MLM / Chain Money
5 Reasons Herbalife’s Survey Won’t Save It from Prosecution
Deconstructing Herbalife's defense that a survey found most people join for discounts
 
In the recent Bostick v. Herbalife class-action case, which settled in California federal court in May, Herbalife’s primary defense as to why it isn’t a pyramid scheme was a static 2013 survey estimating that approximately 73% of its members joined the company to receive a wholesale price on products. In other words, Herbalife, a Los Angeles-based multi-level marketing company that is also under investigation by federal officials, believes it can shield itself from prosecution by claiming that a majority of people join only to receive lower prices on its dietary supplements and weight-loss products, not to earn money. The Bostick court opined that “this evidence seriously undermines Plaintiffs’ endless chain scheme claim, as it suggests most members did not join ‘for the chance to receive compensation’ for recruiting new members.” But here are five reasons why this defense simply won’t work. 
 
1. Follow the money. Determining whether an MLM is a pyramid scheme or not by analyzing people’s motivation for joining an organization is of little to no value. As Koscot, a cosmetics MLM that the FTC deemed an illegal “entrepreneurial chain” in one of its first pyramid scheme actions, and its progeny have made clear, the real issue is what the company motivates its distributors to do – that is, whether the company focuses on paying distributors for recruitment rather than retail sales. And this is not an analysis that can be isolated to one particular moment in time. Quite to the contrary, in determining whether or not an organization is operating a pyramid scheme, the data must be reviewed over time to see if there is a common pattern and practice of ongoing reward for recruitment with little evidence of sustained consumer demand. See Omnitrition, 79 F.3d at 782 (citing Koscot, 86 F.T.C. at 1181) (“The promise of lucrative rewards for recruiting others tends to induce participants to focus on the recruitment side of the business at the expense of their retail marketing efforts, making it unlikely that meaningful opportunities for retail sales will occur.”)
 
2. Totally irrelevant. Assuming Herbalife’s survey is accurate (which is a big assumption), it simply means that its business can be divided into two primary segments: its retail discount program and its distributor program. That 73% joined Herbalife at one moment in time for a retail discount doesn’t mean that the 27% engaged in direct sales for Herbalife are not involved in a pyramid scheme. And as Bostick made clear, those involved in the distributor program purchased a disproportionately larger amount of products than did the discount buyers. See FTC v. Burnlounge, Inc., 753 F.3d 878, at 881 (“The evidence at trial showed that BurnLounge’s business had two primary aspects – its Retailer program and its Mogul program. . . . The Mogul program was the only aspect of BurnLounge that the district court found to be a pyramid; accordingly, this opinion focuses on the Mogul program.”)
 
3. Prosecutors don’t care. There are two prongs to determining whether a company is operating a pyramid scheme: (1) the right to sell a product, and (2) the right to receive rewards, which are unrelated to sale of the product to the ultimate user, in return for recruiting other participants into the program. The primary reason why someone says they joined Herbalife is of little consequence in determining whether Herbalife’s focus is on recruitment with rewards rather than sales of merchandise. Which is to say that why someone joins a business doesn’t obviate the fact that the business may still be a fraud. (See Webster v. Omnitrition International, Inc., 79 F.3d 776, 782 (9th 1996) in which the court found that MLM Omnitrition was a pyramid scheme because “[t]he mere structure of the scheme suggests that Omnitrition’s focus was in promoting the program rather than selling the product.”)
 
4. Identity crisis. While Herbalife is a multi-level marketing company, for purposes of its pyramid scheme defense it relies on static survey evidence that 73% of its members actually consider it more of a buyers’ club (ala Costco). The argument goes like this: internal consumption by the majority of Herbalife members amounts to sales to the ultimate users so any rewards paid on these sales are related to the sales of products to ultimate users and have nothing to do with recruitment or illegal schemes or the like. But here’s the problem with this argument, there has been and always will be internal consumption in MLMs – it is a constant that can be wholly eliminated from determining if a company is a pyramid scheme because it does not (and never will) answer the question of how an MLM’s bonus structure operates in practice. Moreover, such static survey information fails to capture the true life cycle of these discount customers, who generally quickly become inactive and no longer make any purchases. (See FTC v. Burnlounge, Inc., 753 F.3d 878 at 887, which found that “[i]n practice, the rewards BurnLounge paid for package sales were not tied to the consumer demand for the merchandise in the packages; they were paid to Moguls for recruiting new participants. . . . Rewards for recruiting were ‘unrelated’ to sales to ultimate users because BurnLounge incentivized recruiting participants, not product sales.”)
 
5. Devil’s in the detail. The January 2013 distributor research survey that Herbalife holds up as its golden goose to defend itself against pyramid scheme allegations is largely a mystery as Herbalife keeps the document behind its corporate veil. And while it may not be worth the paper that it is written on, in the end it really doesn’t matter because it cannot prove that Herbalife is or is not a pyramid scheme.
 

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More Athletes Say Track Coach Alberto Salazar Broke Drug Rules
Following an investigation by ProPublica and the BBC, other athletes describe pressure to get prescription drugs they didn’t need and Salazar’s top runner flies to Oregon to get answers
 
Updated (Jun. 12, 2015): 
Allegations that Alberto Salazar, the most powerful coach in U.S. track, has violated the sport’s medical and anti-doping rules intensified this week with additional runners coming forward and Mo Farah, his most-successful athlete, demanding answers.
 
An investigation by ProPublica and the BBC last week detailed the claims of top athletes and others who worked with Salazar at the Nike-funded Oregon Project that he experimented with the well-known doping aid testosterone — including using his son as a guinea pig to determine how much would trigger an anti-doping test; that he manipulated the therapeutic use exemption system that allows athletes to use medical treatments that are otherwise restricted; and that he gave runners prescription drugs they either didn’t need or weren’t prescribed to gain a competitive advantage.
 
Salazar has denied the allegations and promised a detailed response that will prove sources in the story were “knowingly making false statements.” 
 
Since the investigation was published, three more former members of the Oregon Project have contacted ProPublica, bringing to 17 the number of athletes and Oregon Project staffers who have described to ProPublica and the BBC what they feel was inappropriate prescription drug use orchestrated by Salazar. Most declined to speak publicly because of the power Salazar and Nike hold in U.S. track. Salazar did not respond immediately to an email seeking comment. 
 
Among the new allegations, one runner recalled being tested four times in a matter of months for thyroid function — despite a lack of any symptoms — until getting a result that, while still well within the normal range, was deemed sub-optimal. The runner recounted finally getting a prescription for the thyroid hormone drug Cytomel. 
 
“It makes you feel revved up and good in a pretty immediate way,” the athlete said. “It feels like a performance enhancer when you’re taking it. I consider what I was doing a kind of doping.” 
 
The story has provoked a barrage of news stories in the U.K., where track has much broader support, reporting every detail and quoting prominent athletes calling on British track star Farah to distance himself from Salazar, who coached him to two gold medals at the London Olympics.
 
Neither ProPublica nor the BBC reported any allegations against Farah, but he pulled out of his next race — reportedly forgoing an appearance fee of about $115,000 — citing emotional fatigue from media coverage. “You guys are killing me,” he told a media throng Saturday at a press conference in London. 
 
Farah and Salazar’s long-time protégé, Galen Rupp, won the gold and silver respectively in the 10K at the London Olympics in 2012. Farah also won gold in the 5K, and vaulted to national icon status. 
 
For the initial report, Steve Magness, a former Oregon Project coach and scientific advisor, gave ProPublica and the BBC a document recording Rupp’s blood tests from a period when he was in high school that noted he was “presently on prednisone and testosterone medication.” Salazar and Rupp say that Rupp has never taken testosterone or testosterone medication. Salazar said the notation was an error and referred to a nutritional supplement called Testoboost — created by a former world powerlifting champion and meant to increase testosterone naturally — that Rupp was taking “in an effort to counterbalance the negative effects of prednisone.” 
 
At the press conference, Farah said that he has never had reason to believe Salazar has violated rules, and he will continue to train with him. But under increasing pressure from the British press, Farah promptly booked a flight to the U.S. and said he intended to meet with Salazar face-to-face to get some answers. By Friday, Farah said he was once again “upbeat.” 
 
As part of its story last week, ProPublica and the BBC reported that Salazar had been the coach of U.S. middle-distance star Mary Decker Slaney when an anti-doping test she took in June 1996 at the Olympic trials showed an unusual testosterone profile, and ultimately led to her being suspended by the IAAF, track and field’s international governing body. 
 
During the press conference, Farah said that Salazar had assured him that he had not been Slaney’s coach during that time. “That is a serious question and that is a question I asked before [I joined Nike’s Oregon Project],” Farah said. “And Alberto said no, he wasn’t coaching her at the time she failed a drug test.” 
 
In his 2012 memoir, “14 Minutes: A Running Legend’s Life and Death and Life,” Salazar wrote: "I also coached my good friend Mary Slaney, the American middle-distance legend, at the end of her career.” As the Guardian reported after the press conference, Salazar was identified in numerous media accounts as Slaney’s coach the month before she tested positive, the month she tested positive, as well as in subsequent months after she tested positive. 
 
According to Duke Law Magazine, on the day that Slaney was informed of the results of her anti-doping test, Salazar began helping to coordinate her legal challenge to a doping ban. Salazar is expected to say that Slaney’s primary coach was Bill Dellinger, and that he himself was a temporary adviser. A New York Times article dated a month before Slaney’s failed test describes Salazar as her “coach of two years.” An interview of both Salazar and Slaney in Runner’s World in June 1996 refers to Salazar as Slaney’s coach. The pair are photographed running together, and Slaney refers to Dellinger as someone “who also coaches me.” 
 
A former Oregon Project athlete who spoke with ProPublica and the BBC this week described Salazar acting as both a physician and a pharmacy of sorts, doling out… 
 
 
Courtesy: ProPublica

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Greece bailout talks end without deal

Hopes to strike a deal now move to Thursday's Eurogroup meeting in Luxembourg which many believe is the last chance before Greece's EU bailout expires at the end of June

 

Negotiations between Greece and its creditors have ended without reaching a deal, a European Commission spokesman said.
 
The spokesman said there remained wide differences between Greece's reform plan and the requirement of its international creditors, Xinhua news agency reported.
 
Sunday's negotiations in the Belgian capital lasted for less than one hour.
 
Hopes to strike a deal now move to Thursday's Eurogroup meeting in Luxembourg which many believe is the last chance before Greece's EU bailout expires at the end of June.

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