Young Living Sued For Operating A Pyramid Scheme
Young Living has been sued for operating an illegal pyramid scheme created under the guise of selling essential oils for quasi-medicinal purposes. This comes as no surprise to many of us that have seen the complaints made about this company.
Here is an example of how the Young Living business opportunity is presented:
Looking for work-from-home business opportunities? Want financial freedom and a sense of purpose? Young Living can help you reach your dreams and live the life you’ve imagined! You’ll not only find tools and products that help you support your healthy lifestyle with pure essential oils, you’ll also discover direct sales opportunities and an empowering community. Find your purpose with endless opportunities today by talking with a Young Living member…!
Here are the details of the case against them:
Young Living operates an illegal pyramid scheme created under the guise of selling essential oils for quasi-medicinal purposes. In truth, Young Living is nothing more than a cult-like organization falsely peddling the ever-elusive promise of financial success and an alternative lifestyle.
Julie O’Shaughnessy, and hundreds of thousands of putative class members just like her, paid and lost hundreds (and in some cases thousands) of dollars to become Young Living Essential Rewards enrollees (“Members”) based upon the promise of financial health (which Young Living calls “abundance”) and physical health, all through its brand of essential oils. Of course, the promise of riches and alternative health remedies are simply the hook used to grow Young Living’s base of recruits, which is the true purpose of the organization and the source of immense profits—for the Defendants, not the Members.
Young Living falsely represents to its Members that participation in Young Living—which necessarily requires regular monthly payments—will result in spiritual and material riches as long as they continue to solicit additional recruits to become Members of the Young Living family.
But that promise is nothing more than a pipe dream for Young Living’s millions of Members. In reality, Defendants have created nothing more than an unlawful pyramid scheme—the cornerstone of which is Young Living’s emphasis on new member recruitment over the sale of products.
To wit, based on Young Living’s own public disclosures, 94% of total Members earn an average of $1 per month in sales commissions, and more than half of those who joined in 2016 alone made no commissions at all. Worse still, these same Members were nevertheless required to spend hundreds of dollars on Young Living products to remain active Members. As such, the average loss per Member in 2016 was approximately $1,175. At bottom, the only way to make any money through Young Living is to get paid for recruiting new Members and building a “down line”—which is a telltale characteristic of an unlawful pyramid scheme.
In short, Defendants have conducted business in an unlawful fashion and Plaintiff and the putative class seek to hold them accountable for such behavior.
How the Young Living Pyramid Scheme Works
Young Living purports to sell “essential oils” via a complicated MLM operation. The complex and intentionally hard-to-understand multi-layer compensation/participation structure of Young Living is a hallmark of illegal MLM pyramid schemes.
While many consider every MLM company to be inherently fraudulent, the Federal Trade Commission has outlined some guidelines it considers critical to distinguishing an illegal pyramid scheme from a “legitimate” MLM. For example, a legal MLM program must structure its compensation so that the members are paid primarily based on sales of goods and/or services to those outside the plan. By contrast, an illegal pyramid scheme overwhelmingly rewards its participants for recruitment of new members rather than product sales made to persons outside the pyramid structure.
Here, the Defendants are operating an illegal pyramid scheme, in no small part because the financial success of any Young Living Member is overwhelmingly dependent on the recruitment of new people into the Young Living sales force—i.e., the defining characteristic of an illegal pyramid scheme versus a legitimate MLM company. Specifically, Young Living sells the fleeting promise of financial rewards—what it calls “abundance”—through the unrelenting recruitment of new Members. Young Living’s very structure ensures that every new Member will almost certainly lose large sums of money, chasing the elusive promise of “abundance” by trying to recruit additional new Members from an ever-shrinking pool of available candidates.
And Young Living’s Members’ losses are compounded by its structure, which requires its Members to continuously purchase (and as a result, hold) an ever-growing inventory of unused product, in direct violation of the 70/30 rule established in the FTC’s 1979 Amway ruling.
In order to join Young Living, new Members must first purchase a “starter kit” from an existing Member. A basic starter kit consists of an order of a single, 5 ml bottle of “stress away” essential oil, samples of other various oils, an atomizer, sample business cards, “Essential Oils Magazine,” “Essential Edge News,” and miscellaneous other “resources” for new Members. The cost of a starter kit ranges from $100 (for a basic kit) up to $260 for “premium” kits. The vast majority of new Members opt for the premium kits, largely because the recruiters are actively encouraged by Young Living to push the premium kits over the starter kits.
Once a new Member enrolls, Young Living pays a cash bonus to the “up line” Member who recruited the new “down line” Member to incent its existing Members to recruit as many new down line Members as possible.
The payment of the cash enrollment bonus, however, is not the only manner in which Members are actively and repeatedly encouraged to focus their efforts on the recruitment of new Members.
A cursory review of Young Living’s compensation structure makes abundantly clear recruiting is prioritized over the sale of product in the Young Living system—to a fault.
As Members attempt to move through the Young Living compensation system, their only opportunity to earn enough income to cover the cost of Membership is by recruiting new Members and then encouraging their down line Members to also recruit aggressively. And this undoubtedly is by design.
To move up the pyramid and to be eligible to receive commissions, Young Living Members must enroll in the Essential Rewards (“ER”) program and maintain their active enrollment in ER by purchasing a minimum amount of Young Living products on a monthly basis, which is referred to as personal volume or “PV.”
Young Living gives each product a PV value, where each point is roughly equivalent to each dollar of goods purchased. So a $10 product would typically have a PV value of 10. The minimum PV value to maintain active enrollment in ER is 50, but to earn commissions on a downline, the minimum PV increases to 100. In Julie’s case, she purchased at least $100 of Young Living product each month in order to maintain her eligibility to earn commissions.
The products that comprise a Member’s PV are purchased at a 24% discount and, at least theoretically, can be resold by each Member, who could retain any difference between the discount and the retail price for which they might sell the product. But there is no real incentive for a Member to try to become a reseller of oils as opposed to becoming a recruiter of more down line members for two important reasons. First, there’s no real opportunity for a Member to profit from becoming a reseller of oils at a mark-up because anyone can buy the oils at the discounted “wholesale” price directly from Young Living. Second, Members do not earn any commissions on the PV they purchase from Young Living. Instead, Members earn commissions only from (a) starter kits sold to newly recruited Young Living Members, and (b) the Organizational Group Volume, or OGV, purchased by their down-line Members either recruited personally by them, or recruited by their down-line Members. Importantly, no Member may earn a commission except through new member recruitment.
And even more shocking is that Young Living doesn’t even pay earned commissions to most of those lucky few who are able to amass a down line that purchases the minimum level of OGV each month. To the contrary, if a Member’s earned commission is less than $25 in a single month, Young Living will not pay that commission to the Member. Instead, Young Living issues a credit, which can be used by the Member only to buy more product. So if a Member’s OGV isn’t large enough each month to trigger a commission check, her only option is to recruit even more Members in hopes of driving up her OGV.
This is not a system designed to sell product to those outside the pyramid. Rather, the entire system is designed for one purpose: to recruit new Members to grow the illegal pyramid.
To support the pyramid’s need to bring in new blood, Young Living presents its Members with a dizzying array of bonuses and other compensation benefits earned solely through the recruitment of additional Members. And those benefits all come with Membership titles meant to falsely convey to new Members the promise of wealth—such as “Gold,” “Platinum,” and potentially, the elusive title of “Royal Crown Diamond.”
The problem is, these higher tiers are virtually unattainable. In order to move up the pyramid and share in the abundance of promised riches, a Member’s required minimum OGV increases dramatically. For example, in order to earn the relatively low rank of “Star,” a new Member must have an OGV of 500, and the Member’s minimum PV of 100 doesn’t count towards the 500 OGV. In other words, a Member is required to recruit new Members to move up the pyramid and earn commissions. And because Members are not rewarded for additional PV purchased personally, the only conceivable way for a Member to move up in rank is by achieving the near impossible—i.e., the creation of a down line consisting of thousands of recruits.
Consider, for example, Young Living’s highest rank of “Royal Crown Diamond.” The required OGV is a staggering 1,500,000. In order to meet an OGV of 1,500,000, a Member would need a down line of more than 15,000 members each purchasing the minimum PV. And because attrition and failure to order minimum PV is not uncommon, it is likely a Member would actually need a down-line consisting of many multiples of that number. Thus, it is not surprising that an infinitesimally small number of Members have ever actually achieved any meaningful success. Indeed, while Young Living brazenly touts the achievement of becoming a “Royal Crown Diamond” as within the grasp of all of its Members, a mere 46 have ever achieved this goal. Young Living claims it has 3,000,000 active Members, but does not report on the number of former Members. Thus, only .0015% of active Members have made it to the top of the pyramid, and the percentage of all Members is very likely much, much smaller.
Thus, the overwhelming majority of Young Living Members lose money by paying far more into the scheme than they receive, while those few at the top reap untold riches, funded by all of the lower level Members paying into the system. This is the very definition of an illegal pyramid scheme.
By any measure, Young Living is unequivocally a pyramid scheme.
Numerous government agencies, legal opinions and experts have all recognized that MLM companies like Young Living, which emphasize member recruitment over product sales, earn the majority of their revenue from member recruitment, and make no effort to enforce the “70/30” rule, are in fact illegal pyramid schemes.
Indeed, in 2015 the FTC sued Arizona based Vemma Nutrition Company in the District Court of Arizona for running an illegal pyramid scheme utilizing the exact pay structure and model utilized by Young Living.
In December 2016 Vemma admitted it was running an illegal pyramid scheme and agreed to a judgment which included $238 million in monetary damages, as well as an injunction which prohibits Vemma from, inter alia, engaging in the very same acts which the Defendants are engaging in here.
Specifically (and just like Vemma), the overwhelming majority of representatives will not even recoup the money that they paid to Young Living to become a Member and be part of Young Living’s sales force.
Conversely (and just like Vemma), Young Living’s enormous revenue is largely staked in the money it receives from its own representatives to be part of the sales force, and the products its sales force are required to purchase to remain an active Essential Rewards enrollee.
Federal courts have recognized that the operation of a pyramid scheme such as Young Living constitutes fraud. Pyramid schemes make money for those at the top of the pyramid and victimize those at the bottom who cannot find recruits. Accordingly, pyramid schemes are inherently fraudulent. The Defendants’ operations are also a pyramid scheme
because they are based on false promises of vast financial rewards, which are impossible to achieve for new Members who enter at the bottom of the pyramid and who have no realistic chance of moving up the ladder.
Ultimately, the Members are financially induced by Defendants to recruit new representatives to join the sales force through materially false representations about the Young Living pyramid scheme. By emphasizing recruitment over product sales, Young Living crosses the threshold from legitimate MLM into an illegal pyramid scheme.
The rewards Members can achieve in this case are dependent on virtually endless recruitment into the scheme in which people are exploited and have virtually no chance to get a return on their investment, let alone achieve the high financial gains Defendants induced these representatives to believe they would achieve. All of the Defendants participate in the illegal fraud through their statements and actions in furtherance of Young Living’s operations as an illegal pyramid scheme.
You don’t need to do anything to be considered a part of this class action. If this case settles, anyone who was affected should be able to claim whatever compensation the court awards.