who are trained and certified “fraud examiners”, and who, like Coenen and FitzPatrick, workeddirectly with Minkow. And all that I uncovered, with nothing more than my Associates Degree, my telephone, and Google, was always available and easily discoverable the entire time – years before it was recently uncovered in a Florida courtroom.

So that’s why I went ahead and completed, even though the heat on Minkow has pretty much melted his. It’s now more a testament to the selfish ignorance and/or gross incompetence of those who assisted Minkow and supported his agenda.

For the record, there were two groups of people who did know all along what Minkow was really up to. One are those who read, Judd Bagley’s investigative blog. The others are called MarketWave Alert subscribers!

Len Clements
Founder & CEO
MarketWave, Inc.

P.S. Please don’t forget, my (completely free) training series begins this Thursday, August 11th, at 5:30 pm PST (8:30 pm EST). Call 712-432-1000, 569-864-201#.


Podcast #19: MLM Short Sellers; Fake MLM Gurus

Host: Len Clements, MarketWave, Inc. Founder & CEO

Alert #173: 3/25/2011

Barry Minkow Charged With Securities Fraud

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

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

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

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

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

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

The actual order can be viewed here:

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


Bloomberg (video):

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


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

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

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

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

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

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

I hope they allow cameras in prison.

Len Clements
Founder & CEO
MarketWave, Inc.

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

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

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

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