Today, Edith Ramirez is speaking to the DSA and calling for reforms to the entire MLM industry following the HLF ruling: https://www.ftc.gov/system/files/documents/public_statements/993473/ramirez_-_dsa_speech_10-25-16.pdf.
She uses her remarks to outline the two main areas where MLM members continue to damage the direct selling industry: 1) misleading income representations and 2) MLMs lacking actual real sales. She takes the opportunity to explain how the Herbalife ruling is a model for the entire industry.
This also coincides with the DSA led push to eviscerate the pyramid scheme laws with H.R. 5230.
Can the industry or Herbalife even comply? Christine Richard recently did an analysis of Herbalife using their own disclosed data re: the % of product that go to actual customers (pasted excerpt below since this site has a paywall). She found it to be roughly 2% of all sales. That number is astonishing and it begs the question – how can Herbalife surive if it actually complies with the recent FTC order?
By Christine Richard – Seeking Alpha
Summary
- Herbalife has less than a year to show the FTC that the vast majority of its products are sold to people who have no interest in its business opportunity.
- To do this Herbalife must prove that legions of people sign up with the company only to buy the product at a discount for personal consumption.
- Herbalife’s disclosure regarding so-called Discount Buyers has been self-serving and misleading since the company came under scrutiny.
- We estimate the number of current Discount Buyers, based on Herbalife’s disclosures, past and present, and the FTC’s findings, and discover that they account for less than 2% of Herbalife’s US sales.
The clock is running for Herbalife Ltd. (NYSE:HLF). The company has until May 15, 2017 to show the Federal Trade Commission (FTC) that the vast majority of its products are purchased by consumers, not by distributors who buy Herbalife products to qualify for and generate commissions. Qualification buying is a red flag of a pyramid scheme.
Starting in May, Herbalife will be required to show that two types of individuals account for most of its sales: 1) a newly created category of individuals called Preferred Customers, who sign up with Herbalife just to get a discount on the products for personal consumption and have no interest in pursuing the business and 2) distributors who are pursuing the business opportunity and can verify that they sell the products they buy from Herbalife to Retail Customers at a profit.
In this article, we estimate how many individuals make up the first group, Preferred Customers, and how much product they’re consuming. To do this, we reconstruct a metric that the company stopped regularly disclosing in 2012 – the percentage of distributors Herbalife considers to be “Discount Buyers” or people who signed up just to get the product as a discount.
