EDITOR’S NOTE: The PP Blog called the Federal Trade Commission to get its take on these news releases, which use the agency’s name and imply that the FTCÂ recently has given several MLM “opportunities” a clean bill of health. The agency did not immediately respond.
What would you think if you read a headline on Google News yesterday such as this: “Herbalife Pyramid Scheme Rumors Untrue: FTC Speaks out on Pyramid Definition.”
Would you think, perhaps, that the FTC recently had conducted an investigation into Herbalife’s business practices and “spoke out” yesterday in defense of the firm after determining that it had been subjected unfairly to “rumors” that it was orchestrating a pyramid scheme — and that any questions about the the legality of Herbalife had been laid to rest by the government?
And what would you think if you read headlines such as these:
“Adzzoo Pyramid Scheme Accusations False – FTC Explains Pyramid Scheme Definition”
“Javita Pyramid Scheme Accusations – FTC Settles Pyramid Definition”
“ARIIX Pyramid Scheme Evidence – FTC Settles Pyramid Scam Definition”
“Agel Pyramid Scheme Accusations False – FTC Explains Pyramid Scheme Definition”
“Ignite Electric Pyramid Scheme Rumors Not True – FTC Speaks on Pyramid Definition”
“Creative Memories Pyramid Scheme Accusations Untrue – FTC Settles Pyramid Scam Definition”
“Photo: ACN Pyramid Scheme Accusations Incorrect – FTC Clarifies”
“Photo: Celebrating Home pyramid scheme true or false? FTC Clarifies”
Each of the headlines listed above has appeared online in recent days — some of them carried by Google News, which published the feeds of SBWire, a news-release service. The release that uses both the FTC’s name and Herbalife, for example, carries an Aug. 5 dateline from Altamonte Springs, FL. The release that references the FTC and Javita carries an Aug. 2 dateline from Orlando, FL.
The release on Javita uses this deck: “Javita Pyramid Scheme question answered. FTC decides on Pyramid meaning.” Meanwhile, the release on Herbalife carries this deck: “Herbalife Pyramid Scheme Accusations Are Without Merit. Consumers Can Now Intelligently Determine Themselves Herbalife Pyramid Allegations Are Not True Based On FTC Pyramid Definition.”
The release that references Herbalife goes on to assert that Herbalife is “not a pyramid scheme at all by the FTC’s definition.”
Herbalife’s MLM program has been in the news for months. Billionaire Bill Ackman claims it is a pyramid scheme; Herbalife denies the assertion.
Each of the news releases referenced above appears to be a bid to sell an MLM “leads” program by planting the seed that the FTC recently has given the green light to each of the companies. The basis of the claims curiously appears to be a 15-year-old speech (May 13, 1998) an FTC official gave on the subject of pyramid schemes that in part defined pyramid schemes as schemes that “promise consumers or investors large profits based primarily on recruiting others to join their program, not based on profits from any real investment or real sale of goods to the public.”
That the speech was given in 1998 and may have less relevance 15 years later was not made clear in any of the news releases. Beyond that, the thinking of agencies such as the FTC and SEC may evolve as the schemes themselves evolve.
In the 1998 speech, the FTC official went to to say (italics added):
“Some schemes may purport to sell a product, but they often simply use the product to hide their pyramid structure. There are two tell-tale signs that a product is simply being used to disguise a pyramid scheme: inventory loading and a lack of retail sales. Inventory loading occurs when a company’s incentive program forces recruits to buy more products than they could ever sell, often at inflated prices. If this occurs throughout the company’s distribution system, the people at the top of the pyramid reap substantial profits, even though little or no product moves to market. The people at the bottom make excessive payments for inventory that simply accumulates in their basements. A lack of retail sales is also a red flag that a pyramid exists. Many pyramid schemes will claim that their product is selling like hot cakes. However, on closer examination, the sales occur only between people inside the pyramid structure or to new recruits joining the structure, not to consumers out in the general public.”
We’ll leave it to you to decide if it is wise for MLmers to try to shoehorn a 15-year-old speech into news releases in 2013 that imply the FTC recently has scrubbed each of the “opportunities” referenced above and made a legal conclusion that no pyramid schemes exist.