You Can't Cheat an Honest Man - James Walsh [89]
Because MLM programs are usually regulated at the state level, attorney general and consumer protection agencies from various states will sometimes cooperate in investigating suspicious ones.
In April 1993, attorney generals offices from nine states forced one MLM company, Tennessee-based National Safety Associates, to buy back thousands of water filters from struggling distributors.
The company let distributors recruit others with get-rich-quick promises that delivered garages full of unsold water filters. In a common move, National Safety argued that its distributors—who were indepednent contractors and not employees—were the ones who fell out of line.
Under the coordinated pressure of several states, National Safety had little choice but to change its policies. The company agreed to buy back 90 percent of products from distributors who wanted to get out within a given period of time.
The company also agreed to monitor that its products were being sold to consumers who actually used them—rather than piling up in distributors’ garages. Finally, it agreed to review distributors’ promotional activities, checking that claims about products and earnings potential were realistic.
The package of changes followed the standard guidelines recommended by DSA and several other MLM trade groups.
“More people are interested in it now because of the economy,” said Terri Norton, education coordinator for Florida’s Division of Consumer Affairs, in 1996. “Maybe one of the couple is out of a job, or there was no cost-of-living raise this year.”
She offered this advice: If you go to an MLM presentation, take someone with you who isn’t interested in the business and leave your checkbook at home. “You get caught up in the mood and excitement,” Norton said. “You sign up right then and there without reading what you’re signing. If they’re really legitimate and want your business, your money will be just as good later.”
Many MLM firms lure participants and investors by telling them they have to sign up right away or they’ll lose the opportunity. A Fast-growing Company Tests the Law’s Limits
Utah-based Nu Skin International Inc., was founded in 1985 by Blake Roney, his sister and a childhood friend. The company sells skin care, hair care, and nutritional products through an MLM system. Its independent distributors make an initial investment to acquire a distributorship and inventory. Then, they can sell product—keeping about half of the suggested retail price—and recruit other distributors.
For every additional salesperson he or she recruits, a distributor gets 5 percent of that person’s wholesale purchases from the company. There are six levels of salespeople in Nu Skin’s organizational plan, each named for a precious metal or gem. At the top is the Blue Diamond Executive—who’s recruited at least 12 other salespeople directly and draws commissions from at least six downline groups. A Blue Diamond’s downline can include up to 15,000 people.
Most companies in the cosmetics business spend heavily on advertising. Nu Skin doesn’t—and forbids its distributors from doing so. It relies exclusively on MLM.
In addition to cosmetics and some nutritional products, Nu Skin sells motivational audio tapes to help distributors recruit new salespeople. The tapes, which include subliminal messages encouraging success, are controversial. “This is one of the greatest examples of snake oil currently being sold in the marketplace,” said Gerald Rosen, a Seattle psychologist who chaired the American Psychological Association’s 1990 task force on self-help products.
“Independent and business consulting firms are calling this the greatest business opportunity in the last 25 years,” the narrator of one audiotape says—in a non-subliminal passage.