This is more than a ($200 million dollar) slap on the wrist, how much more? It's a little soon to say.
Kevin Thompson is an attorney specializing in MLM law and compared to many (most?) people in that group he seems to be a pretty decent guy. His summary of the settlement can be found here
. A few quotes:
At the company level, 80% of Herbalife’s revenue from product sales needs to be generated via a combination of retail sales and “Rewardable” internal consumption. “Rewardable” is defined as a quantity less than $200 per month per distributor. The amount of “rewardable” internal consumption cannot comprise of more than 1/3rd of the total revenue, or else Herbalife is forced to reduce its payout by 10% (which basically works as a tax on the top earners).
consumption is a major battleground here, it is of course the driving force in the industry and a 2004 FTC staff advisory opinion (PDF warning)
had left the industry with what they felt was some level of justification for their "customers, we don't need to show you no stinking
customers" business model. That might
be changing. This settlement only applies to Herbalife but between it and the continuing case against Vemma it's clear that retail sales to people outside the comp plan are starting to become something like a thing MLMs might want to figure out how to make sorta like part of what they do (who'da thunk it?).
From the micro-perspective of an individual distributor, Herbalife in the future CANNOT pay any distributor who fails to have at least 66% of his or her total sales (personal and downline included) come from retail customers. Where am I getting this from? From the line in the Order that states, “Rewardable transactions (i.e., compensation) shall be limited such that no more than one-third of the total value of a participant may be attributed to [internal consumption] transactions.”
First off, no current MLM company, especially not a "major" one like HLF can currently trace a plurality let alone a majority of their sales to anything like a common sense definition of a "retail sale" so this requirement either kills HLF or changes it radically from what it currently is (not that either is a bad thing).
I've spent time in the past reviewing the Amway rulings from the late 1970s, I believe they are the largest setback the FTC has faced in the area of pyramid scheme law but they almost didn't need to be. The 70% safe harbor provision (affiliates can not purchase new inventory until 70% of previously purchased inventory had been sold or consumed) could have
been something more than an excuse for MLM companies to only grant affiliates refunds on 30% of their other than most recent purchases which is largely how they turned out being and no fewer than ten retail sales per affiliate per month in order for that affiliate to get paid is actually a wonderful idea, if enforcement was more than just imaginary.
Is there hope this will turn out any different? Perhaps. From the settlement:
Herbalife will pay for an Independent Compliance Auditor (ICA) who will monitor the company’s adherence to the order provisions requiring restructuring of the compensation plan.
The ICA will be in place for seven years and will report to the Commission.
HLF is in a pickle, if this settlement is the best they were able to carve out for themselves it isn't hard to imagine what the FTC would have been suing for if this went to court. This does only apply to HLF but it hopefully indicates a shift in the FTC's approach to pyramid enforcement.
A list of 14 points of interest from the settlement from Oz over at BehindMLM: [Link]
On a not quite but completely related note, the Direct Selling Association (DSA) has had a few hand fed congresscritters introduce the rather Orwellian titled Anti-Pyramid Promotional Scheme Act of 2016, H.R. 5230
(hint, the removal of the word "Anti" would make the title far more accurate). The largest change is to the definition of "ultimate user":
(10) ULTIMATE USER.—The term “ultimate user” means a non-participant in the plan or operation, or a participant who purchases reasonable amounts of products, goods, services, or intangible property for personal use and whose purchase is not made solely for purposes of qualifying for increased compensation.
This gets back to the internal combust
sumption argument above, the DSA wants to retrofit the definition of ultimate user as used in anti pyramid statutes to include internal (affiliate) purchases as long as they can so much as pretend they have another reason, any reason at all really, other than being paid for doing so, to make that purchase. In short, the DSA, on behalf of it's constituent members wishes to make it nearly impossible to convict a company (preferably a dues paying member of their association) of being a pyramid scheme.
That is, most unfortunately, the best idea they've come up with recently to get MLM companies to pay for the right to call themselves members of the DSA. Years ago they tried to sell themselves on the notion that DSA membership was in some way an indication of quality, of ethics, that MLM professionals should prefer and promote DSA member companies based on moral superiority.
Multi Level Marketing professionals will buy (and attempt to sell) an astounding array of things, from magic gas pills to $75/bottle fruit juice yet almost none of them are stupid enough to equate DSA membership with anything even remotely like moral or ethical behavior.