To understand how MLMs differ from more conventional franchising, let’s go back to Wendy’s for a moment. If you wanted to take advantage of the business opportunity afforded by the home of the Frosty (which is not a pyramid scheme), you’d become a franchisee — you’d pay Wendy’s to use its name and products for your own restaurant. The path would begin in a pretty straightforward way: email the company, and they’ll get you started.
If you wanted to work with Herbalife, however, the company would put you in touch with an independent distributor — someone outside the company. The term itself, "distributor," conjures images of, well, distribution — handling products. And Herbalife would love it if you actually believed that you could earn a great living if only you worked hard and sold the shit out of things like cell activator pills and body buffing scrub. Just like Shawn Dahl did.
The real nature of his success, however, is embodied by two key MLM terms: upline and downline. Simply put, if you signed up for Herbalife today — and please don’t — you wouldn’t interact with the company at all. You’d interact with the person who recruited you: your "upline." (And if you started recruiting distributors yourself, they would be your "downline.") Since you’re restocking through your upline, it’s the person who recruited you in the first place who receives a commission from any sale that you make. Or any sale you fail to make, as long as you keep placing orders.
There’s no guarantee that any of those leads will pan out, of course,
but the opportunity’s there The first step with Online Business Systems is purchasing something called the Internet Startup Kit. This is the same thing that Income At Home sold Barron Hansen. If you go to either of those websites at the time of this writing, the ordering page clearly states that you can try the kit risk free for 14 days, if you pay $9.95 shipping and handling. After two weeks, if you don’t return the kit, you’re charged the full $39.95 price. According to Hansen and several others, the terms weren’t always that clear: the web is full of complaints made by people who thought they were paying $9.95 for something that cost five times that.
If you’re still with the program, you’ll receive a call from a "mentor," which is little more than someone who was recently in your position. They bought the kit, liked what they heard, and stuck with it long enough to purchase your name from Online Business Systems. Hopefully, they’re having less luck than their mentor did.
The next step in the process is to sign you up as an Herbalife distributor. Outside of Dahl’s "system," this will cost you something in the $100 range. But with Online Business Systems, the price is $399.
And what if you want to start your own downline? In order to do that, you need to become a supervisor. This requires other product purchases, where you’ll spend up to $4,000. With this investment, you’ll receive a ton of sales tools and advice from Shawn Dahl’s team, some of which may be helpful. But unfortunately you won’t get any sales leads. And you can’t really sell Herbalife without anyone to sell Herbalife to.
Cheap leads cost about $6. But if you want the good leads, the Barron Hansen-quality leads — that is, people who have responded to Glenn Beck’s radio ads and typed their credit card numbers into a website purporting to provide business information — you’re paying closer to $100 a head.
There’s no guarantee that any of those leads will pan out, of course, but the opportunity’s there. And, by the way, you’ll also want to buy a website to sell your products and attract new distributors. That’ll run you $79.95 per month.
The Herbalife
President’s Club When a prominent hedge fund manager bets $1 billion that a company is a pyramid scheme, people tend to sit up and notice (Bill Ackman put a valuation of $8 billion on the company). As The Verge and many other outlets have reported, Bill Ackman’s three-and-a-half hour December presentation questioning Herbalife’s business practices has brought new scrutiny to a company that’s long had its share of skeptics. Lawsuits have been filed, unverified rumors have swirled about investigations into Herbalife by the U.S. Securities and Exchange Commission and the Federal Trade Commission, and Ackman’s hedge fund released documents comparing Herbalife’s business model to at least one major firm recently shut down after an FTC investigation.
But lawsuits, accusations, and rumors have been bolstered in recent weeks by new claims from people like Barron Hansen who bring scrutiny not only to Herbalife, but also to the internet businesses that seem to support some of Herbalife’s wealthiest and most prominent distributors.
In Herbalife, your value to the company is indicated by your "team" membership. This isn’t a team in the sense of an organizing unit; membership is largely honorary, based on the size of your downline and how much money you’re making the company. The number two spot is the Chairman’s Club, which boasts Shawn Dahl as a member. Number one, if you’re keeping track, is something called The Founder’s Circle.
Throughout our investigation, we’ve seen how building downlines through Internet Marketing biz opps — essentially, recruiting people into your downline, with the sole purpose of having them recruit even more recruiters — seems to be the sole focus of a number of the most successful Herbalife distributors. Among the biz opps of various Chairman’s Club and President’s Team Members, you have Home Business Systems (Michael Boyd), eTeam Marketing (Carla Berg), Financial Success Systems (Doran Andry), 60 Minute Money (David Bevan and Jane Clark), the Freedom Connection Group, and Freedom Lifestyles Group (both courtesy of Kurt and Cindy O’Connell).
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But you don’t need to leave Shawn Dahl’s immediate family to find further examples of this kind of thing. In 2004, while Shawn Dahl and his wife Nicole were still getting started in MLM, Nicole’s mother, Deborah Jane Stolz, pled guilty to running a pyramid scheme. As proprietors of a Vancouver-area marketing company called Global Online Systems, Stoltz and her business partner were fined $150,000 by the Canadian government. Part of her guilty plea stipulated that she would "not become involved directly or indirectly in any business operation engaged in a scheme of pyramid selling." Despite that, she is still an elevated figure in Herbalife’s business hierarchy; Debbie J. Stoltz was invited to Herbalife’s "President’s Summit" in Paris this year, an honor extended only to Herbalife’s top distributors. Plus, a cursory look at the now-offline Global Online Systems site shows that it’s conceptually identical to Dahl’s sites — from the worthless information packets to the deceptively hidden association with Herbalife. That would seem to indicate Stoltz is at least indirectly involved in Dahl’s biz- opp-selling world.
"If Herbalife has tracked its 2012 sales data in such granular detail, that should greatly assist the SEC in their investigation."
— The Salty Droid If this is what it takes to make it to the top of the Herbalife pyramid — establishing your own Internet Marketing-based biz opps, without even the pretense of selling products — then it’s clear that systems like Dahl’s Income At Home must have the tacit approval of the company. And if Herbalife’s immense profitability is "based primarily on recruiting," not on "profits from any real investment or real sale of goods to the public," then we have the Federal Trade Commission’s definition of a pyramid scheme.
When asked about this, Julian Cacchioli, Vice President of Worldwide Corporate Communications at Herbalife, sent an official statement via email.
"In 2012," he wrote, biz opps like Online Business Systems and Income At Home "represented less than one percent of our sales." He added that the number of vendors using "registered business methods" — the Herbalife term for approved biz opps — is "steadily decreasing."
When posed a similar question on a stockholder conference call last year, an Herbalife representative was either unable or unwilling to disclose the percentage of Herbalife products sold to distributors versus the percentage sold to the general public because, the rep claimed, "we don’t have visibility to that level of detail." Yet now, somehow, the company has a sufficient level of detail to determine much more precisely the complicated statistics regarding how many distributors use companies like Income At Home versus those who don’t.
Jason Jones, the blogger behind The Salty Droid (and no fan of Herbalife himself) was relieved to hear that the company had become more forthcoming with its data.
"If Herbalife has tracked its 2012 sales data in such granular detail," he said in an email, "that should greatly assist the SEC in their investigation."
And if it is true that very few distributors use the preferred Shawn Dahl sales model, the distributors using this model seem to overwhelmingly belong to Herbalife’s top 1.4 percent of sales leaders at the company. That includes Dahl himself and, relatively recently, the small group of Herbalife distributors behind a scheme called Newest Way To Wealth — a sham biz opp forced to pay victims $6 million as part of a 2004 class action lawsuit settlement.
For years, Herbalife has been keeping a list of approved biz opps — which it calls "business methods." In fact, a company policy statement urges distributors against "purchasing or using Business Methods (including, but not limited to, advertising and leads) from any person or company that has not registered them with Herbalife."
An anonymous forum post from January 2010 lists 28 such companies registered with Herbalife for its Business Methods list. This list includes Centurion Media Group, Income At Home, and Online Business Systems. As we conducted this investigation, however, an internal Herbalife memo started making the rounds. Titled "Business Methods Registration Advisory," it seemed to show that the list had dwindled down to two in only three years.
It also offered a surprising warning: "Effective immediately, [Shawn Dahl’s Centurion] is no longer a registered provider. This means that you may not purchase, sell, endorse, recommend, promote or use anything from [Centurion]."
We asked Cacchioli, Herbalife’s spokesman, if this might put Shawn Dahl’s status as a Chairman’s Club-level distributor at risk. Instead of answering our question, Cacchioli denied that Dahl was connected to Online Business Systems, Income At Home, or Centurion.
"Mr. Dahl," he wrote, "has advised us that the links you have provided reflect contact details which are long out of date and should have been updated by the respective parties many years ago. He has also confirmed that he has no ownership or financial interest in these businesses."
That’s difficult to believe. As we’ve seen, Shawn Dahl is prominently featured in promotional videos for Online Business Systems, and his biographical information is front-and-center on its website. Dahl’s personal blog connects him to both biz ops, as well as Online Business Systems webinars from as recently as last July. There are also organizational calls he spearheaded as recently as November, his Income At Home "podcast" (it’s more of a radio spot), and a ton of other web links connecting him to Centurion and its "business opportunities."
Again, it doesn’t take much sleuthing to figure out that Dahl is clearly involved with Centurion and its schemes. This is Shawn Dahl the Chairman’s Club member, one of Herbalife’s top .0001% distributors. If Herbalife is attempting to distance itself from Income At Home, it’s doing a terrible job.
Herbalife has been working tirelessly to scrub the web of all connections between itself and the shady firms that use its name to bilk people out of thousands. Barron Hansen, in the meantime, hasn’t sat idly by while Herbalife experienced this major public shakeup. In fact, he took a page from the Shawn Dahl playbook and started building websites.
In January 2012, after his ill-fated conversation with an Income At Home distributor, he started Income At Home Exposed, a website devoted to telling his story and sharing what he saw as a fraudulent business targeting vulnerable people. The website’s content has continued to branch out. He now owns his own constellation of "exposed" websites. In addition to the parent site, there is: Shawn Dahl Exposed, Online Business Systems Exposed, Centurion Media Group Exposed, and a host of others.
As his own network has grown, Hansen says, Herbalife has been working tirelessly to scrub the web of all connections between itself and the shady firms that use its name to bilk people out of thousands. One need look no further than the way that Centurion’s changed the registrar on a number of its sites. While the Better Business Bureau listed Shawn Dahl as a principle of Online Business Systems until February 3, that title now goes to someone named Nicole Whelan. As of December 23, Dahl was listed as the administrative contact for the Centurion Media Group website. That title now goes to Juliana Chambers, who shares a name with the wife of Trinidad and Tobago's former prime minister. That Juliana Chambers died in October.
Since October, Hansen’s been in contact with representatives of Ackman’s hedge fund, Pershing Square Capital Management, and since December he’s even done freelance research for the company. At times, he's worked 80 or 90 hours a week in the hopes that the world would hear his message.
And that message is simple.
"I think they should be in chains," Hansen said, referring to Dahl, Herbalife, and the groups associated with business methods and the misleading lead generation tactics of Income At Home and Online Business Systems.
"I think they should be prosecuted."
theverge.com |
