Redress checks and compliance checks: Lessons from the FTC’s Herbalife and Vemma cases

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As part of the FTC’s historic $200 million settlement with Herbalife, about 350,000 Herbalife distributors should be watching their mail for a partial refund check. The FTC has more information about the refunds and advice for people thinking about investing in a multilevel marketing opportunity. But it’s also a good time for some straight talk with members of the MLM industry.

The FTC has a more than 40-year history challenging unfair and deceptive MLM practices, including recent law enforcement actions against Herbalife and Vemma. The specific terms of those orders – which require the companies to restructure their operations from top to bottom – apply just to Herbalife and Vemma. But industry members can learn a lot by reviewing the conduct the FTC says violated the law and understanding the principles underlying those orders.

Here are some lessons MLMs can take from those lawsuits.

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?

For more information see this response to a letter from the Direct Selling Association.

Comments

I did Herbalife in 2013 & was told to sell so much to keep my supervisor status. I didn't receive anything about this refund. I do I determine if my name was on the list?

I just received my check because I moved to a new address but the check has expired.what can I do?

Hi, Teresa.  Please call the Refund Administrator toll-free at 844-322-8146 to request a new check.

Why is it only after 2009? We got into Herbalife before 2009 and I am too embarrassed to tell you how much we spent. We should get some money back to.

Hahaha, so many losers it's unbelievable

I was with Herbalife in 2008, plus. I was promoted to World status. The problem was having to buy their leads or I could not participate in any functions. New leads, $2500 a pop. Lost A LOT of money just paying for a bunch of junk. I would have hoped they would have gone out of business. Products, Service for distributors, Fake realities!! I went to Scottsdale, AZ for a convention. Stuck in the hotel unless you rented a car at 50% tax. Gave the most shoddy party for the underlings while the UPPER people were having a grand time in their suites. This monetary investment was such a devastation!

hi I was just wondering if this check was legit or false I got caught up in a false check before just want to make sure before I cashed it I tried to call the FTC but couldn't get through please let me know

Checks from the FTC are legitimate. When you get a check from the Federal Trade Commission, it comes with a letter that explains why you got the check and gives details about the case. You and your bank can go to www.FTC.gov/AMG for details about the refund. You can call the company that the FTC hired to manage the refund process at 1-866-730-8147. If you get a check, you should cash or deposit it within 60 days.

I would like to know if I'm on this list as well. In order for distributor who wants to retain their "Supervisor" status and to meet his/her yearly requirements, I have invested every year to keep my required $4,000 Volume Points to be done in one month, or $5,000 over two consecutive months, since in I started in 1996. Herbalife in about 2013 implemented an another option to your required Total Distributor Volume requalification requirements this being a third option of $10,000 yearly that was required yearly inorder to keep your Supervisor status and receive a 50% discount on products. It did not matter whether you personally consumed them or sold them. It was an Herbalife requirement that I have done for 22 years. How and who qualifies for this refund? Where's the list of names?

In January of 2017, the Federal Trade Commission mailed checks to nearly 350,000 people who lost money running Herbalife businesses. The checks were the result of a July 2016 settlement with the FTC that required Herbalife to pay $200 million and fundamentally restructure its business.

When the FTC sent the checks in 2017, it used Herbalife’s records to identify the people who would get a refund, and how much each person would get. In general, the FTC sent partial refunds to people who ran an 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.

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