Are a Lot Of Network Marketing Companies Starting To Face Legal Problems?
“We’re seeing a lot of these companies start to face legal problems and being sued over pyramid schemes. Herbalife just recently was forced to settle for over $200 million over being a pyramid scheme.” -“Kylie” on YouTube
Over the past few weeks, we’ve been covering a series of videos and statements from a woman named Kylie on YouTube. She’s gained a following by putting out negative videos disparaging and embarrassing network markers.
This week, she tries to further her point by claiming “a lot of network marketing companies are starting to face legal problems” … and she cites a 2017 Herbalife settlement with the FTC.
First, if you happen to know Kylie, I would highly recommend she pull that video because her statement is libel. It’s a false and damaging statement, and Herbalife could press charges, because it was actually proven that they were not a pyramid scheme.
And so this “forced to settle” statement… I don’t know how she thinks that they were forced to settle. It was a mutually agreed upon settlement — probably much cheaper for both parties, rather than spending years litigating in court.
(Side note: settling out of court happens all the time, and it does not mean one party admits their guilt. It’s a business decision — whether to spend the money on a settlement, or spend the money on attorney fees. Either way, they’re going to spend a bunch of money.)
But it’s not all on Herbalife’s side either…
You have to understand that the FTC also has a situation on their hands, because if it went to trial, they (FTC) would have had to prove that Herbalife was a pyramid scheme to a court. And that is a long journey…
The FTC tried to do that with Amway, between 1975 – 1979, and they (FTC) didn’t win. Amway did. And so there’s a risk on both sides. (More on that in a moment.)
And so that’s the reason that I say Kylie doesn’t know that Herbalife was “forced” to settle. She wasn’t in that room.
#2: “..for over $200 Million”
It’s not over $200 Million. The settlement was exactly $200 million. Anything else is an exaggeration to try and prove a point.
“Herbalife… was forced to settle for over $200 million over being a pyramid scheme.”
Her statement is false. And I would advise her fans and followers to be careful who you listen to and where you get your information.
So Tim, Are a lot of network marketing companies starting to face legal problems?
Let’s talk about this little phrase “a lot”… It’s a generalization. Let me give you the actual numbers, and you can decide for yourself.
First, there are thousands of network marketing companies out there today, and I know of only 8 in the last 32 years that were investigated.
So when she tries to act like, “well, the law just hasn’t caught up yet…”
Really Kylie? You need to go back and do your research, because if you go back, you will find that the FTC did try to prove that Amway was a pyramid scheme and after a long court battle finally admitted that it was not.
And so you can’t just generalize and say that “they all are.”
And to be fair, I can’t say “that they all are not.” I can’t adjudicate that, nor can she.
Behind the Scenes: Here’s why Herbalife was Really Investigated.
We know why Herbalife was attacked investigated by the FTC. And it was primarily because of one man, billionaire investor and hedge fund manager, Mr. Bill Ackman.
He put a billion dollar bet on the stock market, “shorting” Herbalife stock — meaning you profit when the stock goes down.
And then Ackman went out and campaigned against Herbalife with a massive negative PR campaign, making videos and encouraging the media to interview all sorts of people about Herbalife. He churned up a whole lot of noise in the media, until finally the FTC agreed to investigate.
In an interesting turn of fate, another prominent investor (Carl Icahn) bet against Ackman and his scheme in 2013, calling him a “liar” with “one of the worst reputations on Wall Street.”
Icahn bought stock in Herbalife and took a long position — meaning you profit when the stock goes up.
What was the result? Ackman lost big — to the tune of $1 billion. Icahn, a believer in the network marketing model, won big. His shares increased 112%.
So Kylie is out there making statements about MLM being a pyramid scheme, tossing it out there like she’s tossing a jelly bean in her mouth, whereas at least Ackman put some money on the line. He bet a billion dollars, saying it was a pyramid scheme.
And as we just found out, Carl Icahn essentially bet a billion dollars that it was not a pyramid scheme, and he won big.
And so it’s a little bit flippant for her to throw out a statement like that without any bucks in the game. She’s got to kind of be careful with that one.
But then there’s her phrase that a lot of these companies are “starting” to face legal problems…
Okay, so did something churn up? Did something happen? What triggered it? Was there a change in Congress or Senate or governors or Attorneys General?
A reasonable person would say, “Whoa, what’s she talking about?”
I decided to dig to see if there’s any truth to her claim. I went to the DOJ website and did a search (https://www.justice.gov/civil/current-and-recent-cases)
Here’s what I found. Ready for this?
Facebook got fined $5 billion and restructured their business. The first judgement was on July 24th, 2019, and now there’s a new violation from April 23rd, 2020. I don’t know if it’s another $5 billion fine or not. (It depends on how you read it.) But the FTC is telling them to restructure their business… again.
Does that mean they’re going to go away? (Because that’s what Kylie is implying in her video.)
What I’m trying to get you to see is that just because a company is brought in and investigated (and is even fined), it doesn’t mean they’re out of business. Herbalife never went out of business; in fact, they’re doing quite well. Their stock (HLF) is all the way back up, now higher than they were in 2012-2013.
The same is true with many of the network marketing companies — just because they’re investigated doesn’t mean it’s over. Sometimes it does, if the people are crooked, but not always. That’s where the adjudication process comes in. In this country, the law is that you’re presumed innocent until proven guilty.
From the DOJ, I’m seeing Google right now is being investigated by 50 attorneys general. They’re alleging that the company violates the privacy of students who use free Chromebooks. In other words, illegally collecting data on them that should be kept private.
Dish Network just got hit with a $280 Million fine because of illegal telemarketing calls. (In other words, they’re calling people who are on the Do Not Disturb list.)
These are big names that are being investigated! And so you see, at any given time, there’s a lot of legal (and possibly illegal) activity going on, even from respected and popular companies.
Advice for Pro-MLM People
Here’s my point — picture this… We’ve got Lady Justice in the center of this conversation. If you’re pro-MLM, we have to do our part as well.
#1 – Don’t promise an income to someone in an effort to recruit them. That’s poor form. It could give them false hope, and it certainly gets us in trouble when we promise someone an income. It’s better to downplay the income someone can make altogether.
The way that I do it is to focus everything on working the Pipeline — the specific actions that we do to make money.
(Incidentally, these are the actions that every business in the world has to do.)
I might describe it to a prospect like this…
“Our job is to acquire customers. Okay, so we’ve got a compensation plan and this is the way that it works. If you reach this level, you make this amount of money. If you reach that level, you can make that amount of money.”
As for trying to make yourself more attractive than you really are… you don’t see me out there lifestyling, posting pics in front of my Lambo. (I prefer my Ford Truck.)
If we win a cruise for reaching our annual goals, sure, my wife takes pictures. But I don’t go around flaunting anything. I’m not kind of a materialistic kind of a guy. I like to donate my money. I live up in the mountains and I just keep to myself.
But Kylie is implying that everybody in network marketing is a scammer because they’re putting stuff on social media pretending to have a life and be somebody they are not. (That’s one of the reasons she calls all network marketers, scammers.)
#2 – Don’t have people buy products they can’t consume or sell. This has to do with the inventory side. Sometimes compensation plans drive you to purchase products to earn commissions, and that’s just a no-no.
Those are the two top things that we get in trouble for. So don’t do them. Be a professional, and keep us out of trouble.
Advice for Anti-MLM People
And this might surprise you, but I’ve got some advice for anti-MLM people also, to make their cases more believable.
#1 – Don’t adjudicate a company as a pyramid scheme. You’re not the FTC, and you’d be wise to watch out when you’re throwing shade, because you open yourself up to litigation by the companies you’re smearing. And it’s also kind of scummy for you to say stuff like that to boost your own likes and follows anyway. It’s lowbrow. Tabloid.
#2 – Don’t call everyone in network marketing a scammer. There’s 116 million of us. We know you’re generalizing because you haven’t met all of us. Most of us are really goodhearted, genuine people working every day to make the world a better place.
So what I’m trying to say here is it’s not all bad, and it’s not all good.
And that’s why I put Lady Justice in the center of our conversation — there’s gotta be a balance if we’re going to discuss things. If we’re going to go back and forth, then keep it professional. I don’t have anything against Kylie, I’m just trying to play fair and not allow these gross generalizations she’s making.
What’s your take on all this?
Leave me a comment below and tell me what you think. What do you think about prospecting without promising someone an income? How do you encourage people that they can earn money — that there is tremendous upside potential — but there are no guarantees?
What do you think about not having people front-loading products or purchasing in order to earn commissions? I’d love to hear your take. Thanks a lot. This is Network Marketing Power.
P.S. If you don’t have a team, haven’t recruited anyone (or less than 10 people), this is THE course you should get – Network Marketing Training Course
