350,000 Victims of Herbalife’s Scam Receive Checks
The Federal Trade Commission is mailing checks to nearly 350,000 people who lost money running Herbalife businesses. The checks are the result of a July 2016 settlement with the FTC that required Herbalife to pay $200 million and fundamentally restructure its business. This represents one of the largest distributions the agency has made in any consumer protection action to date.
“We are pleased to announce that hundreds of thousands of hard-working consumers victimized by Herbalife’s deceptive earnings claims will receive money back,” said Jessica Rich, Director of the agency’s Bureau of Consumer Protection. “Along with changes the company will make to its business structure, this is a win for consumers.”
The FTC used Herbalife’s records to determine who would receive a refund and the amount of each check. Generally, the FTC is providing partial refunds to people who ran a Herbalife business in the United States between 2009 and 2015, and who paid at least $1,000 to Herbalife but got little or nothing back from the company. Most checks are between $100 and $500; the largest checks exceed $9,000.
Here are some lessons MLMs can take from this:
False or unsubstantiated earnings claims violate the FTC Act. Established truth-in-advertising standards apply to all companies within the FTC’s jurisdiction, and that includes MLMs. Every MLM case the FTC has brought to date has alleged – among other things – misleading money-making representations. Some MLMs use limos, luxury, and lavish lifestyles as the bait to lure consumers, but their pie-in-the-sky promises turn out to be half-baked. Others try a subtler approach, appealing to consumers’ desire to be their own boss, spend more time with their children, or secure their families’ financial future. Regardless of whether it’s hard sell or soft soap, deception is deception. And let’s face it: The facts bear out that very few MLM participants earn more than a small amount of supplemental income. That’s why it’s unwise for MLMs to make earnings claims – expressly or by implication – that don’t reflect what typical participants achieve.
Monitor the claims your distributors are making. Some industry members may respond, “We never make earnings claims!” Maybe not, but what are your distributors saying? Even a truthful income testimonial can be misleading if typical distributors are unlikely to achieve those results. And if your distributors are making misleading claims, you could be liable. MLMs should have an effective monitoring program to ensure that distributors comply with the law and aren’t conveying misleading claims. In addition, MLMs should provide sufficient information and training so that prospective recruits have a realistic picture of the business.
At the heart of a legitimate MLM are real sales to real customers. For companies acting within the law, the business is driven by selling products to real customers. Who do we mean by “real customers”? People unaffiliated with the company who actually buy and use the product the MLM sells – real retail sales, in other words. And by “real sales,” we mean sales that are both profitable and verifiable – retail sales that can be confirmed. Contrast that with MLMs built primarily on bringing in more and more recruits and racking up sales to other insiders. Very few people are going to make money and most participants will be left in the lurch.
Make sure compensation and other incentives are tied to real sales to real customers. The FTC complaints against Herbalife and Vemma challenged compensation structures that rewarded distributors without regard to retail sales. The court-enforceable orders in those cases require the companies to dismantle those systems. In their place, Herbalife and Vemma must implement systems that incentivize participants to sell products to people outside the network. Is it time to take a closer look at your MLM’s compensation structure?
Recipients should deposit or cash checks within 60 days. The FTC never requires people to pay money or provide account information to cash refund checks. If you have questions about the case, contact the FTC’s refund administrator, Analytics Consulting LLC, at 855-561-1178.
– Source FTC