You Can't Cheat an Honest Man - James Walsh [90]
Roney, Nu Skin’s founder, combats the skepticism by giving recruits a cosmic pitch. According to one distributor, he avoids talking about products or the money distributors can make. Instead, he talks about having “harmony in your family life and...high standards and morals.”
Of course, Nu Skin distributors also use more traditional recruitment tools—namely, greed. They tell prospects that top distributors can earn commissions of up to $400,000 a month.
Nu Skin doesn’t miss many opportunities because a number of key people have experience with aggressive MLM companies. Since Nu Skin’s beginning, Roney has been dogged by allegations that he was part of Cambridge Plan International—a notorious MLM company that went bankrupt in the early 1980s. (Cambridge sold diet plans and powdered supplements that went with them. In September 1983, the Food & Drug Administration received reports alleging that seven people had died as a result of the company’s 330-calorie-a-day diet. Cambridge shut down soon after.)
Roney was not involved directly with Cambridge. But several people close to him—and involved in Nu Skin—were. The connection, disturbing to some, seems to have worked well for the company. Through the late 1980s and early 1990s, earnings financed a 200,000-squarefoot distribution center, a multimillion dollar lab and a 10-story corporate headquarters in Provo.
Early in 1991, Nu Skin hosted 7,500 distributors at the huge Salt Palace Convention Center. The convention theme: Dare to dream. Bill Cosby and former President Ronald Reagan stirred up excitement in the crowd.
But not everyone who worked for Nu Skin shared this enthusiasm. In August 1991, distributor Patricia Arata filed a class action lawsuit in federal court in California. Arata, a widow who lived in rural Gilroy, California, had started selling Nu Skin products part-time in the late 1980s to make some extra money. Instead, she said she’d lost money due to the unscrupulous practices of Nu Skin distributors above her. “Everyone at the top made money,” Arata complained. “I lost thousands.”
Legally, the crux of her complaint was this:
Despite the lip service to “products,” Nu Skin is a classic pyramid scheme in which members/distributors focus their efforts on recruiting new distributors rather than on selling products, and must maintain “personal volume” of wholesale purchases in order to remain members of the distribution chain and reap commissions from the efforts of their “downline” distributors....
Arata’s lawyer said the widow had invested $4,000 in Nu Skin products and marketing materials. He guessed that 100,000 other participants—the rest of the class action plaintiffs—had invested at least $75 million.
Nu Skin tried to have the complaint dismissed immediately. When the court wouldn’t do that, Nu Skin held settlement discussions with lawyers representing Arata and other class members. In November 1991, a short four months after the suit had been filed, the court approved a settlement.
In one of its responses to Arata’s charges, Nu Skin pointed out that she had inaccurately stated that the State of Michigan had issued a cease-and-desist order against Nu Skin. “There has never been such an order,” Nu Skin lawyer John Shuff said. “In its seven-year history, no regulatory complaint has ever been filed against Nu Skin.”
Shuff was right, technically. But his objection denied a more general truth. The California lawsuit had come during a tough period for Nu Skin. Throughout late 1991 and early 1992, the company was fighting off a number of states agencies—and the Federal Trade Commission—who were investigating its practices. Among these investigations:
• In Michigan, Attorney General Frank Kelley said in reference to Nu Skin: “The emphasis is on the sale of distributorships.