National Consumers League

Chicago conference explores multi-level marketing schemes in minority communities

This week, I participated in a town meeting held at a local Methodist church on Damen Street, in the heart of Chicago’s Hispanic community.  I was invited by the League of United Latin American Citizens (LULAC) to discuss frauds and pyramid schemes that prey on members of minority communities. 

NCL has a longstanding history of opposition to pyramid schemes and other fraudulent business opportunities. We are the only consumer group with a Fraud Center. In 2009, we published a guide to help consumers distinguish between legitimate sales opportunities (Multi-Level Marketing) and pyramid schemes, with the support of the Direct Selling Association, the industry group that represents MLMs.   

Last night’s town meeting began when I walked through a wall of pro-Herbalife demonstrators, who waited outside for an hour on a very cold Chicago night, wearing t-shirts bearing the words “Yo Soy Herbalife.” Inside we started the evening with prayers, the Pledge of Alliance, and the Star Spangled Banner.

Brent Wilkes, executive director of LULAC, opened the forum by describing the problem of Hispanics falling victim to fraud. He discussed notarios, who pose as lawyers—as well as actual lawyers, who promise to help clients obtain legal status, but then take large sums of money, lie to them, and do no work on their behalf.

It was this work fighting fraud perpetrated against Hispanics that led to his interest in pyramid schemes and phony business scams. He described meeting with officials at the Federal Trade Commission (FTC) about Herbalife, a company with $3.2 billion in revenues that has aggressively pursued Hispanics to distribute their products. Indeed, 60-83 percent of Herbalife distributors are Latino. The chances of making any money at all—after expenses—as a distributor of Herbalife are tiny, estimated at less than one percent, according to the company’s own filings with the Securities and Exchange Commission.

My part of the evening’s agenda focused on what consumers should ask to avoid falling victim to pyramid schemes that are posing as legitimate MLMs.

I noted that NCL wrote to the FTC in March of 2013, asking the agency to sort out the truth. Herbalife claims it’s a legitimate business, hedge fund manager and Herbalife critic Bill Ackman and Pershing Square argue that it’s an illegal pyramid scheme. NCL asked the FTC to use its resources to clear the company’s name if these allegations aren’t true or to determine that the allegations against Herbalife are accurate and take steps to put a stop to illegal practices. The FTC agreed to investigate, but alas, the wheels of bureaucracy grind slowly and we have yet to hear the results of their probe.

The most powerful part of the evening for me—and I think for everyone in the room—were the voices of the community telling their stories. At least five people described paying lawyers and notarios their last dollar to get a husband or wife into the U.S. or to get them papers, only to find out they’d been duped by an unscrupulous actor. Many people spoke about investing thousands of dollars in Herbalife, their life savings, and having nothing to show for it. Several said they were encouraged to buy more and more products they couldn’t sell, to attend conferences, and to exaggerate Herbalife’s ability to treat cancer, diabetes, or high blood pressure in order to make sales. They also spoke of being ashamed to come forward until now.

We hope that the FTC's investigation will lead to a reexamination of practices that may be widespread throughout MLM industry. For example, our review of the income disclosure statements of several other MLM's showed that the vast majority of MLM participants have little profit to show for the large amounts of time and money they are often asked to devote to these businesses.

Data aside, it is the personal stories I heard last night that reinforced for me how important NCL’s work is. No one there last night could avoid feeling the pain flowing from these individuals. Single fathers, out-of-work carpenters, and struggling musicians all shared their Herbalife woes.

My life’s work is fighting fraud and championing consumer protection. The stories I heard in Chicago last night galvanized me to stand with these communities and to demand that regulators and bar associations crack down on the illegal, criminal practices that steal money from the poor. Depriving those who only want to pursue the American Dream of their opportunities and hopes is intolerable. What last night told me is that I—and NCL—must redouble our efforts to protect the most vulnerable of our citizens.