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MLM, Utah Attorneys General, and Bribery

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I really don't like to talk about politics. If there's one thing I avoid it's that. Or maybe it's religion. People have such strong views that I think things natural turn to debate, where there's never an agreement on a "right" answer. It's a little like a Denver Broncos fan trying to convince that I shouldn't be a New England Patriots fan. We could debate it all day, but at the end we'll still go home fans of our respective teams.

And that's fine.

However, today, I'm going to get into politics a bit, because it is important. A friend send me an email this with this article where former Utah attorneys general Mark Shurtleff and John Swallow are accused of bribery, money laundering, and obstructing justice.

I know that everyone is shocked that there could be corrupt politicians. Putting away the sarcasm for a second, it is a little surprising when it comes from attorneys general.

While they aren't guilty of anything, it's only alleged, let's pretend for a minute that they are guilty.

The Connection to MLM

People often ask me why MLM companies aren't shut down if they are pyramid schemes. It seems like an easy an obvious thing to do. Well, as Harper's Magazine wrote in their article Pyramid Insurance money from MLMs to campaign contributions plays a role. Specifically,

"Of course, most AGs are as dependent on fundraising as any other elected politician, which offers companies a direct method of communicating with an essential regulator. Consider Mark Shurtleff, the attorney general of Utah, home to more multilevel-marketing companies per capita than any other state. According to data obtained from the state, he has received campaign contributions totaling more than $475,000 from members of the Direct Selling Association since 1999, accounting for 14 percent of his donations from sources other than the state Republican Party.

Unsurprisingly, Shurtleff has been an outspoken supporter of the industry. “If you work hard, you can realize the dream of financial wealth and success,” he told sales reps at a conference in 2004 for USANA Health Sciences, a nutritional-supplement and home-products maker based in Salt Lake City. “There is no greater way to do that than through direct sales, multilevel-marketing programs.” Two years later, he testified before the state assembly on behalf of model legislation crafted by the DSA. The bill passed by an overwhelming margin. Critics like Jon Taylor, a Nu Skin distributor turned consumer advocate who testified against the measure, contend that it essentially replaced Utah’s definition of a pyramid scheme with one that makes pyramid schemes legal as long as they sell a product.

John Swallow, who in June became the Republican Party’s candidate to replace Shurtleff, also enjoys the support of the industry. Of the $680,000 he has raised for his election campaign to date, $114,000 can be traced to Utah-based DSA member companies, their executives, or their spouses.The $114,000 includes $40,000 given to Utah’s Prosperity Foundation PAC. Though the PAC is registered to Shurtleff, it gave $132,000 of the first $220,000 it raised to Swallow at the end of last year and another $10,000 to his primary campaign this year. In a moment of candor with a potential donor this spring, Swallow boasted of his intention to bring the Utah commerce department’s division of consumer protection under the auspices of the attorney general’s office. The division of consumer protection, which is responsible to the governor’s office, currently handles the investigation end of fraud and abuse cases in the state. Its acquisition would make the AG’s office almost solely responsible for protecting Utahans from predatory business practices.

...

Currying the favor of your home state’s attorney general can have other perks as well, enhancing the company’s reputation with consumers and regulators in other states. “We are constantly receiving emails and requests to go after and investigate many companies,” Shurtleff told the convention of USANA distributors in 2004. 'With USANA, as it stands today . . . all we have to do is write back and say, ‘They’ve been looked at, and they’re a great company.’ ' The attorney-general’s offices of North Carolina and Utah acknowledged to me that regulators sometimes reach out to one another when they receive complaints about a company based outside the state. 'We’re all kind of working together,” said a spokesman for Shurtleff’s office. “Hopefully, for truth, justice, and the American Way.'"

The Salty Droid has even more information Mark Shurtleff aiding MLM companies for his own profit. I'm not a huge fan of the Salty Droid's style of writing and don't really get it, but it's very popular and very highly regarded.

There's more from The Fraud Files

The Salt Lake Tribune covered a quote of Shurtleff's:

"During his speech to Usana distributors, Shurtleff also mentioned why the MLM industry is viewed as so important to the state's economy.

'You pay a lot of taxes and it is because of you and the hard work you do, so keep selling, keep spreading the word, keep getting people involved because it helps us back here at home,' he said."

There's a lot more in that article, but it is interesting when (allegedly) crooked AGs support (allegedly) crooked companies where the state benefits. You know who loses? Everyone else.

It doesn't get any better for Shurtleff as he got caught saying that Green Tea Co. business model was great only to have action brought against the company after Shurtleff left for private practice.

Putting It All Together

It certainly looks like a big mess where people and companies with conflicts of interest worked together to harm consumers. It's something to think about when one asks the question why an MLM hasn't been shut down. There's a good reason why 99% of them are in Utah. It seems like Utah has a history of protecting them.

Update: As a post-script one MLM, ViSalus, released earnings today. I had said that ViSalus looks like a pyramid scheme based on the FTC's guidelines. The parent company, Blyth, has watched its stock go from around $45 to under $6 recently. In the press release, they reported, "At the end of the second quarter, qualified independent North American promoters totaled approximately 28,700 versus approximately 36,100 at the end of the first quarter, and approximately 57,200 at the end of the prior year's second quarter." What that doesn't tell you is that the 57,200 number is about half the people it was the year before. So the company approximately loses half its distributors every year for a couple of years now, and its marketing material still pitches how much distributors can make if they build a team/pyramid of hundreds of people.

It should be obvious to everyone that they can't even tread water much less grow a hundred times. At it's core this pitch is giving an unrealistic view of the realities of the business. It's almost like showing people exclusively picking winning lottery numbers and suggesting that winning the lottery is an effective business plan.

Posted on August 1, 2014.

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