The Wisdom of Jerry Garcia

What Does The Greatful Dead Have To Do With Network Marketing?

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I went to a Grateful Dead concert in 1976. The band was at the height of cool at the time as they represented the counter-culture movement from the Haight-Ashbury district of San Francisco. Although I had been to a number of concerts before seeing the Dead, this concert was different because it was the first (and to this day the only) concert where I witnessed security personnel hauling stoned audience members out throughout the show like it was a revolving door, and I saw medical personnel take at least six overdosed people out on stretchers.

This was obviously a common occurrence at Dead concerts. I vividly recall that right after their first number (Truckin’), Jerry Garcia (lead singer for those of you not old enough to have a touch of grey) announced “Hey people, have a great time, but don’t do any stupid sh**!” Such profound wisdom in such a simple statement!

I don’t think Jerry Garcia’s admonition resonated with the audience that night (shocking, right?), but it should resonate loudly with direct sellers. I look back on the FTC’s last four pyramid actions, Vemma, Fortune Hi-Tech, Burnlounge and Trek Alliance, and in each case we can point to stupid things that that landed the defendants in the FTC’s cross-hairs. We can (and will) closely analyze compensation plans, compliance and marketing nuances that the FTC charges render MLMs pyramid schemes. But there’s a place for analysis, and a place for common sense. Let’s put common sense first, because it’s unquestionably the first and best defense against finding your business in the line of regulatory fire.

Let’s start with Equinox and Trek. In both cases distributors (with corporate knowledge) placed ads in the “Help Wanted” sections of newspapers. The ads led readers to believe that Equinox and Trek were seeking to fill employment positions. People applied for the “jobs” and showed up for “job interviews.” In egregious cases the job applicant would purchase an airplane ticket to fly to the city in which the “job interview” was scheduled. When people arrived for their job interviews, they were pitched on the MLM opportunity, sold a starter kit and a large amount of merchandise. This proved an effective recruiting technique, but it doesn’t take a rocket scientist to figure out that it was based on deception and would inevitably elicit complaints to regulators. You guessed it – STUPID MOVE!!!

Fortune Hi-Tech’s compensation plan had built-in stupidity. While FHTM sold some real products and services, FHTM also sold a $199 “training program” to new distributors and paid a multilevel override on the sale. The training program, to the surprise of … NOBODY, was simply a means of funding compensation for recruiting new distributors. Montana was the first state to investigate FHTM, and frankly, they missed this issue. However, enough money was flowing through FHTM that regulators could not help but notice that the growth was driven by recruiting rather than bona fide consumer sales. Once again, stupid reigned supreme and helped lead to the demise of FHTM.

The Burnlounge case was triggered by the incendiary combination of stupidity and arrogance. Burnlounge management and its top earning distributor conducted meetings rife with income claims. They told audience members they could earn $900,000+ in their first year (not even the top earner was making close to that much). A woman in the audience found the sales pitch interesting, so she brought her husband to the meeting the next night. After the meeting the woman’s husband pressed the presenters for information to support the pie-in-the-sky income claims. The presenters didn’t want to be bothered with him (nor did they have any support for their claims) so they told the man to mind his own business. It turned out he was the assistant attorney general for the State of South Carolina. The next day an investigation file was opened on Burnlounge. Ooops! Ring the stupid bell!!!

Most recently Vemma was shut down by the FTC. We don’t have to look very hard to see where dumb came into play. Several highly visible Vemma distributors built their businesses on college campuses. They would aggressively pitch the Vemma business to college students, telling themn that they didn’t need a college education or that they should use their tuition money to build a Vemma business. Could anyone have foreseen how that might lead irate parents to ignite a firestorm of complaints? Ummm … yeah …

Whenever an MLM is attacked by law enforcement, other MLMs want to scrutinize the defendant company’s policies and compensation plan and parse every phrase in court filings, orders and opinions and quickly make changes so that the same fate does not befall their company. But it’s a COLLOSSAL MISTAKE to assume that the critical flaws all reside in the compensation plan or policies. The first step should be to identify every element of STUPID (and arrogant) in your business and fix it. The company may have turned a blind eye to the stupid practice for years or thought because a practice is not specifically illegal, it’s okay. Most commonly, the stupid practice is effective at growing the business, so they try to rationalize that it’s acceptable. But guess what? Even if it’s not illegal, it’s still stupid! And it’s STUPID that most often brings MLMs into regulatory crosshairs.

So the first rule in avoiding legal problems; heed the advice of Jerry Garcia and don’t do stupid sh… stuff!

#MLMLaws

BrainStrong Adult Dietary Supplement Makers Settle FTC Complaint

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i-Health, Inc. and Martek Biosciences Corporation have settled Federal Trade Commission charges that they used deceptive advertising in marketing their BrainStrong Adult dietary supplement. The FTC complaint alleged that the supplement makers claimed BrainStrong improves adult memory and prevents cognitive decline, and that they falsely claimed they had clinical proof for the claims.

Television commercials for BrainStrong Adult showed a forgetful woman and a voiceover saying, “Need a memory boost?  Introducing BrainStrong…Clinically shown to improve adult memory.” In addition to television, the product was advertised on Twitter and brainstrongdha.com.

BrainStrong Adult sold for about $30 for a 30-day supply and was available at major retail stores, including CVS Pharmacy, Walmart, Walgreens and Rite Aid, as well as online through DrugStore.com and Amazon.com.

The final order bars i-Health, Inc. and Martek Biosciences from making claims regarding the ability of any promoted dietary supplement, food, drug or product to prevent cognitive decline or improve memory. In addition, they are barred from claiming any product containing DHA can prevent cognitive decline or improve memory in adults, unless the claim is truthful and supported by clinical testing.

It also bars them from making claims about the health benefits, performance, safety, or effectiveness of such products, unless the claims are supported by competent and reliable scientific evidence.  In addition, they cannot claim they have clinical proof when they do not.

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TriVita to Refund $3.5 Million in Nopalea Settlement with FTC

TriVita Played It Loose And Lost Against The FTC!

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The marketers of the fruit drink Nopalea have agreed to pay $3.5 million in consumer refunds to settle FTC charges that they deceptively marketed the product as scientifically proven to reduce various ailments, including pain. The marketers named in the FTC complaint are dietary supplement maker TriVita, Inc., Ellison Media Company, and Michael R. and Susan R. Ellison, who control both companies.

The FTC’s complaint alleged that TruVita did not have the clinical studies to support the claims they were making about the health benefits of Nopalea, a fruit drink derived the nopal cactus, also know as the prickly pear. Nopalea cost up to $39.99 for a 32-ounce bottle.

According to the FTC complaint, TruVita’s unsupported claimes included that Nopalea improves breathing and relieves sinus infections and other respiratory conditions, provides relief from pain, swelling of the joints and muscles, and provides relief from psoriasis and other skin conditions.

The FTC also alleged that TruVita failed to disclose that “ordinary consumer” endorsers were TriVita sales people who received commissions for selling the defendants’ products.

In addition to the $3.5 million payment, the settlement bars the marketers from making the health claims alleged in the complaint when marketing Nopalea or any food, drug or dietary supplement without  human clinical tests conducted by qualified researchers; making any health claims without competent and reliable scientific evidence; misrepresenting that health benefits are clinically proven when they are not; and failing to disclose any material connection between endorsers of their products and themselves.

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Kevin Grimes MLM Attorney Reports: Chicago Jury Finds Kevin Trudeau Guilty of Criminal Contempt

Kevin Trudeau, who in 2010 was ordered by a federal judge to pay more than $37 million for violating a 2004 stipulated order by misrepresenting in infomercials the content of his book, “The Weight Loss Cure They Don’t Want You to Know About,” was found guilty of criminal contempt for violating that order. The jury took less than an hour to reach its verdict, which was read in a Chicago courtroom Nov. 12.

Prosecutors argued Trudeau knowingly violated the order when he used infomercials to tout the book’s plan that would “cure” obesity without requiring a special diet or needing to exercise, even though the book called for limiting calories to 500 a day and required walking an hour a day.

The defense argued that there was no violation, since the statements made in the infomercials were presented as opinions, and thus were protected speech under the First Amendment. In addition, because nothing was said in the infomercials that did not appear in the book, the defense maintained that a Trudeau was not misrepresenting the content of the book.

This case is separate from the civil case brought by the FTC, although it is that case from which the criminal contempt charge stemmed. The FTC first sued Trudeau in 1998, charging him with making false and misleading claims in infomercials for products he claimed could cause significant weight loss, cure addictions to heroin, alcohol and cigarettes, and achieve a photographic memory.

A stipulated court order barring Trudeau from making false claims for products in the future also ordered him to pay $500,000 back to consumers and established a $500,000 performance bond to ensure compliance.

In 2003, the FTC charged that Trudeau violated the 1998 order by falsely claiming in infomercials that a product called Coral Calcium Supreme could cure cancer. A preliminary injunction ordered him to cease making such claims, but when Trudeau nonetheless continued, he was found in contempt.

In 2004, Trudeau agreed to an order that resolved the Coral Calcium matter and ordered to pay $2 million in consumer redress and banned from infomercials, except for informational publications such as books, provided that he “must not misrepresent the content.”

http://www.mlmlaw.com/blog/

MLM Law Reports: FTC Charges HCG Marketer with Deceptive Advertising

The FTC has filed a complaint against the marketers of the HCG Platinum dietary supplements, charging them with deceptive advertising for claiming that using the product will result in substantial weight loss.

The complaint filed in the U.S. District Court for the District of Arizona, names two corporate defendants, HCG Platinum, LLC and Right Way Nutrition, LLC, company president Kevin Wright, and seven relief defendants the FTC says received money from sales of the HGC products.

HCG, or human chorionic gonadotropin, is a hormone produced by the human placenta that the FTC says has, for decades, been falsely promoted by various marketers for weight loss. It is FDA-approved as an injectable prescription drug for the treatment of some cases of female infertility and other medical conditions, but not for weight loss.

In 2011, Wright and six other HCG marketers received warning letters issued jointly by FDA and FTC staff, alerting them that were violating federal law by selling drugs that have not been approved by the FDA as well as by making unsupported claims for them.

According to the FTC complaint, the marketers made claims on the product packaging that the products cause consumers to lose a pound a day, are safe to use and are clinically proven to burn fat, reduce weight and lower cholesterol. Similar claims were made on Facebook and in Internet and magazine ads.

More than $13 million of HCG Platinum has been sold since 2010, according to the FTC, and the agency has asked the court to order the surrender of the gains.

http://www.mlmlaw.com/blog/