Nu Skin Looks to China, New Products to Boost Earnings

Photo: Nu Skin’s corporate headquarters in Provo, Utah.

Despite weak first-quarter earnings, Nu Skin Enterprises Inc. is confident that its expanding China business and forthcoming product launches will pay off in the second half of 2015.

Quarterly revenue landed in the middle of the company’s guidance at $543.3 million, a 20 percent drop from $671.1 million a year ago. Excluding one-time costs, earnings were 72 cents a share. Analysts had estimated that earnings would reach 73 cents a share on revenue of $546.87 million.

Nu Skin’s active associate numbers continued to decline in all regions except South Asia/Pacific, where active associates increased 4.3 percent from the prior-year period. Greater China recorded the sharpest decline, down 23 percent from the first three quarters of 2014.

In its earnings call, Nu Skin disclosed that the Securities and Exchange Commission has opened a non-public investigation into a donation the company made in China in 2013. Executives said Nu Skin is cooperating with the investigation, but provided no further details.

President and CEO Truman Hunt said Nu Skin is working to expand its footprint in China despite regulatory challenges, including a review early last year that prompted Nu Skin to halt recruiting and resulted in fines for the company. Hunt noted Chinese officials have granted Nu Skin approval to operate its direct selling business in two new cities in Guangdong province.

The anti-aging brand is counting on new ageLOC offerings to drive constant-currency revenue growth in 2015. “Enthusiasm is building for our upcoming product launches that include ageLOC Youth, our most advanced anti-aging supplement, as well as ageLOC Me, an innovative anti-aging skincare system that enables consumers to personalize a daily regimen based on individual preferences and skincare needs,” said Hunt.

In July, the company will also roll out its Epoch essential oils line across the U.S. and Canada, where Nu Skin introduced the products in April through a limited offering. It will also introduce a sister line, ageLOC Essentials, to its Chinese customers.

Nu Skin reduced its revenue guidance for the full year by about 2 percent and said it expects earnings between $3.65 and $3.75 a share, compared to the $3.94 consensus from analysts.


Avon China Probe Concludes with $135 Million Settlement

The Department of Justice will defer criminal prosecution of Avon Products Inc. for three years, according to a bribery probe settlement disclosed Wednesday. A six-year federal investigation of the company has ended with Avon’s Chinese subsidiary pleading guilty and accruing $135 million in fines.

The investigation focused on the period from 2004 to late 2008. The SEC alleged that Avon China’s inaccurate and incomplete bookkeeping during that period conceals payments to government officials who ultimately awarded Avon the country’s first direct selling license.

According to the SEC’s Manhattan court filing, Avon violated the Foreign Corrupt Practices Act (FCPA) by bankrolling $1.65 million in travel, meals and entertainment for Chinese officials. The company also provided $8 million in cash and gifts without properly recording the expenses. Additional payoffs went to state-owned media outlets to help the company avoid negative press.

The direct selling leader has spent about $300 million on an internal investigation launched in 2008. In the settlement, the DOJ recognized Avon’s cooperation and the “extensive remediation” it has undergone to improve compliance and internal controls.

Avon stated in May that it would settle the probe, which includes $68 million in fines to the DOJ and $67 million to the SEC. The agreement includes a corporate compliance monitor to oversee monitoring and reporting obligations for three years. With the company’s ongoing compliance, the charges will then be dropped.

Medifast Deters Takeover Attempts with Stockholder Rights Plan

The board of directors at Medifast Inc. (MED—NYSE) has put in place a one-year stockholder rights plan or “poison pill” intended to discourage a hostile takeover from outside the company.

The weight-loss company adopted the plan “in response to the recent rapid accumulations of significant portions of Medifast’s outstanding common stock.” Waltham, Massachusetts-based ModusLink most recently built up a significant stake in Medifast. The supply chain and logistics company acquired 9.9 percent of Medifast stock through a series of transactions in July and August.

In its Securities and Exchange Commission filing, Medifast states the plan was not adopted in response to any specific takeover bid or acquisition proposal. The rights plan would trigger should an outside investor acquire 10 percent or more of the company’s stock. Existing stockholders would then have the opportunity to purchase additional common stock at a discounted price.

Medifast markets its products through several channels, including the personal coaching division Take Shape For Life. The direct selling subsidiary is Medifast’s most profitable division. Take Shape For Life generated $229 million in revenue last year to claim the No. 52 spot on the DSN Global 100.

Herbalife Ducks Ackman’s ‘Death Blow’ as Shares Skyrocket

Photo above: The Herbalife Ltd. logo is displayed outside of the company’s corporate headquarters in Torrance, California.
(Photographer: Patrick Fallon/Bloomberg)

Herbalife short seller Bill Ackman took to a Manhattan stage for nearly four hours Tuesday morning in his latest round against the global nutrition company. In a Monday interview with CNBC, Ackman claimed he would deliver Herbalife a “death blow” in the planned presentation, but it has had the opposite effect on the company’s stock. With one of its largest daily percentage increases thus far, the direct seller closed out the day at $67.77, up 25 percent.

“Once again, Bill Ackman has over-promised and under-delivered on his $1 billion bet against our company,” Herbalife said Tuesday afternoon in its response to Ackman. “After spending $50 million, two years and tens of thousands of man-hours, Bill Ackman further demonstrated today that the facts are on our side.”

The focus of Ackman’s presentation was Herbalife’s nutrition clubs, run by teams of distributors who rent commercial or industrial space to train and recruit others in a social environment. Ackman described the structured recruiting model as a “mini pyramid scheme” used by the company to target the “poorest of the poor” globally, and particularly U.S. Latinos.

At one point Ackman fought back tears recounting his own family’s American experience, which began when his grandfather emigrated from Germany. He claims Herbalife is “selling the American dream” by promising its salespeople success many will never achieve.

“Mr. Ackman’s claim about the earnings of Herbalife nutrition clubs is completely false and fabricated,” Herbalife included in its response. “In fact, according to a recent study commissioned by the company, 87.5 percent of nutrition club operators feel good about the money they earn, and 92 percent want to continue with their club.”

Ackman also took shots at Herbalife supporters and endorsers, including former Secretary of State Madeleine Albright and soccer stars David Beckham and Lionel Messi, saying they failed to perform due diligence on the company and are cashing in on a fraud. Albright’s connections likely enabled Herbalife to enter difficult markets like China, Ackman claimed.

Explaining how Herbalife has built a thriving multibillion-dollar business over more than 30 years, Ackman invoked the deception of totalitarian regimes, the Nazis and the mafia. “People generally believe big lies, because they’re so bold that how could they possibly be false?” said Ackman.

The Securities and Exchange Commission (SEC) launched a formal investigation of Herbalife in January 2013, but thus far has not made any charges against the company. “I think that’s a failure on the part of the SEC, even though they are hard-working, high-quality people,” Ackman noted.

The Federal Trade Commission (FTC) also opened an investigation into Herbalife in March of this year. In April, the Department of Justice, the FBI, and Attorneys General in New York and Illinois launched their own investigations into the company.

Today Herbalife also released the findings of an economic analysis performed by former FTC economist Dr. Walter Vandaele of Navigant Economics, LLC. Herbalife commissioned Vandaele to assess the company’s standing as a legitimate multi-level marketing (MLM) firm.

The assessment included factors such as end-use consumption of the product, as well as its intrinsic value and market demand. In summary, Vandaele found that “Herbalife’s U.S. business operations are consistent with the socially beneficial MLM model and inconsistent with the socially harmful pyramid scheme model.”

Federal Authorities Set Sights on Alleged Pyramid Schemes

This week federal authorities have revealed major developments in two cases involving pyramid scheme allegations. With the backing of anti-pyramid laws like the one recently established in Tennessee, regulators have announced a settlement in the case of Kentucky-based Fortune Hi-Tech Marketing (FHTM) and filed fraud charges against TelexFree of Massachusetts.

Officials at FHTM will surrender assets totaling $7.75 million in restitution to participants, according to a release from Kentucky Attorney General Jack Conway’s office. He joined the Federal Trade Commission (FTC) and attorneys general from Illinois and North Carolina in a January lawsuit filed against FHTM. An investigation begun in 2010 found FHTM to be a deceptive operation built upon collecting substantial start-up costs and monthly fees rather than selling product. More than 98 percent of the company’s participants lost more money than they ever made in what Conway calls a “classic pyramid scheme.”

“Unlike legitimate multi-level marketing programs, FHTM distributors had no incentive to sell products. For example, the distributors only received pennies for selling multi-year service contracts and received substantial payments for every new FHTM member they signed up,” said Conway. “FHTM’s promotional presentations and materials focused almost entirely on recruiting new members rather than selling products.”

The full amount of the settlement, $169 million, will be suspended when FHTM officials have surrendered their assets. The order also bans the defendants from any future participation in multi-level marketing programs.

After a raid on TelexFree’s Massachusetts headquarters in April, federal agents have found one of the business’s co-owners “may be elusive,” as a Boston Globe headline puts it. Carlos Wanzeler reportedly fled to Brazil after state and U.S. securities regulators filed civil charges against the company and its principals in April.

On Wednesday night the U.S. attorney’s office confirmed that Wanzeler’s wife, Katia, was arrested at JFK International Airport allegedly attempting to join her fugitive husband in Brazil. According to the Globe, an affidavit filed Thursday reveals that large sums of money have been transferred from TelexFree accounts into a Wells Fargo account under Katia Wanzeler’s name.

During the TelexFree raid one executive attempted to flee with a bag of cashier’s checks totaling $38 million. The Securities and Exchange Commission (SEC) subsequently froze the company’s assets, and last week authorities charged Wanzeler and co-owner James Merrill with conspiracy to commit wire fraud.

The civil charges claim TelexFree is a global pyramid scheme defrauding consumers with the promise of a quick profit. The company, which sold Internet phone-service plans, generated most of its money by incentivizing members to invest in online ads. The criminal wire fraud charges Wanzeler and Merrill face carry a sentence of up to 20 years in prison.

New York Times: Ackman Seeks Washington Sway on Herbalife Bet

Fourteen months after hedge fund investor Bill Ackman denounced Herbalife’s business model as an elaborate scheme preying upon consumers, The New York Times has brought forward extensive information on Ackman’s carefully orchestrated campaign and its tactics.

As an efficient means of driving down Herbalife stock, Ackman has pressed state and federal regulators to investigate the company’s practices. In addition, Ackman has widely publicized letters written to regulators and pointed to Latino groups that rallied against Herbalife, while failing to disclose his own firm’s instigation and guidance in those efforts.

Calls to action regarding Herbalife have raised red flags in the minds of some officials. Connecticut Attorney General George Jepsen received five letters from separate individuals, and each letter sported nearly identical text, claiming “Herbalife is a complex and abusive pyramid scheme” and “Herbalife unfairly targets minority groups and falsely markets itself as an easy business opportunity.” One individual represented a government relations group hired by one of Ackman’s lobbying firms, while some declined to comment on who asked them to write the letter, and yet another claimed he neither wrote the letter signed with his name nor knew anyone harmed by Herbalife.

Ackman’s campaign to discredit the company has begun to resemble “an effort to move the price rather than spread the truth,” according to Harvey L. Pitt, a former Chairman of the Securities and Exchange Commission. “If you are trying to spread the truth, that is O.K.,” Pitt told the Times. “If you are trying to move the price of a stock to vindicate your investment philosophy, that’s not O.K.”

Read the full feature from The New York Times.

Regulators Respond to Senator’s Herbalife Queries

Both the U.S. Securities and Exchange Commission and the Federal Trade Commission have responded to Sen. Edward Markey’s letters concerning global nutrition company Herbalife. The Massachusetts Democrat questioned Herbalife’s business practices and requested further investigation in the wake of investor Bill Ackman’s ongoing campaign against the company.

FTC Chairwoman Edith Ramirez communicated in her letter of response that Markey’s concerns are being “carefully considered” at this time; however, rules prohibit the disclosure of any particular actions. The letter outlines the commission’s history of protecting consumers from deceptive practices, as well as the factors considered in each case. Those factors include the type of violation alleged, the likelihood of future prevention and redress, and the number of consumers affected.

Markey’s January request received a similar response from SEC Chairman Mary Jo White, who stated that the agency is giving “every consideration” to the senator’s concerns. The chairman could not comment on Herbalife, but noted that in the case of MLM companies or pyramid schemes “each investigation depends on its particular facts and circumstances.”

As veteran MLM attorney Kevin Thompson writes in his recent New Perspectives feature, the FTC’s past evaluation of particular facts and circumstances has gone beyond raw sales data, such as Markey requests, to the more complex question of buyer motivation.

Read the full responses from the FTC and SEC.

Herbalife Briefs Lawmakers on Business Model

On Friday, Herbalife executives hosted congressional staffers for a Washington briefing on Herbalife’s business model and the wider direct selling industry.

The company’s Chief Financial Officer John DeSimone, along with VP and Managing Director of Herbalife North America Ibi Fleming, offered a presentation on “Direct Selling: An American Tradition” and welcomed questions from staffers.

The outreach follows hedge-fund investor Bill Ackman’s year-long campaign to discredit Herbalife’s business practices. The activist investor’s billion-dollar short bet against Herbalife has dropped 49 percent since inception, The Wall Street Journal reports, making it the biggest loss in the decade-long history of Ackman’s $12 billion Pershing Square fund. Last year Pershing Square exited its investment in J.C. Penney Co. with a slightly lower 41 percent loss.

Ackman’s claims have prompted action by a handful of lawmakers—most notably Senate Democrat Edward Markey of Massachusetts, who recently wrote letters urging further investigation of Herbalife by the Federal Trade Commission (FTC) and the Securities and Exchange Commission (SEC). On Thursday, Markey spokeswoman Giselle Barry told Reuters the senator is still awaiting responses.

Despite Ackman’s claims and the subsequent hurdles faced by Herbalife, the company reported fourth-quarter sales up nearly 20 percent to $1.27 billion. For the full year, Herbalife reported an 18 percent increase in net sales. Following fourth-quarter results, the company also adjusted its 2014 sales forecast to between 7.5 percent and 9.5 percent, down from the previous 9 percent to 11 percent; however, Herbalife raised its earnings forecast to $5.85 to $6.05 a share, up from $5.45 to $5.65.

Read the full story from The New York Times.

A Long Road for Ackman in Herbalife Short


Global nutrition company Herbalife has been the subject of countless headlines since activist investor Bill Ackman’s Pershing Square fund announced a $1-billion short on the company’s stock. At the close of 2012, Ackman launched a public campaign to drive down Herbalife’s stock price, attacking the company’s business model and how it presents itself to potential distributors and consumers.

The subsequent involvement of prominent hedge fund managers such as Dan LoebCarl Icahn and George Soros has prompted a wider conversation about what comprises legitimate sales practices, in contrast to how illegal schemes conduct business.

Our September issue of DSN offers further insight into The Difference Between Legitimate Direct Selling Companies and Illegal Pyramid Schemes and an informative point of view by MLM Legal’s Jeffrey A. Babener on Herbalife: What the Short Sellers Missed on the Way to the Press Conference.

Despite seeing shares fall 43 percent following Ackman’s initial accusations, Herbalife bounced back with record Q1 earnings in 2013. In July, the company reported record, double-digit sales growth for the second quarter, propelling Herbalife shares to a 52-week high of $66.23.

Earlier this month, Herbalife shares jumped 22 percent when Bill Stiritz—who has spent 54 years in the food industry and currently serves as CEO of Raisin Bran maker Post Holdings Inc.—disclosed a 5.2 percent stake in Herbalife. Stiritz knew little about Herbalife before viewing a televised debate between investors Icahn and Ackman earlier this year. After researching the company, including signing up as a distributor to personally investigate the products and process, Stiritz told Bloomberg he considers Herbalife a “national treasure” and plans to buy more shares in the company.

Last week, Herbalife stock climbed further to hit a new all-time high—trading up more than 3 percent at about $73 a share—amid speculation that Herbalife will soon announce a leveraged buyback of its stock. Upon receiving certified financial documents from new auditor Pricewaterhouse Coopers (PwC), Herbalife could choose to conduct a large share repurchase—a program which one analyst estimates could amount to $2 billion.

Despite Ackman’s ongoing attempts to discredit Herbalife, including petitioning the SEC and writing a cautionary 52-page letter to Herbalife auditor PwC, Herbalife has seen stock prices soar more than 66 percent since Ackman announced his short last year.

Herbalife: What the Short Sellers Missed on the Way to the Press Conference

by Jeffrey A. Babener

Click here to order the September 2013 issue in which this article appeared or click here to download it to your mobile device.

Editor’s Note: The following is a summary of an article written by Jeffrey A. Babener. The full article contains references to court cases and further explanation of each topic. To read the full article, go to

History repeats itself. Just as Yogi Berra famously said, “It’s déjà vu all over again.”

The 2012 billion-dollar short seller attack on Herbalife, a 32-year-old NYSE listed direct seller of nutritional products in 80-plus countries with annual sales in excess of $3 billion, is a replay of the seminal challenge to the MLM/Direct Selling model won by Amway in 1979 [In the Matter of Amway, 93 F.T.C. 618 (1979)].

In that 1970s FTC challenge, the criticism went to whether or not the core of the MLM referral selling model was a “deceptive” way to market. Similarly, in the 2012 short seller attack on Herbalife, along with other criticisms, a principal complaint was that evidence of “substantial personal use and consumption” of company products by distributors themselves renders an MLM/Direct Selling model inherently deceptive and an illegal pyramid scheme. Armed with multi-hour slide presentations, short sellers and financial bloggers predicted that a direct selling program, in which substantial product is purchased by distributors for personal use, is doomed to collapse as an illegal pyramid scheme and that federal agencies should step in to hasten that demise.

Is this legal analysis correct, and is the call to federal action justified or predictable in light of the 40-year legal history of direct selling?

Does the answer lie in the follow-up and prolific financial blogging that focuses on algorithms, multiple regression analysis and economist “speak” about “who uses the product?” Perhaps not. Rather, the answer to whether or not an MLM/Direct Selling program is a pyramid, for which federal prosecution is justified and predicted, may be driven by a case-by-case fact scenario that answers a “gut instinct,” as noted by Justice Potter Stewart (on pornography)… “I can’t define it, but I know it when I see it.”

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In the case of direct selling, the operative question appears to be: Is the program “inherently deceptive” and an “egregious abuse” of consumers, and is the driving force behind
payment of money for products the desire to qualify in an MLM plan? In other words, are distributor purchases and payments incidental to the business opportunity or are payments made merely as a “gateway” to a business opportunity? This is a different issue than the question of the amount of internal consumption or personal use by distributors, even if it is incentivized by a compensation plan. Further, do today’s established direct sellers deserve to be placed in the same gene pool as companies that have been the target of federal prosecutions?

A close look suggests that it may be time to reassess the situation. Some very salient facts and cases seem to have been missed in the rush to challenge direct sellers. First and foremost, it appears that in the massive releases of the Herbalife short seller and in the prolific financial blogging “call to action” that Herbalife is a pyramid and should be prosecuted by the FTC, individuals may not have actually examined the facts of leading FTC, SEC and Justice Department pyramid prosecutions over the last two decades. Had they done so, they might have observed that a significant chasm exists between inherently deceptive and egregiously abusive pyramid schemes and the practices of leading direct selling companies.

Furthermore, these individuals seem to have missed the FTC’s own statements on personal use, as well as the trending legislation in more than a dozen states recognizing the validity of personal use as a legitimate end destination of product.

Some Background

The MLM/Direct Selling/Network Marketing business model was off to a robust start in the 1950s with the success of companies such as Amway, Mary Kay and Shaklee. Not long thereafter, imposters and inherently deceptive pyramid headhunting recruitment schemes came along, emphasizing recruitment of participants to earn money without putting focus on selling products to consumers.

Two promotions founded by Glenn W. Turner, Dare to Be Great (motivational seminars and materials) and Koscot Interplanetary (cosmetics), prompted major prosecutions for pyramiding. Virtually every state had residents who were impacted by this and other programs, which officials successfully argued were mere “headhunting” schemes.

During this time, the FTC established the earliest guidelines regulating illegal pyramids and other unlawful entrepreneurial chains. In In Re Koscot Interplanetary Inc., 86 F.T.C. 11106 (1975) (inventory loading of cosmetics), the FTC was highly critical of:

    1. Large membership fees,
    2. Front-end loading and inventory loading,
    3. Programs in which distributors were misled as to the amount of commissions they might reasonably earn, and
    4. Programs in which commissions were not based on the sale of product to the ultimate users.

In fact, the Koscot case established the legal standard for pyramid analysis that has threaded its way intact from that case to the 1979 FTC Amway case to the 2012 FTC BurnLounge case [FTC v. BurnLounge, U.S. District Court, Central District California, Case CV 07-3654-GW (FMOx) (2012)], leaving the question: Are there rewards earned unrelated to the sale of product to ultimate users?

This is a critical question, because at the core of the short seller accusation is the claim that a purchase for personal use by distributors (otherwise known as internal consumption) cannot be considered a sale to an ultimate user. If this standard were to be adopted, it would cast a cloud over many well-established direct selling companies, particularly those that sell consumable products such as health, home and personal care.

In In Re Koscot Interplanetary Inc.(1975), the FTC established the earliest guidelines regulating illegal pyramids and other unlawful entrepreneurial chains.

The Securities and Exchange Commission (SEC) also stepped into the Dare To Be Great picture, demonstrating that securities statutes also apply to the industry. In SEC v. Glenn W. Turner Enterprises, 474 F.2d 476 (1973), the U.S. Ninth Circuit Court of Appeals reaffirmed that the securities acts were “designed to protect the American public from speculative or fraudulent schemes of promoters.” Like other pyramid schemes, the only “commodity” that moved through this program was money. There were no viable goods or services sold at fair market value accompanying the recruiting activities.

Basically, individuals were invited to pay money to attend motivational seminars where they were trained to go find others to do the same, and so on. The Dare To Be Great program was ruled to be an “investment contract” under the securities laws and thus subject to regulation by the SEC. This was a landmark ruling in establishing the distinction between “speculative or fraudulent schemes” and legitimate direct sales activities. It also helped establish the SEC’s role in upholding the rights of legally operating companies and the right to prosecute offenders.

The Koscot, Dare To Be Great, and other pyramid cases left a sour taste in the mouth of the American public. And so, the legitimate direct selling industry had a close call in the 1970s when the FTC accused Amway of being an illegal pyramid scheme rather than a legitimate business opportunity. Fortunately for Amway and the entire industry, a 1979 administrative law decision declared the Amway business model to be legitimate and applauded various consumer safeguards, including the buy-back policy for unsold inventory, curbs on inventory loading and emphasis on moving product to the ultimate user [In the Matter of Amway, 93 F.T.C. 618 (1979)].

And so it went for the next 40 years and to this day. Federal agencies, such as the FTC or SEC or the U.S. Justice Department, did not chase after well-established direct selling firms, but rather they sought out inherently deceptive schemes that defrauded the consumer of business opportunities. Hardest hit were offerings with large upfront investments of cash or inventory loading, nonrefundable fees, bogus products used as an excuse to move money, and so on.

The Practices of Established Direct Sellers

So we return to our question: Should decades-old direct selling companies be confronted again by federal regulatory agencies such as the FTC, SEC or U.S. Justice Department? After all, they clearly offer a financial incentive to consumers to use their products and services and to recommend those products and services to their family, friends and neighbors.

Truly, financial incentives have been one arrow in the quiver of the shaping of consumer spending behavior forever. These types of incentives include all frequent flyer programs, credit card reward programs, cash back loyalty programs, and every loyalty and referral program from every mom and pop diner and donut shop in America, not to mention warehouse clubs like Sam’s Club and Costco Wholesale. Fortune 500 companies also embrace their customers as referrers who receive rewards for finding other customers, with well-known programs such as: MCI Friends & Family, United Airlines MileagePlus, American Express Membership Rewards and Amazon Associates, just to name a few.

In fact, the direct selling industry merely takes the referral rewards program one step further. Often pitching the positive experience of customers, companies offer a 1099 independent contractor business opportunity to those motivated to refer friends, family, co-workers and neighbors to patronize products that they themselves typically have used and enjoyed. The result in the U.S. is a thriving $30 billion industry with more than 15 million individuals involved and with publicly traded NYSE leaders including Avon, Herbalife, Primerica, USANA, Nu Skin and Tupperware. Worldwide, the direct selling industry comprises over $150 billion and 90 million individuals in over 100 countries.

Since the landmark approval of the multilevel marketing model in the 1979 seminal administrative law decision, In the Matter of Amway, no federal prosecutions have been aimed at multi-decade established direct sellers.

And, notwithstanding the fondest dream of short sellers of NYSE direct selling companies to drive down stock prices by way of pyramid scheme allegations, the odds are diminished by the fact that—since the landmark approval of the multilevel marketing model in the 1979 seminal administrative law decision,In the Matter of Amway—no federal prosecutions have been aimed at multi-decade established direct sellers.

In fact, attend a legal day symposium at the Direct Selling Association, and one is likely to find a representative of the FTC praising the work of the DSA and the contributions of member companies to the American economy and U.S. business expansion abroad. As a general matter, the facts in the cases of those companies prosecuted by the FTC look nothing like the programs of established and leading direct selling companies. The truth is that short sellers and critics seem to miss the clear dividing line between legitimate companies and pyramid schemes.

Jeffrey A. Babener Jeffrey A. Babener is the principal attorney in the law firm of Babener & Associates. For more than 25 years, he has advised leading U.S. and foreign companies in the direct selling industry. He has also served as legal advisor to various direct selling companies listed on the New York Stock Exchange. See more of his articles, where he is Editor.