Pyramid Scheme Alert has sent a formal letter to the FTC chairperson and the head of the Consumer Protection Bureau asking the FTC to ban Herbalife from “effectively requiring purchases” by its recruits that are tied to its promised “unlimited rewards”. This would mean eliminating quotas, incentives and penalties in the pay plan  in which purchases are made to qualify or to increase rewards related to recruiting. The letter shows how such incentives, requirements and quotas are “unfair and deceptive.”

The letter can be read HERE, addressed to Edith Ramirez, FTC Chair, and Jessica Rich, head of Consumer Protection. Copies were also sent to other FTC officials.

Herbalife’s pay plan, like most MLMs’, allows participants to personally buy large amounts of product in order to qualify for higher rewards. Personal “volume” is also required to maintain “qualification” for possible rewards. Personal purchases can also be added to “group volume” (purchases made by downline recruits) for the individual purchaser to qualify for rewards, increase them or prevent losing them. The net effect is that buying the products is the necessary price to pay to get access to Herbalife’s promised rewards. Almost no recruits who join Herbalife, in fact, ever get the rewards, but millions purchase Herbalife products in order to qualify for receiving them, as the rules require. This is called “pay to play”. It is a classic con game, sometimes called “Spanish Prisoner” or the “Nigerian Scam.”

Instead of looking at how Herbalife and other MLMs use the “pay-to-play to unfairly and deceptively drive “sales”, the FTC has focused on what happens after the consumers are persuaded or induced to buy them. The FTC tries to discover whether rewards paid to recruiters are funded by purchases of recruits themselves or from subsequent retail sales made by the recruits. Few people in MLM are able to make a profit from retailing MLM’s high priced products. Pyramid Scheme Alert asked the FTC to look at the front end of the scam, in which purchases are deceptively induced by tying them to  the promise of future rewards (which virtually no one ever receives.)

Robert Fitzpatrick, Pres. of Pyramid Scheme Alert, recently published an essay on the Seeking Alpha Forum in which the basic reasons for the banning pay-to-play purchasing rules are explained. The essay also shows the weakness and ineffectiveness  of the FTC’s current position of  ignoring this primary element of fraud and instead just looking for retail sales, which cannot be monitored or even clearly defined.