Herbalife wins Belgian pyramid scheme appeal
In November 2011, after seven years of litigation, the Commercial Court in Belgium ruled that Herbalife was a pyramid scheme.
The case was brought forward by the non-profit organisation “Test Aankoop” and claims that Herbalife breached the WPMC (market practices act) by running a pyramid scheme.
Herbalife filed an appeal against the case, arguing that their ‘sales model is in full compliance with Belgian law’. Yesterday a decision was made on Herbalife’s appeal, with a Belgian court granting it and effectively reversing the earlier pyramid scheme decision.
As with everything Herbalife these days however, the finer details are murky and there’s much to be said about the the basis the appeal was granted on.
I haven’t been able to find anything official from a Belgian source, so instead am using Herbalife’s own December 3rd press release – which states,
Herbalife welcomes the judgment by a Belgian Appeal Court that states the company’s sales model is in full compliance with Belgian law.
This judgment overturns a previous ruling by the lower court, in response to claims brought by Belgian consumer organization Test-Aankoop, that Herbalife was operating a pyramid scheme.
Herbalife always believed that the first judgment contained factual errors and was based on misinterpretations of its direct-selling sales method, and was confident that the original judgment would be overturned on appeal.
Herbalife continues to focus on supporting its independent distributors and their customers in Belgium, and the company remains committed to an open and transparent relationship with those distributors and customers, as well as regulatory authorities and all other stakeholders.
What the errors Herbalife cites is unclear, but it’s important to note that the appeal seems to have been granted not on the basis of Herbalife not being a pyramid scheme, but rather because it’s sales model is in compliance with Belgian law.
Herbalife’s sales model is MLM, which is of course not illegal in Belgium. Sounds to me like they got off on a technicality as the issue of whether or not they primary source revenue from recruited affiliates, at least according to what Herbalife have released, was not considered.
In handing down the original 2011 pyramid scheme decision, the Commercial Court noted
the provided incomes out of the distribution network are significantly higher as the provided incomes from the same amount of clients (retail customers).
There is a chance of a compensation which is derived primarily from delivering (recruiting) new distributors into the system then out of the sale or the usage of the products.
Furthermore the most purchases were performed against a discount percentage of 25% and 35%, which shows that Herbalife is getting the biggest part of her profit out of the distributors.
Following the foregoing shows that it is a lot more profitable for a supervisor to sell to a distributor, rather than selling directly to a consumer.
The above quite obviously spells out a pyramid scheme, as revenue from recruited distributors is “significantly higher” than retail revenue.
If I had to take a punt, I’d guess the crux of the matter might be in the phrasing “There is a chance of a compensation which is derived primarily from recruiting new distributors into the system”.
There is a chance is something you could take and run with in court, arguing that it’s not necessarily what is happening.
The big question then is whether or not Herbalife actually disclosed their retail sourced revenue vs. distributor revenue. The court’s noting that recruited distributor revenue was “significantly higher” than retail revenue would certainly seem to suggest they already had. So what happened there I’m not sure.
Presumably for the court to make such an observation the revenue figures would have had to have been sourced from Herbalife themselves, which begs the question of how Herbalife weaseled their way out what the figures revealed in the appeal.
Despite Herbalife’s feigned committal to “transparent relationships”, the company still refuses to release its retail revenue vs. recruited distributor revenue figures in the US.
With that I’m thinking there’s a chance that the retail vs. distributor revenue figures might have been provided by plaintiff Test Aankoop, but then the notion Herbalife could argue the figures were incorrect without showing the actual figures doesn’t add up.
Either way, without those revenue figures being publicly revealed it’s impossible to determine whether or not Herbalife are indeed running a pyramid scheme. A fact which Herbalife are obviously aware of, and likely to be the reason they haven’t released the figures to date.
Perhaps claiming to not be a pyramid scheme without releasing those figures, and hiding behind the general legality of the MLM sales model is totally in “full compliance with Belgian law”.
Pending some actual transparency from Herbalife on their retail revenue figures, the anything but transparent veil of secrecy the company hides behind remains intact.
Or perhaps it’s “we know there’s something shady, but it’s not illegal under our laws”
That’s why laws can be changed or amended. 🙂
Though the courts do that often enough with the interpretations? No idea how their courts work though.
It’s almost impossible to find any official sources in this case, other than Herbalife itself.
Several websites reported the same news story 4 days ago, and then they all went quiet about the case (all the first search hits are 4 days old). Then 18 hours ago Bloomberg News finally posted a few more details, e.g. the case number.
Trying to search that case name only gives Bloomberg News as the ONLY search hit.
CASE number (according to Bloomberg):
N.V. Herbalife International Belgium v. Test-Aankoop, No. 2012/AR/736, Court of Appeal of Brussels
http://www.bloomberg.com/news/2013-12-06/herbalife-wins-dismissal-of-belgian-pyramid-scheme-suit.html
Bloomberg had trouble finding any official court reecords too, so it used Herbalife as the only source once again.
So functionally they’re still a pyramid scheme. Only in Belgium distributors primarily selling to recruited distributors who primarily sell to recruited distributors ad infinitum is not a pyramid scheme in a legal sense.
Bit of a shame that as mechanically it’s clearly going to fall apart once enough at the bottom can’t recruit.
I have found a translated transcript of the appeal in Belgium on Jeff Babener’s blog / website.
http://www.mlmlegal.com/herbalife%20is%20no%20pyramid.html
The translated order was relatively difficult to understand logically. It included changes that had happened AFTER December 2011 as defense arguments.
From the translated court decision:
Which company was the appeal about? The court decision seems to be about a hypothetical company.
* no sale to downline
* no monthly qualifying purchases
* 85% join for the right to by products, not for the opportunity 🙂
More from the court decision:
92% external consumers. 🙂
The appeal was about a modified program, with some modifications in May 2012 (immediately after Einhorn asked his 3 questions).
A heavily modified Herbalife may of course be completely legal. There’s no doubt about that. 🙂
The court accepted “market research” conducted by Herbalife (or someone they paid) to decide whether or not Herbalife is a pyramid scheme?
Good grief.
And again with the slippery snake stuff. “Consumers”? Who gives a crap? So affiliates are dumping the stuff they purchase for commission qualification onto their family and friends, what does that matter? Where the money that that was used to pay for the product is all that matters.
Why was this not contested when it can’t be proved without a preferred customer class?
Herbalife said they’d create one last year, but then reneged. Gee, I wonder why.
Quite obviously the “our affiliates aren’t interested in being affiliates” argument is bullshit. Seems to be like Belgian regulators totally dropped the ball on this one.
Also anyone who thinks this type of ruling and arguments wouldn’t be contested in the US is kidding themselves.
Does anyone believe?
STATEMENT OF AVERAGE GROSS COMPENSATION PAID BY HERBALIFE TO U.S. MEMBERS IN 2013:
opportunity.herbalife.com/Content/en-US/pdf/business-opportunity/statement-of-average-gross-compensation-usen.pdf
I can take a quick look at it.
(membership numbers rounded down to nearest 1,000)
525,000 distributors total;
408,000 without downline 77.8% (45,000 were Sales Leaders)
45,000 NSL with downline 8.6% (2,900 earned sales commission)
71,000 SL with downline 13.6%
(membership numbers rounded to nearest 1,000 / nearest 100)
71,000 Sales Leaders with downline:
12,000 earned 0 (16.9% of 13.6% = 2.29%)
40,000 earned 1 – 1,000 (56.1% of 13.6% = 7.63%)
12,000 earned 1,001 – 5,000 (16.7% of 13.6% = 2.27%)
2,700 earned 5001 – 10,000 (3.8% of 13.6% = 0.52%)
2,100 earned 10,001 – 25,000 (3.0% of 13.6% = 0.41%)
1,200 earned 25,001 – 50,000 (1.7% of 13.6% = 0.23%)
600 earned 50,001 – 100,000 (0.8% of 13.6% = 0.11%)
500 earned 100,001 – 250,000 (0.7% of 13.6% = 0.10%)
200 earned more than 250,000 (0.3% of 13.6% = 0.04%)
Note:
This was a quick look, so I rounded some numbers up or down randomly a few places.
Oops, I forgot the conclusion. It looks real enough
It doesn’t include non-payout sales profit from internal sales (the profit people can earn directly from other members).
525,000 members total
116,600 Sales leaders total (45,000 without downline, 38.7%)
$384,918,433 paid out total
$132,669,320 34% –> 199 people (avg. $666,680)
$74,948,565 19% –> 505 people (avg. $148,413)
$41,743,800 11% –> 600 people (avg. $69,573)
$44,313,392 12% –> 1,247 people (avg. $35,536)
$33,102,704 9% –> 2,116 people (avg. $15,644)
$19,226,564 5% –> 2,716 people (avg. $7,079)
$26,797,848 7% –> 11,942 people (avg. $2,244)
$12,116,240 3% –> 40,120 people (avg. $302)
Sales Leaders 71,535 + 45,048 = 116,583
The 1,304 people (1.11% of SL) near the top earned 64% of the money.
The 6,079 people (5.21% of SL) in the middle earned 26%
The 52,062 people (44.66% of SL) near the bottom earned 10%
The 12,090 people (10.37% of SL) at the bottom earned 0%
The 45,048 people (38.64% of SL) without downline earned 0%
93.67% of Sales leaders are near the bottom (or lower). 🙂
* near the top = $50,000 or more
* middle = $5,000 – $50,000
* bottom = $0 – $5,000
this basically means the product cannot be hot potato , going from person to person , and ‘wander endlessly’ without being consumed . i cannot purchase and IBP, and palm it off to you . a new IBP will be delivered by the company to the joining distributor .
there are no qualifying purchases for new distributors , so when the receive an order , they will order the product . otherwise, A will purchase a product and sell it to B who will sell it to C and the product will just exchange hands .
this not mean , a downline cannot be recruited . another part of the order says :
this means that when a distributor , becomes a supervisor , he should be doing it for the ‘right reason ‘ . that is, he should not be doing it to only to rise to a higher position [higher bonus plan ] , BUT he should be doing it to avail of the higher discount on the products .
the fact that a small percentage of herbalife distributors rise to supervisor position ,supports the idea that the company is not saying ‘[wink wink ], join straightways at supervisor level and earn more’
as far back as amway ,1979 , the court recognized that ‘only one out of four ‘ amway distributors were recruiting any downline. the rest, 75% ,were purchasing for personal use .the amway order goes on to say :
pay attention to the word “ends’ in this sentence . the court did not say the wholesaling network ‘ends ‘ with distributors who do not sponsor BUT only make retail sales .
oz , neither does amway 1979 , neither does herbalife belgium support your idea , that , ‘ affiliates bloody well should behave like affiliates , or get out ‘
if you want to push your idea through , some court has to overturn amway 1979 , and that seems like a distant dream 🙂
Anjali I’m not even reading your waffle at this point (other than adding blockquotes).
I really couldn’t give a crap. To the best of my knowledge Amway decisions from 1979 have not been cited in any Ponzi or pyramid scheme case I’ve covered since starting BehindMLM.
Retail is all that matters in MLM (pyramid and Ponzi scheme wise) and until a court in the US says otherwise, you can continue to waffle on to your heart’s content desperately trying to assert otherwise. I imagine I’m not the only one who tuned out some time ago.
I’m really not interested in wasting my time discussing this any further. I don’t have time to waste on hypothetical what ifs and amateur hour interpretations of forty year old decisions that ultimately bear no relevance.
Common-sense is the approach I adopted when I started BehindMLM, and lest it become just another sludgefest MLM blog desperately trying justify anti-commonsense by twisting every last paragraph of any scrap of information that can be dug up from the annals of irrelevance, I won’t be changing that anytime soon.
End-users and all that other shit, who gives a fuck? When the regulators come knocking, if you don’t have retail you get shut down. It’s that simple. How that simplicity turns into hundreds of comments trying to assert otherwise I have no idea. Couldn’t care less.
Retail customers are retail customers and affiliates/participants/distributors or whatever else you want to call them are participants in the income opportunity. That’s it, done. Waffle waffle waffle game over.
Speak Asia was a scam, and you really need to bury the hatchet.
And to clarify, I’ve got no problems with the discussion taking place, lord knows some people might find it useful – but discussing the definitions of retail customers and affiliates is not something I personally see any merit in.
A complete waste of time IMO, but have at it. Don’t expect me to contribute much, if anything though. I typically don’t engage unless I think there’s a point.
(Ozedit: Either provide a pyramid or Ponzi scheme court decision since 2009 that cites Amway or can it. I’ve told you I’m not interested in your interpretations.)
burnlounge does not cite amway ???
BurnLounge was nailed for not having significant retail. End of story.
If Amway is cited, it’s in support of the above fact.
I’m not interested in your interpretations of the appeal, it’s written in plain English.
(Ozedit: I’m not interested in your interpretations. BurnLounge was taken down for a lack of retail.)
A court might believe in something, but is it TRUE? Does 75% of the distributors join MLM companies (Amway in 1979) PRIMARILY for the right to purchase products?
A product will of course EVENTUALLY be sold to or be consumed by someone, but is that statement you cited TRUE? Have the court understood it correctly, or have the court been misled?
Do people purchase 4,000 PV products PRIMARILY for the right to get a higher discount?
Does Herbalife really have 92% external customers in Belgium, i.e. do you really believe in that idea?
AMEN!
as an amateur interpreter of legal stuff , what message should i take away ? is amway relevant or irrelevant ? or are parts relevant ?
after amway , which case can be considered the ‘seminal’ case for MLM ?
which important facets of amway have been reversed over the last 40 years ?
does age make cases irrelevant ? what is the cut off age ?
no temper tantrums , replies are invited from calm and collected readers.
That if an MLM company doesn’t have significant retail sales, it’s either a pyramid, Ponzi or hybrid scheme (depending on the compensation plan).
This is not rocket science.
the best justice system available to all of us in democratic societies are the courts. if we do not believe in the court to to do justice , then we can each become a judge ,a prosecutor and hangman , and live with every individuals idea of personal truth .
when a company is dragged to court , what was the prosecution doing ? with the prosecution present, how does a court get misled? thing is , when a court decision does not please us , we look for excuses .
and HOW do YOU now the truth ?
you wish !
Note that the figures there didn’t include non Sales Leaders, only people who had upgraded to Sales Leaders (with or without a downline).
* 61.3% with / 38.7% without downline.
* Downline = minimum 1 recruited distributor.
If I include Non Sales Leaders NSL, the figures will be different:
34,47% of payouts to 0.04% of people (>$250,000)
19,47% of payouts to 0.10% of people (>$100,000)
10,84% of payouts to 0.11% of people (>$50,000)
11,51% of payouts to 0.24% of people (>$25,000)
8,60% of payouts to 0.40% of people (>$10,000)
4,99% of payouts to 0.52% of people (>$5,000)
6,96% of payouts to 2.27% of people (>$1,000)
3,15% of payouts to 7.64% of people(<$1,000)
0.89% of people received $10,000 or more
2.77% of people received $1,000 – $10,000
7.64% of people received <$1,000 (avg. $302)
88.12% of people received nothing at all
Note that this was about Royalty Override and bonuses indirectly from recruitment = paid OUT from Herbalife.
I didn’t ask you about “the best justice system available”, but about something was true in itself.
Do 75% of people join MLM companies because they’re eager to buy products? Does Herbalife have 92% external customers in Belgium? You don’t need to know any exact numbers, the questions were about your own basic understanding.
Judgements will not be respected if they’re not based on realities, i.e. they will be accepted for that single case but they shouldn’t be used as arguments in a discussion. There’s a difference between “accepted” and “respected”.
I don’t think anyone ever will refer to that judgement as “outstandable judgement skills”, “that’s how a court should decide” or anything like that.
Belgium doesn’t have a system like that.
Commercial Courts are separated from Civil Courts, so it’s no public prosecutor involved. It’s a plaintiff but not a prosecutor. It’s a consumer type of complaint (“consumer v company”, or “company v other company”) rather than “People of Belgium v Herbalife”. The appeal was handled in the Commercial Chamber of the Appeal Court, a specialized appeal court.
“Very little relevance”
User “B.F.” or someone else tried to tell the Norwegian Gaming Board about the pyramid scheme decision, and received a reply that the decision was very little relevant for THEIR work, they use a different procedure to analyse pyramid scheme cases.
Here’s how the Belgian Judiciary system is organized:
http://en.wikipedia.org/wiki/Judiciary_of_Belgium
* Commercial Court (first instance trial court)
* Appeal Court –> Commercial Chamber (appeal court)
The appeal seems to be a NEW trial of the case, not a review of the lower court’s decision. That’s relatively normal in Europe, but a separation between Commercial Courts and Civil Courts is less common.
I had a hard time understanding why NEW material was accepted as evidence, but the TYPE of court and the TYPE of appeal can explain that.
Most common difference in Europe is a separation between adminstrative decisions and court decisions, whether a regulator or a court will handle the case in first instance, and whether a complaint board or an appeal court will handle an appeal.
do the courts interfere with questions about ‘earnings’?
courts will mostly try to ensure that nobody makes a ‘loss’ , if it can be helped , and leave it at that . so , basically courts just look to see if there are enough consumer protections ,they do not make it their business to see that every participant ‘earns’.
correct me if i’m wrong , i respect your opinions.
anjali, how many times do you have to be told that in the U.S., an MLM with little to no retail is an illegal pyramid? Also, the U.S. frankly doesn’t care about flawed Belgium laws. Go back to the pencil analogy and tell me where it is flawed.
It was related to the link in post #8, about Herbalife 2013 IDS. Most of my posts have been about that. I have also had a few posts about the Belgian appeal court decision, e.g. about the Judiciary in Belgium.
I know. You wouldn’t have liked it I suddenly had started to believe in all sorts of “research report show” statements. 🙂
You can probably point out my comments as “raw models” for others, “something to look at and learn from”. 🙂
personally, i think 92% herbalife retail in belgium is hogwash.
i have no ‘facts’ to arrive at the correct percentage.
point is, the belgian court and the plaintiff [test-aankoop] , accepted this market study ,and the order of the belgian court is a valid legal document ,and its value is much higher than our opinions.so we can kick and flail with no avail .
yes, your posts illustrate the poor earnings of most herbalife distributors . i say , it makes no difference , it has no legal value .
these details are to be provided by herbalife , for public information , and they’re doing that on time, every year , and that’s that .it is fodder for anti MLM activists , they can enjoy it .
how many times do i have to tell you , i AGREE ,MLM with ‘insignificant’ retail is an illegal pyramid ? i said “MOVING ON [ as- in the future ]’ , US case law will inch toward the belgian decision . why do you have a problem accepting my opinion ?
your opinion was, herbalife hunters from deep space, are going to stop by , insisting on becoming end users . did i have a problem with that ?
Just like you can kick and flail with no avail about Belgium applying to the U.S.? Gotcha. LOL
Yes, because the US always slavishly follows Belgian and EU lawmakers’ decisions.
OH
1] there is no ‘harmonization’ of MLM law around the globe . the general definition of MLM [as in – koscot] is agreed upon for most part , but every country has different yardsticks for checking legality of MLM
2] moving on , i see harmonization setting in , and the lead will be from developed nations like the US and EU .
3] i do not see the US and the EU being polar opposites in their view of MLM [ it will not make business sense]
4] amway 1979 , which is the seminal MLM case , accepts self consumption , with a few protective shields thrown in .
if we take off our goggles, we can see where the path leads .
Oh-bloody-dear,
a tea leave reader predicts the US will weaken its’ anti pyramid scheme laws to align itself with Belgium.
as in – you’re on permanent leave ? unemployable ?
and a tea “leaf” reader as well
“LEAF” or “LEAVE” or “LEAVES” one thing of which we can be certain, the USA will not follow Belgiums’ lead when it comes to legalizing pyramid schemes.
Yep,
the worlds’ largest economy will change its’ stance on pyramid schemes disguised as multi level marketing because it makes “business sense” to conform with the regulators of Belgium which is ranked where in the world ??
thanks , i’ve always wanted clairvoyance – its a nice talent .
the worlds largest economy , is also the birthplace of MLM , it is not going to kill and eat it’s own baby .
the US is NOT going to hound it’s own MLM out of the country, with stupid requirements of retail percentages .
the US will only attack MLM’s with unviable products , using any excuse, ,whether it is the retail excuse , or the compensation plan excuse , or the i-dont -like-you excuse.
in PRACTICE , the US is doing exactly what the belgium court does , it see’s a viable product and shuts up .
The point is Belgium’s MLM laws are fatally flawed. anjali is HOPING the U.S. will change to be like Belgium, because like most MLMers, anjali doesn’t WANT to sell products, providing further indication most MLMs are illegal pyramids.
In fact, most MLMs don’t even TELL their distributors they are required to sell, and most MLM companies overlook this “requirement” in order to keep the distributors in longer and take more of their money before they go broke and drop out.
To anjali’s earlier point that internal consumption “counts,” it is true the BL decision confirmed internal consumption counts towards being factored into the compensation plan, but without adequate retail sales to external customers, it’s an illegal pyramid. Try again, anjali!
Oh, and by the way, you don’t put spaces between the end of a word and a punctuation mark, such as a comma, question mark, or exclamation mark!
you guys keep harping on and on about this mysterious ‘adequate retail sales’ requirement , but you just wont define it . is it because no court has done so till today , and you don’t want to put your foot in your mouth ?
as late as november 18, 2013 , the ex – president of the DSA, Neil Offen. wrote
now if neil offen isn’t aware of case law pertaining to MLM , who is ?
Oh, and by the way, you don’t put spaces between the end of a word and a punctuation mark, such as a comma, question mark, or exclamation mark!- tex
does that make me an illegalpyramidscheme?
belgium was the ONLY country in the world that found herbalife to be a pyramid scheme . this finding was overturned on appeal.
so while belgium went against herbalife , tex LOVED belgian laws . now he doesn’t .
so , is this MORE about tex or belgium ?
No, it’s because, unlike Anjali and her argumentative like, virtually everyone else understands them perfectly clearly.
If you want your MLM company to remain legal AND long lasting, don’t make recruiting a, or the, primary focus.
We don’t define adequate retail sales because it is not defined, all court cases I’m aware of had near ZERO retail, so the government hasn’t drawn a line in the sand.
However, the FTC and SEC websites clearly communicate outside sales must result in 50% or more of the profit, which presumably includes any recruiting profits. All we know is the number is between 5% and 100%. I support 50%.
Neil is a dirtbag by definition, he was with the DSA, the mouthpiece lobbyists for MLM scams.
Your punctuation errors don’t make you an illegal pyramid, but they do make you look even more stupid than your ideas communicate. anjali, it is also proper to capitalize the first word of every sentence, unless the proper name is not capitalized, such as anjali. LOL
MLM is illegal in China, whether it is a legal or illegal pyramid. LOL
in order to make recruiting the non primary focus , an MLM should have protections like : no front loading , buy back , no inventory loading ,70% rule , 10 customer rule .
the above protections were found enough to declare amway to be a legal MLM.
nowhere have i read that to make recruiting the non primary focus an MLM ,should have more retail than internal sales.
you say , ‘virtually everyone’ [around 6 people on this blog] understands it . if it is so understandable why cant you articulate it with some basis in FACT.
Does this really need to be explained?
You must have missed the part in the BurnLounge appeal opinion where they used a lack of retail sales (some 8% or so) to determine the motivation behind affiliate purchases (thus confirming BL was a pyramid scheme).
Legalese can be a bitch but that was straight forward enough.
burnlounge had front loading ,cash fees , no 70 % rules and no 10 customer rules . no amway protections were in place .
i MUST have missed the part where the court said :burnlounge’s ‘primary focus is recruitment’ because retail is not more than internal sales . if you find it , kindly share .
what the FTC and SEC put out on their websites are advisories. advisory means : ‘having or consisting in the power to make recommendations but not to take action enforcing them.’
an advisory is not based in law , it is based in intent [ in this case good intent]
an advisory is like a general warning : ‘carry your umbrella , it’s cloudy ‘. it does not mean it is unlawful not to carry an umbrella . i may not carry an umbrella and it may not rain.
my local police could issue an advisory, warning people not to venture into a particular area , alone at night . this is good advice , with good intent . but is this advisory based in law ? is it ILLEGAL for people to visit that place at night?
same thing with FTC/SEC website advisories , they’re good, but they’re not good in law.
Blahblahblah, they had insignificant retail and were classified a pyramid scheme.
8%, it’s there in the opinion itself and was used to determine the motivation behind affiliate purchases.
Meanwhile in the real world, I’ve yet to see the FTC/SEC lose one MLM pyramid scheme/Ponzi scheme case since I started BehindMLM.
Every single MLM company that has had insignificant retail has lost in court.
But please, continue to crap on with your metaphors and hypotheticals.
can it possibly be stupider than saying : “adequate retail sales are ANYWHERE between 5% to 100 % . pick any number of your choice , as long as it’s ‘adequate’ . i choose 50 % because …. because …anjali is stupid ”
maybe the anti MLM cabal should move to china and live happily ever after . LOL.
I’m not saying a word.
is it because :
a] you have articulation problems ?
b] you cannot find any case law to support your arguments ?
c] it is a feeble attempt at derision , for lack of argument?
No, nothing so complex,
it’s because I enjoy mocking your nonsensical and argumentative ignorance.
well said . mocking is a credible enjoyable pass time .
however arguments are best served by counter arguments.
we could spend all day long calling each other ‘stupid’ , but you COULD try to say something sensible ?
littleroundman , in order to wean you away from mere mocking , to more intellectual pursuits , may i ask you the following question ?
have the FTC and SEC advisories on their websites , been ratified by any court ? are they legal documents or merely a wish list ?
Exactly what do you think the FTC and SEC base their investigations on before they publicly declare a company to be a pyramid or Ponzi scheme and go to court?!
Please engage brain before commenting!
Who cares what has been court ratified or not ??
Don’t want (or your MLM company) to fall foul of the law ???
Make retail your focus and you haven’t got a worry in the world, either in Belgium or the USA.
It’s found in the final decisions from the trial court.
It used 2 layers of “for the purpose of …” statements to exclude retail sale (music albums) from the definitions.
* “For the purpose of this decision”
* “For the purpose of this definition”, statements about retail sale.
The retail activity wasn’t illegal and wasn’t halted. It was also too insignificant to be used as a defense argument, so the court didn’t analyse any details either. BurnLounge’s revenue dropped from $3-4 million per month down to $10-11,000 when the Mogul program was halted.
i do ,because people who elect their own governments , want to be sure , that they are being made to follow the LAW, and not anybody’s wish list .
remember the previous DSA kohm/FTC advisory about internal consumption in 2004 ? this advisory was ratified by the courts in the recent burnlounge decision . it is now a part of case law and can be freely quoted as precedent in future cases.
the later advisory on the website of the FTC which you guys cling to , is merely ADVICE , not law. it is based on the omnitrition ‘dicta’ which has been rejected by the ninth circuit court , in burnlounge, as not being established case law.
if i were the FTC , i would propagate the ratified 2004 advisory and not push my own program .
Good on you then.
But, you’re not
And the difference that makes to decent, law abiding MLM companies is what ??
Hmmnn,
Should we:
a) inject another layer of bureaucracy into an already overbloated and inefficient system
or
b) trust the great majority of MLM owners and participants are quite capable of not only understanding, but acting within, existing laws and definitions
or
c) accommodate the more pedantic and argumentative members of society by drafting legislation a la the European Union in which every potential eventuality is allowed for.
Nah,
Call me simplistic, but I think I’ll go with b)
you are right. the great majority of MLM companies were acting within existing laws and definitions , mostly interpreted from amway 1979 .
then along come cases like omnitrition and burnlounge 2012 , which turned the pitch completely .they de-recognized personal consumption , in deciding legality of MLM . in this context babener noted that :
so , as much as you trust MLM owners of acting within existing laws , MLM will find it hard to survive if the pitch is queered against them .
it is not my demand that courts recognize personal consumption and reverse orders demanding 100% retail , it is the demand of MLM companies .now that burnlounge 2014 has brought respite by recognizing self consumption once again , i can agree with you that NOW , MLM companies will be able to function within the existing laws and definitions .
i am waiting for professional opinions from MLM lawyers , to understand the exact impact of burnlounge 2014. i will post them here for your perusal too .
From my point of view, the only few statements that can reflect any significant level of “legal understanding” will revolve around that people DON’T HAVE that level of legal understanding. 🙂
i’m trying norway 🙂 . no one is correct one hundred percent of times. if courts can get it wrong , who are we ?
YOU are somebody who can’t leave out a space between a word and a punctuation mark, which confirms your idiotic ideas and further makes you look like the idiot you are! LOL
really tex , same ole , same ole ?
did you exchange your brain for a deathraygun [ look daddy ! no spaces !]
For one so pedantic, Anjali, you have the remarkable knack of misrepresenting what is said.
My actual reply was:
(bolding and capitalization mine)
okay . feel free to add the phrase ‘THE GREAT MAJORITY’ to my post . no harm done .
Excellent,
now explain to us all this insane belief of yours that a bureaucracy of any kind can possibly legislate us into a perfect world and that those so inclined won’t stretch the boundaries of any court ratified legislation.
Shifty bastards will always be shifty bastards, whether you are satisfied with the clarity of any legislation or not.
As for the MLM “industry” and its’ concerns, might I suggest it concentrates on cleaning up its’ own back yard before it begins criticizing others.
http://www.mlmlegal.com/burnlounge.html :
upon reading the above paragraphs , and duly employing one’s brain , one can safely comment that , these paragraphs do not imply that the FTC actively hunts for companies that have less than 50 % retail . they hunt down companies with little or no retail , the 50 % number has no role to play here .
does the FTC collect retail data from the hundreds of MLM’s operating in the US ? if no, how do they have any access to any data ,to determine which company has less than , or more than 50 % retail ?
the FTC is not BOTHERED to interfere with any company which has a viable product and some semblance of the amway safeguards.
so , to imply , that the FTC employs a 50% retail rule to initiate investigations into an MLM company , is misguided.
all i’m saying is DECIDE once and for all , on the issue of personal consumption , and everybody can go back to work .
who am i to ask for a perfect world ?
let me clarify here , that the FTC , sitting in their office , have no way of deducing how much retail is taking place in any company .
they will analyze the product value , analyze the compensation plan , and hence deduce if things look fishy .
this is similar to what oz does here , except that oz does not opine much on product value , but concentrates mostly on the compensation plan .
@anjali
When they FTC launch an investigation it’s secret and companies are compelled to provide them with data.
You can make all the assumptions you want, fact is their MLM investigations are primarily rooted in the determination of significant retail activity. That any investigations that don’t result in litigation (satisfactory retail) is neither here nor there.
no , the investigations are primarily rooted in the determination of INsignificant retail activity .
if the FTC was on the lookout for significant retail activity , we would see prosecutions of MLM with 15/20/30 % retail .
In an ideal world, yes.
There are a multitude of mitigating factors that unfortunately determine otherwise.
Complaints from investors, the size of schemes, available manpower and allocatable resources are but just a few.
Without access to data on every FTC investigation into an MLM company, making assumptions like this:
is pointless.
What we know is that every MLM pyramid scheme bust thus far has been due to insignificant retail activity. I peg insignificant at a 51%/49% split, give or take.
Forget legality and precedent, hell that’s just common sense.
Again I’m not interested in debating this and arguing your hypotheticals ad-nauseam hardly makes for engaging reading. Spam bins over there.
It’s worth paying twice the admission price just to watch Anjali wriggle and squirm and nit pick her way through every discussion.
oz charges you ? gosh , i’m lucky !
You can expect to see that too? A company may have different types of products designed for internal end users and external end users, just like BurnLounge had.
The Mogul packages were primarily bought by people who later became Moguls and could participate in the recruitment driven opportunity. Retail sale of music wouldn’t have changed that fact, i.e. BurnLounge would probably still have operated a pyramid scheme even if it had significant sales to external consumers.
Retail sale doesn’t prove anything in itself, i.e. it does neither prove nor disprove the existence of a pyramid scheme.
The idea that it DOES prove or disprove pyramid scheme is related to “world view”, “looking at the realities from a very specific perspective”.
Confirmation bias:
Confirmation bias and “world views” are typically about flawed methods for how to test theories and hypotheses. Science have reliable methods, but people in general will typically prefer flawed methods when they test their own ideas.
I think the FTC would not have acted upon BL if the music retail sales to external customers resulted in anywhere close to half the bonus paid to the distributors. The problem is that not only BL didn’t do that, but most other MLMs don’t, either.
To prove hypotheses and theories, test methods will need to try to disprove them rather than trying to prove them. In reality, people should accept BOTH types of methods.
If the theory is that sheeps are white, looking at multiple white sheeps won’t prove much. A method like that will simply be about repeating the same idea over and over again. Looking at black sheeps will prove something, e.g. prove that the hypothesis isn’t 100% true in itself. First then can the theory be improved and be made more correct.
kevin thompson has written a great opinion on the burnlounge appeal 2014 . live and learn !
http://seekingalpha.com/article/2270643-battle-over-burnlounge-both-sides-claiming-victory#comment-35688183
This is all I’m going to say re. end-user waffle once again.
Yet it was precisely what was used in the decision (with cited percentages) to determine (a lack of) value in BurnLounge’s service offerings.
Any derail attempts re. end-users will continue to be marked as spam. It’s an irrelevant strawman discussion. People are welcome to discuss the merits of internal consumption on a blog that has an outright problem with it.
BehindMLM is not that blog.
please read kevin’s opinion on what metrics the ninth circuit used to conclude burnlounge is a pyramid . logic is better than stubbornness .
The fuck would I waste my time reading an opinion when I can just read the actual court order?
The metrics used, complete with cited retail percentages, are there for anyone to read.
if you are OK with internal consumption and believe rewards can be based on commissions arising from internal consumption , how can you still insist retail has to be >50% .i am not getting the math here .
Being fine with internal consumption != being fine with >50% internal consumption revenue-wise.
(Ozedit: Internal consumption being recognized as end-user sales had nothing to do with BurnLounge being a pyramid scheme. It was because 90+% of the company’s revenue was from affiliates.
Because retail revenue was insignificant, there was no demonstrated value in the products and you wind up with a pyramid scheme. This is all in the court opinion posted.
Read it, this discussion over.)
Kevin is wrong. The court overruled the FTC by saying the distributor internal consumption could be counted for bonus money, as long as there is adequate external sales. There weren’t adequate external sales, so BL was confirmed to be an illegal pyramid.
In fact, the court explicitly declined to name the minimum number for retail sales, as that question was not in front of them and the BL retail sales number was so dismally low it was a moot point.
(Ozedit: Offtopic derail attempt removed)
He has finally analysed more than what he initially WANTED to find. 🙂
It took some TIME. Most others finished the discussion one and a half WEEK ago, when the decision still was “fresh from the court” (the opposite of “Yesterday’s News”). 🙂
He was slightly biased, but that’s normally allowed.
MLM lawyers WILL try to legitimize internal consumption. And internal consumption isn’t illegal in itself. And neither is lack of external sales. Those factors may both be REFLECTIONS of something illegal, but they’re not illegal in themselves.
The illegal factor is the pyramid scheme itself. It consists of the following parts.
A: Payment from participants
B: for the opportunity to earn recruitment based rewards
C: which arises from payments from other participants
D: when they’re being introduced to or participate in
E: a chain recruitment system
None of those factors are illegal in themselves, they’re illegal when they’re part of a complete system, a pyramid scheme system.
* If you remove payments, e.g. if the rewards derives from third party sources rather than from the participants themselves, then the complete system will most likely be legal.
* If you remove “recruitment based rewards” and replace it with “rewards for doing a sales job” or “rewards for distributing goods or services to other people”, then the whole system will most likely be legal. Internal consumption and internal distribution can have a legitimate function here.
* If the recruitment based rewards derive from the company itself rather than from the participants (e.g. one time payment for doing the job of hiring additional sales people), then the system will most likely be legal.
The exemption from illegality is when the rewards derives primarily from the demand for goods or services, and the primary function of the system is to distribute that (goods or services).
A non-exemption is distribution of goods or services related to the opportunity itself, e.g. marketing material, training material, “business building material”, when goods or services like that becomes a part of the profit generating activities.
I think I can sum up the above much more succinctly:
If the primary source of profit is from a source other than external sales to customers, it’s an illegal pyramid scheme. Also, if the profit source is hidden, which is usually the case with tool systems, it’s RICO fraud.
Herbalife has cleaned up some major parts, but it still has some issues.
It has cleaned up:
* lead sales
* internal sale of “Herbalife Success Tools”
* some of the internal organizations selling it
Lead sales were cleaned up in the first half of 2013. Some of the internal organizations left Herbalife at the same time. “Success Tools” was cleaned up in June 2014, in the U.S. and Puerto Rico jurisdictions.
It has the following issues:
* 7% surcharge –> Royalty Override Bonuses
* for profit Shipping & Handling
* non-refundable sales taxes based on SRP
* for profit local S&H in some countries
* refund policy issues
* qualifying purchases for the right to earn commissions
* the compensation plan will primarily reward recruitment
* presentation meetings selling the opportunity
* potentially fake “10 customers” lists
* sales commissions based on recruitment
The issues are described from a business perspective rather than from a legal perspective. Business perspective will primarily be about the RESULTS of something, e.g. “a for profit component may potentially lead to unwanted results that will outweight the profit generated from it”.
The last point was not about the profit people can earn on selling products in itself (where they collect money directly from a customer), but about the profit people can earn from convincing other people to make qualifying purchases directly from Herbalife. Rewards from that type of purchase will be paid out from Herbalife itself to an entire upline.
The 7% surcharge, the for profit S&H, and the non-refundable sales taxes are about overpriced products. The overprice is used to pay recruitment based rewards. Overprice can be about any type of “additional cost” higher than what’s normally accepted in a consumer market.
“Refund policy issues” is about that the refund policy have several limitations and “punishments”.
“The illegal factor is the pyramid scheme ITSELF”.
“The illegal factor is the PYRAMID SCHEME itself”.
“The ILLEGAL FACTOR is the pyramid scheme itself”.
That’s the ONLY factor that actually is defined to be illegal. The description I gave was fairly correct, i.e. I skipped some of the “legal language” to make it clearer.
People may miss something in that description, e.g. “You didn’t mention anything about external and internal sales?”, and other “You didn’t include my favorite point of view!”.
* Recruitment isn’t illegal in itself.
* Rewards for recruitment isn’t illegal in itself.
* Payment isn’t illegal in itself.
* Chain recruitment isn’t illegal in itself.
* Internal sales and consumption isn’t illegal in itself.
* Lack of external sales isn’t illegal in itself.
http://www.businessinsider.in/ACKMAN-I-Believe-Arrests-Are-Coming-In-The-Herbalife-Story/articleshow/36303735.cms ”
ackman will not announce such probable arrests on TV, unless he has some insider information that such arrests are coming.
these arrests may be of top line distributors who were running their ‘Business Tools’ companies , which as norway had pointed out in an earlier post, a while ago , are a part of the herbalife industry which can be tried under pyramid charges.
since the FTC has to show it has ‘acted’ on the complaint of ackman and some pressure groups , a couple of arrests [quick bail] and hiding behind the burnlounge appeals order 2014 , could be a nice exit route for the FTC .
if i were a conspiracy theorist , i would be mystified by the ‘timing’ of the burnlounge order.
suddenly an appeal is heard and finalized wherein :
-vandernat gets his ass kicked
-FTC advisory 2004 [manna for MLM] gets a stamp of approval from a senior court
-omnitrition dicta is buried and put to rest.
right when the FTC are forced to investigate herbalife, lo and behold, a court steps in as rescue.
strange?
In order for any of the above to make sense (#102), you first have to deceive yourself into believing retail no longer matters in MLM.
If you swallow that, believe away.
read the FTC advisory 2004 , and tell me if the FTC has relied on ‘retail’ in it’s assessment of MLM.
the reliance is on ‘intent’ . nowhere does the advisory say that ‘intent’ is measurable as a subset of retail .
‘intent’ is about inherent value of the product , its marketability and demand , and studying the requirement of inventory loading in an MLM plan .
vandernat and omnitrition relied on ‘retail’ as a scale for measurement of legality of an MLM and look what happened to both ?
Round and round we go.
And value in MLM is determined by retail demand.
School is out, enjoy the weekend folks.
NOT ‘retail’ demand JUST ‘demand’, this demand can be both external and internal .
(Ozedit: You better call up the Ninth Circuit and inform them BurnLounge wasn’t a pyramid scheme. Better call up the SEC too and tell them you’ve discovered Zeek and TelexFree aren’t Ponzi/pyramid hybrids either. Let us know how that goes.)
They don’t arrest people for selling Business Tools to people in downline. It needs to be about something else. You will probably find some information in the NEWEST Herbalife article, the one about FBI investigation.
I didn’t even know about the Business Tools before June 2nd. I knew about “something” in some of the uplines, but I didn’t know how organized it was.
FTC didn’t respond to Ackman (he simply didn’t have the right motives, and he didn’t use the right weapons either). FTC responded to Consumer Protection groups and to minority group organizations, to people who were genuinely concerned about Herbalife’s practices.
I’m pretty sure FTC tried to keep Ackman at a distance. He managed to shake up Herbalife’s management, but he didn’t manage to get authorities interested (other than some minimum response that didn’t lead to anything).
I have pointed out in several comments that Ackman stole attention away from other people with more important messages. He made media focus on the wrong issues, e.g. on the battle between him and Carl Icahn, on share prices rather than on consumer protection.
Read post #97 or #100? The A-B-C-D-E points.
“The illegal factor is the pyramid scheme itself”. You don’t need to mix in any ideas about retail sale or internal consumption, those factors will neither make it legal nor illegal.
Sales to external customers won’t MAKE a pyramid scheme become legal. Sales to internal consumers (without a pyramid scheme component) will not MAKE a business become illegal.
You can simply focus on “How do we remove or disable potential pyramid scheme components? Or how do we minimize them? Or how do we make them defendable in court?”.
It’s as “easy” as that. The different components of a pyramid scheme are identified in post #100. Those are the ILLEGAL components, and they should normally only be illegal if all components are combined into a pyramid scheme.
I have already predicted that people will miss something there, i.e. “Where is my favorite idea???” type of reactions. That’s the problem with PEOPLE, they will first look for their OWN favorite ideas, and it’s almost impossible to make them accept new ideas.
right ! it just depends on whether the ‘intent’ is to run a pyramid scheme or sell products .this intent can be understood by studying the product , compensation plan and inventory requirements of an MLM on a case to case basis .
ackman instigated pressure groups have upped the ante by writing to the national association of attorney generals [NAAG]on june 19th 2014 :
http://www.valuewalk.com/2014/06/mana-lulac-letter-to-ag-jim-hood-re-herbalife/
HLF may have recently cleaned up some parts, but they should be held accountable for the 3+ decades of abuse.
The only way to measure “intent” is to demonstrate high levels of sales to external customers. The courts simply can’t analyze every single MLM on a case by case basis on an ongoing basis.
Let the free market do what it does best, prove or disprove the value of the products by selling them to external customers.
scheme = “a clever and often dishonest plan to do or get something”.
So how about if the intent is to sell products via a scheme of deception, and not either or, as stated above?
Also remember, an affiliate is NOT the company. Believing otherwise is toward the top of a long list regarding the company’s “plan” to mislead.
yet , that’s what case law does .it uses the definition of ‘pyramid scheme’ on the functioning of individual MLM case by case . in this process some ‘new’conclusions are thrown up and the MLM industry gets some pointers on what to do / not do .
for example , burnlounge’s argument about internal consumption , caused the court to discuss the issue of ‘ultimate uses’ and its conclusion affects the whole industry .
there is no established law regarding MLM , only precedents like amway , koscot etc .
if the intent is to deceive it will be caught out by studying the plan and payments in an MLM . take a recent example :
in burnlounge the product had ‘some ‘ value , but purchasing patterns gave the game out . over 90% of burnlounge participants were purchasing a product which paid recruitment based commissions [moguls]
in contrast in herbalife , the product has value , but only around 15 % participants are purchasing products to gain recruitment based commissions [ supervisor level]
it is clear to see which is the recruitment incentivizing company between the two .if recruitment is the main game , it follows that product sale is not . so , it follows that the product is merely ‘incidental ‘ in the scheme.
you mean the consumer is king , and will prove the value of the product , by his purchasing patterns , in a free market .
this concept works IF ‘all things are always equal’.
i could tweak this free market of yours by advertisement and discount sales . would consumer purchase STILL prove ‘value’ of the products ?
i could further tweak this free market by offering consumers a profit share and discounts .how does this reduce the ‘value’ of a product .
The intent is usually reflected in the plan. I don’t believe in the idea where affiliates suddenly starts to MAKE something become illegal, completely outside the control of the people organizing the plan. The potential to make it become illegal must be found in the plan itself before anyone can make it become illegal.
You can look at it from many different perspectives, but the question of legality usually boils down to whether or not something is (or will be) harmful or unfair, and to whether it’s “acceptable” as the society sees it and as a court may see it.
You will not find any solutions if you focus on specific laws, e.g. on how to interpret rules, on how to bend the rules or on how to blame the rules. The focus on laws should be on WHY certain activities are illegal rather than on the specific rules.
Business is about “functionality”, e.g. about being at the right place at the right time with the right ideas and be able to generate the right results from those other factors. Problems with laws are simply reflections of some of those other factors.
Business is about “rationality” and “balance”. Some of the failures reviewed here were clearly based on irrational ideas, they were doomed to fail. If you’re able to identify some of those factors, WHY they were doomed to fail, you will have much better chances to find solutions.
aaaaand the gold medal goes to— norway !
some people believe that sales in MLM , are either due to the business opportunity or emotional pressure from the ‘upline’.
if the MLM plan does not focus on recruitment ,it is not harmful or unfair , for people to buy MLM products at discount by joining as distributors. if there is buyback and no inventory loading there is no question of unfairness or harm .
the next argument is that people are joining the MLM under emotional pressure of ‘uplines'[salesmanship].
but , emotional buying is a characteristic of consumer buying which can be seen across the board in any type of selling . how many people walk into a mall and come out with much more than they ‘intended’ to purchase . in over the counter sales how many times does the salesman convince us to buy something we never ‘intended’ to buy .
so , the argument that MLM causes people to buy stuff they did not ‘intend’ to buy, under emotional pressure does not hold water .
besides , do malls and shops give buy back guarantees ? ha , your’e lucky if they have an ‘exchange’ rule , if at all .
Business is about rational ideas. MLM and Network Marketing WERE probably based on rational ideas long time ago, where customers also could become sales people, and could recommend the products they liked themselves to family, friends and to an extended network of people.
That idea was ruined many years ago. It has been ruined for so many years that the idea has become rather worthless, people will no longer be able to recognize it or believe in it.
Rationality in business can be about many different things, but profitability should be one of them. Profitability is normally about a “balance” between other factors.
“If the customers can become part time sales people, it will most likely reduce some sales costs and increase the profitability” is a rational idea. Or it WAS a rational idea when the primary function was to sell and distribute products or services.
People have replaced rational ideas with irrational ones, ideas that may FEEL rational to themselves but where the rationality is poorly reflected in reality. That usually happens when people strongly focus on very onesided ideas.
The solution here is simply to replace the people. 🙂
Carl Icahn DID something like that, when he replaced some board members with some of his own people. The people with the most irrational ideas also left Herbalife because of changes (the “cleanup process”).
Business is about rational ideas. It’s about clearly identify which of the ideas that are useable for a long term business, and which of the ideas that are too onesided to be used in business. Business failures will typically be about failing to identify it correctly, e.g. about onesided focus on some short term results.
Yes, the consumer is king, and you are still putting a space between your words and commas. When you do this you look like an idiot.
The free market concept NEVER assumes everything is equal, that’s the whole point of the free market! LOL
Advertising and sales are free market 101! LOL
Customers get discounts, customers don’t get profit sharing. Profit sharing means you are a participant.
thing is tex, you ALWAYS look like an idiot .
LOL.
show the law , show the law , show the law .
LOL.
Securities Act 1933, in the general definitions for unregistered securities. I belive it’s Section 5.
Securities Act 1933 has a very broad definition for securities, and profit sharing agreement is specifically mentioned as one of the types.
It must normally pass the Howey test = you give your money to somebody else with some expectations of earning a profit from the transaction, where the profit arises from the investment itself (e.g. from other people’s work, other people’s investments) rather than from your own work.
The thing is, anjali, you have been PROVEN wrong over and over again on this blog. So if I’m an idiot, you are at least 2 orders of magnitude a larger idiot. But do keep coming back, it would be far less fun without you here! LOL
As M_Norway stated, the law is very clear. In the future, I suggest YOU challenge the statements made here that the law doesn’t address the points made, as the law almost always reflects the logic I and others state. It isn’t our job to do your research if you have an illogical view.