One Billion Dollars Short, Bill Ackman, and the Siege Of Herbalife (2015)

http://fortune.com/2015/09/09/the-siege-of-herbalife/

by lawrenceyan • 9 years ago

138 129 9 years ago

John Oliver discussing Herbalife https://www.youtube.com/watch?v=s6MwGeOm8iI

Bill Ackmann on Herbalife https://www.youtube.com/watch?v=bQc6L4ieMwo

Almost 60% of their distributors were latinos (http://articles.latimes.com/2013/feb/15/business/la-fi-herba...). The lengthy presentation countering Pershing Square's accusations which contained this fact (http://files.shareholder.com/downloads/ABEA-48ZAJ9/229776353...). There are countless stories of how these people were exploited in the name of gains.

They are expanding rapidly in international markets. In India, Herbalife has over 40 distribution centers now and over 0.5 million distributors ! They even got a famous sports personalities to advertise for them (http://www.herbalproductkart.com/herbalife-brand-ambassdors).

To do my bit in preventing people from falling for such scams, I asked my friends and mother to share it on their whatsapp groups so that people don't fall prey to such pyramid schemes.

ridruejo2• 9 years ago

You may not like it, but it is not necessarily a scam. Some of the posts by Bronte capital mentioned in the article

http://brontecapital.blogspot.com/2015/06/herbalife-very-lon...

http://brontecapital.blogspot.com/2016/07/herbalife-and-end-...

eej712• 9 years ago

It's unfortunate that you are being downvoted - especially since you are citing John Hempton's excellent work on the topic. It's really worth a read and an interesting counterpoint to Ackman's analysis.

the_duke2• 9 years ago

Ahm, are you seriously offering those 'articles' as a serious defense or counter argument?

jmull• 9 years ago

I think you meant to say it's not necessarily illegal. It's a scam in any case because the products don't do what the people buying them are lead to believe they do and the distributor opportunities aren't the oppotunity the people buying into them are lead to believe.

unit91• 9 years ago

Almost 60% of their distributors were latinos

Uh. What? Can you clarify your point here?

ipsum2• 9 years ago

Did you read the link that they posted immediately after that statement?

Among the biggest accusations facing the company is that it targets low-income members of minority communities, including Latinos, by making unachievable promises of vast wealth from selling its line of protein powders, vitamins, supplements and beauty products.
This concept has taken off among Latinos, who are taught at an early age that natural remedies such as herbs and juices are a better option than U.S.-style medicine, said Alexandro Jose Gradilla, chair of the Chicano Studies Department at Cal State Fullerton. That makes Herbalife products popular among immigrants.

ufo• 9 years ago

Does anyone know if there have been more developments to this story in the two years since this article was written?

ringaroundthetx4• 9 years ago

Herbalife was too rich for the FTC to find it an illegal financial scheme, subsequently and simultaneously Bill Ackman got squeezed pretty hard on that and several of his other bets.

He still has a group of followers because he's rich and has a nice pedigree, but he has fallen from glory pretty hard and his calls don't matter anymore.

One of the best short sells these days is to short everything in his portfolio when you think he is about to get a margin call. Because that will force him to liquidate several large positions in different stocks.

lstyls• 9 years ago

Honest question: how the heck do you time a margin call for a whale like that apart from knowing someone on the inside?

tedunangst• 9 years ago

http://www.newyorker.com/magazine/2017/03/06/financiers-figh...

https://www.bloomberg.com/view/articles/2017-03-01/for-bette...

troisx2• 9 years ago

Most likely there won't be any developments until the fall when the effects of the FTC settlement are reported in Herbalife's earnings. But that will only show how well they evaded the judgment since the FTC has been lacking on the enforcement front for a long time.

aresant• 9 years ago

Hard to beat the hedge fund compensation model of fee on the way up, fee on the way down.

Agnostic to his Herbalife bet, Ackman "has widely underperformed the S&P 500 since its EOY 2012 inception: 7.1% since inception net of fees vs. 84% for the S&P 500. Their original flagship fund's (2004 inception) track record is outstanding with returns of ~20% per annum."

So his first fund killed it, he made a name for himself, raised a ton of money, and has literally cost his investors 75% of their returns to date in the market.

He's personally worth $1,400,000,000 now as a result.

Every fund pitch everywhere comes with the disclaimer "Past performance is not an indicator of future success" because of funds like Ackman's.

ww520• 9 years ago

Ackman bet big on Valeant and rode all the way from more than $200/share down to $10/share, losing more than $4B in the process.

jacquesm• 9 years ago

Every fund pitch everywhere comes with the disclaimer "Past performance is not an indicator of future success" because of funds like Ackman's.

No, it's because of the simple fact that you can't predict the future. That sleazeballs can make it even worse by making funds that pretend that they had yields before they even existed (or were active only in a theoretical sense with a few bucks in it as a fig leaf and the other 999 that got axed you'll never hear about) is taken as a given.

That's just the 1024 envelope trick at a higher level.

btilly• 9 years ago

Indeed.

I believe that the regulation that requires that disclosure comes from the 1933 law establishing the SEC. A specific concern was how advertising past returns fed into getting people excited about bubbles like the one which popped in 1929.

Therefore the regulation was meant to address a systemic problem rather than individual malfeasance.

blunte5• 9 years ago

I find it almost too ironic to see a hedge fund manager righteously calling out another business model.

thaumasiotes• 9 years ago

Herbalife's business model is "pyramid scheme", though. It's worse in basically every possible way, regardless of how poorly you view hedge funds.

lordnacho• 9 years ago

Agnostic to his Herbalife bet, Ackman "has widely underperformed the S&P 500 since its EOY 2012 inception: 7.1% since inception net of fees vs. 84% for the S&P 500. Their original flagship fund's (2004 inception) track record is outstanding with returns of ~20% per annum."

But why should the S&P 500 be the benchmark for what Ackman does? If he was advertising that he's betting on broad market risk it would make sense, but he's not. He's long/short high concentration, which you could argue he's also not done fantastic at, but with a small number of positions you'd expect a wide potential spread of returns.

PeterisP• 9 years ago

The "market average" like S&P is the expected return of passive investment - doing nothing, so that's why it's a reasonable benchmark. This (not 0%) is the straightforward default alternative investment, the one against you can measure an opportunity cost.

The point of hedge funds is that they can do better than that, but charge a fee. However, if you get worse results than doing nothing, then the fee seems unjustified.

imbusy111• 9 years ago

Explain to me how this is not market manipulation and securities fraud?

ringaroundthetx4• 9 years ago

It just depends on how you do it. Just because you have more money than the liquidity of the market doesn't mean your buy and sells are market manipulation.

I have bought things on the open market 100% above the prior market price, when I wanted them. Moving the asset's price 100% and sure enough many out of the loop people started FOMOing and buying more. Its the same principle for bearish positions too.

In the securities market you can talk about your bullish or bearish rationale, and avoid sanctioning from regulators or private persons by disclosing your position. Ackman doubled down on that logic and did it very publicly. Although this is more a problem for bearish positions, the statements can't be lies or "intentionally misleading".

In the past there were many naked shorts, where fake shares were sold into the public market causing impossible selling pressure. That is illegal now, for the most part, and as long as you aren't doing that it helps make sure you aren't manipulating the market, by the legal standard.

Again, just because you can have an outsize affect on the price of the market and the mere presence of creating an advantageous circumstance, doesn't make it market manipulation or securities fraud.

williamscales• 9 years ago

Explain to me the case that it could be considered as such?

blunte5• 9 years ago

When you are such a big name in finance, your public statements can be judged as attempts to influence the market. And if you furthermore pay lobbyists, do advertising, and give many presentations, it is clearly going to have an impact.

harryh2• 9 years ago

There is nothing fraudulent about shorting a stock, telling people you shorted the stock, and telling them why you shorted the stock.

(the same goes for going long a stock)

zaroth• 9 years ago

Correct. It becomes decisively illegal if you create fake identities to similarly spout your nonsense.

beavisel• 9 years ago

There was a documentary about this on Netflix. Interesting viewing, but it did feel like a vehicle for parties involved in shorting the stock to get more momentum.

Link: https://www.netflix.com/au/title/80108609

SirLJ• 9 years ago

You got to love Carl Icahn:

ON WHEN ACKMAN CALLED HIM IN 2003:

"I'm telling you he's like a crybaby in the schoolyard. I went to a tough school in Queens, you know, and they used to beat up the little Jewish boys. He was like one of the little Jewish boys crying ..."

ON ACKMAN AS A FRIEND:

"He's the quintessential example of 'if you want a friend on Wall Street, get a dog.'"

ON HAVING DINNER WITH ACKMAN:

"As far as I'm concerned, he wanted to have dinner with me. I couldn't figure out if he was the most sanctimonious guy I met in my life or just arrogant and that's Ackman."

ON ACKMAN DONATING ANY HLF PROFITS TO CHARITY:

"He talks about charity. That's complete bullshit!"

ON ACKMAN SAYING ICAHN IS A GOOD INVESTOR:

"I appreciate you, Bill, calling me a 'great investor', but unfortunately I cannot say the same for you."

BONUS: ON WHEN SCOTT WAPNER ASKED HIM IF HE'S LONG HLF:

"I want to say what I want to say and I'm not going to talk about my Herbalife position because you want to bully me ... I don't give a damn about what you want to know. I want to talk about what I want to talk about ... You can say what the hell you want. I'm going to talk about what Ackman just said about me, not about Herbalife ... I'll talk about Herbalife when I goddamn want to ... I'm never going on a show with you again, that's for damn sure, OK."

RodericDay• 9 years ago

Carl Icahn is not lovable at all.

valuearb2• 9 years ago

Aside from all the examples just given, you mean.

nodesocket• 9 years ago

I am torn, on one hand Herbalife does smell of one gigantic pyramid scheme. Howerver, they have completely revamped the company and structure havent they? On the other hand, while Ackman is savvy and smart, his activist investor style rubs me the wrong way. He has unlimited capital, and thus that affords him the right to manipulate companies for his own gain? I don't like it. Also, let's not forget... If Herbalife eventually goes out of business, he stands to make a boatload of money. Ackman is not being altruistic.

blunte5• 9 years ago

You do realize that traditional business is a form of pyramid scheme. Your boss probably gets more compensation than you do. He/she may have subordinate managers who themselves have subordinate managers who have non-manager employees.

The CEO makes bonuses based on performance of the company. The division managers makes bonuses based on their divisions' performance. The lowest people in the company probably make zero bonuses. And in many companies, the lowest paid workers were promised good future opportunities for growth in the company.

For every bad MLM (and there are many), I could probably identify 10 bad traditional companies.

acchow• 9 years ago

Actually, you're describing a corporate pyramid structure, not a "Pyramid Scheme" which is: "a form of investment (illegal in the US and elsewhere) in which each paying participant recruits two further participants, with returns being given to early participants using money contributed by later ones."

harryh2• 9 years ago

MLM != Pyramid scheme.

Whether herbalife is the former or the latter is at the heart of the controversy around the company.

wyaeld• 9 years ago

Having a hierarchy that gets narrower at the top, with people earning more, is not what makes something a pyramid scheme.

Having the earnings of the higher tier directly funded by financial contributions from the lower tiers is.

I lot of MLMs have a particular 'hiding in plain site deception'. The retail margins on the consumer goods aren't where the bulk of the top tier earnings are coming from. The conferences, training materials, tapes, courses and a raft of support systems for the distributors... all produced at very little cost are the true source. This is where the generous subsidies come from.

blunte5• 9 years ago

I have built software for a number of MLMs in the past 20 years. I can tear down a compensation plan and tell you where the money will go and what the likelihood of success will be for "the little guy" as well as the upper management reward for the "hitter".

The #1 factor in deciding if an MLM is legit is the product. Many, many MLMs have products that have no real value to any market, existing only to attempt to legitimize a money game.

However, MLM is a pretty good marketing approach for products that:

1 - are new or difficult to understand, and where having a human explain or demonstrate in person helps the potential consumer decide if it's something for them

2 - depend on customer testimonials to express their effectiveness, particularly regarding consumables that are not or cannot be judged and regulated by the FDA or similar body

3 - are consumable, such that the buyers and _consumers_ of the product naturally evangelize the product, and then get rewards for bringing new customers

Let's be honest - there are a lot of BS products that are legally marketed through traditional, accepted, and even respected channels. And there are a ton of BS products marketing via MLM. The difference is that some MLMs have lured members with the unrealistic prospect of huge incomes and then guided the new members to buy a ton of product ("front-loading") so as to ascend more rapidly to the higher earning potentials. That's how you end up with people with a garage full of junk they'll never manage to sell.

I don't know if Herbalife does this. I rather doubt it. But really, if a new employee in a company could choose to pay $25k up front with the promise that they would be more quickly promoted to higher management levels, I think a lot of people would do it - even if they had no skills or motivation to work to earn a promotion. In some MLMs, that option exists.

Regarding compensation, every company that markets products takes some percent of product sales and directs that toward marketing efforts. What makes MLM unique is that it directs that marketing money to individuals (presumably based on the amount of sales they drive). And just as Division Managers of large companies may receive bonuses based on the success of their divisions, MLM leaders often receive some compensation based on the sales (success) of representatives they have personally recruited or who have been recruited by their recruits.

I could go on, but it's boring now. Point is, MLM isn't inherently evil, just as capitalism isn't inherently evil. But everywhere, there are some people who will do anything for a dollar. Some become hedge fund managers, and some become MLM lead marketers.

Overtonwindow3• 9 years ago

I use to work in legislative affairs for the natural health industry. It's all one big scam. I try to explain it like this:

Company A sells natural remedies, etc. Company B is a news organization which reports on natural health remedies, and also advertises for those companies, et. Nonprofit C is a consumer watchdog organization that investigates and promotes natural health. They are supported by the natural health industry, and community. Trade Association D is a group of natural health corporations that lobby the government, and fight bad press.

The trick is, A, B, C, and D are all working together, in collusion, with the same investors, same backers, and each supports the other. It's so pervasive it's astounding, and extremely difficult for consumers to see through to factual information.

gnu8• 9 years ago

Seems like a sure thing to short the piss out of an enterprise like this and wage a comprehensive campaign of activism and consumer education against it. With rationality on your side, how could you lose?

coaxial• 9 years ago

with rationality on your side, how could you lose?

Look at south Africa, multi vitamins, and hiv/aids denialism. It's pretty fascinating, human toll aside.

diogenescynic• 9 years ago

With rationality on your side, how could you lose?

Hahahhaha. Great joke. Sadly, there are and probably always will be a lot of ignorant/gullible people. As PT Barnum said, "there's a sucker born every minute."

CyberDildonics• 9 years ago

"The market can stay irrational longer than you can stay solvent"

-Keynes

dragonwriter2• 9 years ago

With rationality on your side, how could you lose?

You could lose because the rational choice model does not accurately model human behavior in the real world; people don't act based on perfect information, in part because even when presented with correct information, they are likely to reject it if it doesn't fit their pre-existing world view.

sumedh• 9 years ago

With rationality on your side, how could you lose?

Do you think rationality can win when the President of the United States says that global warming is a Chinese hoax.

samdoidge• 9 years ago

Aristotle realised the rational argument does not always win a long time, and then wrote Poetics.

wcummings• 9 years ago

Isn't that exactly what Ackman did?

martincmartin• 9 years ago

extremely difficult for consumers to see through to factual information.

This is why I like consumerlab.org. They summarize the medical research and test to see how much of the active ingredient it actually has.

thephyber• 9 years ago

I think the most valuable sources of information right now are independent non-profits.

Do you have any other recommendations along this line?

rwmj• 9 years ago

I used to consult for a couple of mortgage brokers back in the go-go 2000s before the crash, and it wasn't too different. Companies A, B and C arrange mortgages. Company D is a trade organization closely associated with A, B and C which awards annual prizes for "excellence" in the mortgage broking industry. By strange coincidence companies A, B and C are awarded the prizes every year (usually with slightly different names each year, or rotated from last years winners).

zzleeper• 9 years ago

I've got the feeling this thread is full of people that drank the BS koolaid of herbalife.

They either sell snake oil products, or protein shakes that are 10x cheaper at Costco.

I've known people desperate enough to start selling that crap (as well as others-their friends-that have to buy it just due to friendship), so please stop spreading MLM scams.

anotherbrownguy5• 9 years ago

I've known people desperate enough to start selling that crap (as well as others-their friends-that have to buy it just due to friendship), so please stop spreading MLM scams.

They offer 100% buyback for distributors for unopened products and they stopped lead generation completely 4 years ago. So, their distributors are no different from what cell phone carriers are to Apple.

They either sell snake oil products, or protein shakes that are 10x cheaper at Costco.

Kinda like Apple then?

I've got the feeling this thread is full of people that drank the BS koolaid of herbalife.

Or the other way around?

gehsty3• 9 years ago

I think the main difference is that there is a chain of people who profit from selling to their 'downlines', not when a product is sold to an actual customer.

The analogy to apple is poor. Apple sell a product that the majority of people like and they are actively trying to sell directly to the customer. They use networks as it is their only option in many markets and once a phone is sold to the network it is then sold to the customer, there isn't a series of transactions with each level profiting of the previous level.

herbst• 9 years ago

Next to the other guys argument why apple is a poor argument. As much as I dislike Apple they are actually in the middle price range of laptop's with that kind of specs and quality.

Same for the phones. Apple ain't expensive if you assume it is a quality product.

addisonj• 9 years ago

I live and work in Utah, which, for not completely clear to me reasons, is home to a lot of MLMs. Nu Skin, Usana, Xango, doTerra, Young Living, Jamberry (and those are the ones I can just name off the top of my head) are all headquartered here.

For an area that in many ways is punching above its weight class in terms of tech companies, I occasionally have nagging (possibly unfounded?) concerns in the back of my head that one day a lot of these companies will be a hindrance on the continued growth here. I know some people already view Utah mostly as the home of MLMs and I don't know if that does much for attracting forward looking tech investment. That said, these companies have brought a ton of jobs and has certainly helped fund the growth in the area and I have worked with and met a lot of people who seem pretty decent.

While many of these companies aren't "evil", I think the MLM is probably one of the most insidious dark design patterns around. I think the best way of how these companies primarily operate is like the Cassette/CD clubs of a few years past. A small fee gets you a decent amount of "up front value" (Join the club for $30 and get 30% off your first order!) with the expectation that you won't order anything else or forget to cancel the yearly membership fee. This is, of course, all made worse by the fact that is often friends and family who are peddling the high margin health and dietary products with questionable efficacy. Like I said, I don't know if I can call it an outright scam (I know a few people who really like there shakes and supplements and swear by them), but it does drive strange incentives...

swimfar• 9 years ago

The reason I had heard is because Mormon's make great door-to-door salesmen. Many of the men have spent a year or two of door-to-door proselyting (attempting to convert). So they're used to selling to strangers and also being rejected. I'm not sure how true this is, but it seems plausible.

jansan• 9 years ago

I see a lot of those Mormon young men here in Germany on their mission. There are usually two of them, dresses well and behaving very politely. Although they directly contact people on the street, I never have the feeling that anyone is annoyed by them. Therefore I could well imagine that they are great sales men.

MandieD• 9 years ago

Another likely factor related to the high Mormon population is the correspondingly high stay-at-home mother population, for whom MLM looks like a good opportunity to have a career while still being at home for their families most of the time.

jjeaff2• 9 years ago

Nah, they aren't driving the mlm. Their skills are leveraged more for the door to door giants like Vivent and most every other door to door sales company you can think of. And on the darker side, Utah also houses a great deal of very legally dubious boiler room sales floors. You will find that almost every single "I make $900 at home" that originated from the US will lead you to a high pressure sales floor in Utah.

The mlm seems to be the stay at home moms and maybe a mix of others that are able to leverage their church network.

freshhawk• 9 years ago

To really make the case they aren't evil you have to pretend that those running these businesses are unaware of their own business plan and buy into their own marketing, while they carefully craft the marketing and contracts to break the law only so much as to remain profitable while paying settlements and fines.

It's a ridiculous idea. No one accidentally tunes a dark pattern so perfectly.

exogeny• 9 years ago

I don't really get the Herbalife defense in here.

Here's what I know: The products are of dubious quality, and can be bought for much cheaper elsewhere. The majority of people who end up being distributors absorb a net loss, and given that many already come from financially unstable backgrounds, that loss is particularly painful. The largest sellers in the chain either got in super early, or make more money off of ancillary products (seminars, etc.) than actual sales.

That sounds shady as hell as best, downright predatory at worst, and all of the "Yeah, it might be bad, but so is X" arguments in the world don't absolve it.

I guess where the real decision fork is to what extent you feel the Government is responsible for making it harder for people to make dumb decisions by shutting down the companies that prey upon them.

lathiat2• 9 years ago

People also tend to lean heavily on their personal social network, which often alienates them from their personal friend base. And has limited supply before the success you do get from that runs out.

pavel_lishin• 9 years ago

And don't forget that you're often not the first one in your network to start peddling this garbage.

My parents did it for awhile, after being turned onto it by another woman in the small town we lived in. But guess what? That same woman was already selling to 90% of our potential customers. Everyone who was going to buy a case of Glister toothpaste already had one sitting in their garage; who were we supposed to sell to?

The answer to the rhetorical question is, nobody. We brushed our teeth with our shitty investment for about a year, then wrote the whole thing off as a failed experiment that luckily didn't bankrupt us.

lathiat2• 9 years ago

Theres a recent follow-up from fortune on this, worth reading.. according to the article the stock price has grown back to roughly where it was before Ackman's campaign. However they're in the middle of a lot of changes in response to the FTC settlement so material changes in the future are also possible.

http://fortune.com/2017/05/05/herbalife-stock-bill-ackman/

justboxing• 9 years ago

2017: "Herbalife’s $700 Million Stock Surge Is Another Blow to Bill Ackman" => http://fortune.com/2017/05/05/herbalife-stock-bill-ackman/

Looks like Herbalife is having the last laugh.

Illniyar• 9 years ago

This raises an interesting notions - can shorting be an effective option for funding legal/social action against a misbehaving company?

So far there has only been two ways to fund social activism against companies - donations and feeds on class-action lawsuits.

creaghpatr• 9 years ago

Seems like it could be the other way around- legal/social action against a company as a strategy for shorting.

Of course, they (the allegedly misled class) deserved to at least get a trial and a ruling, which at that scale require money and press coverage. But Ackman turned it into spectacle, which probably is what motivated Carl Icahn to btchslap his short.

yesiamyourdad• 9 years ago

Whether or not Ackman is right, his method is what's questionable. Let alone what seems like insanity to me: he's making a very public short bet against a company. He's _borrowing_ shares of stock to prove the management is wrong and publicly announcing that fact. So everybody can pile into the short squeeze, irrespective of the facts or morality of the situation. This is one reason why the quote "The market can stay irrational longer than you can stay solvent.” applies. The market is irrational because it's in the participants' short term interest for it to be irrational.

Conventional activists like Carl Icahn and Nelson Peltz buy shares and then “try to fix the company,” observes one hedge fund investor. Ackman, by contrast, is trying to annihilate a company. “I’ve never heard of short-selling activism in my life,” this investor says. “Are we comfortable that a private individual named Bill can try to put somebody out of business?”

Shorting a company as a method of activism just seems like a terrible strategy on the face of it. A short is a really risky strategy for investing, for activism it just seems even worse. If you want to change a company using its stock, the effective way is to be rich enough to buy enough stock to influence the board.

mschuster91• 9 years ago

It's not just Herbalife. There are so many MLMs out there, it's madness. One former friend is a former friend because he fell victim to some German MLM, believe it was about a website where you could do conference calls.

Back when I was younger, I was a stagehand at a venue where a huge MLM, also named in the Fortune article, had thrown a yuuuge party. They rented two entire conference halls for thousands of people and had a giant stage for a musical set up, complete with pyrotechnics and everything.

Utter madness, all financed by poor people who were screwed over by their relatives or close friends...

Top192• 9 years ago

All MLMs are scams. I hate using the term pyramid schemes, because if you use that term all of the MLM apologists will start cranking out very long-winded philosophical definitions of pyramid schemes that obscure the true point.

The MLM "model" can be summarized thusly:

- 1. Give people pretty good business advice from a host of good business books

- 2. Give people a very positive exciting environment

- 3. Give people literally the WORST job ever created with a product that cannot exist on its own in the marketplace if it wasn't being artificially propped up by hundreds of thousands of distributors

MLMs are scams. And no matter how much they try to attack other industries by saying how unethical they are, or how much they lie about their products, that can never and will never absolve them for the damage they have done to so many lives.

ALSO: something else you'll notice is that people who've been involved with MLMs might recall them fondly. This is just a defense mechanism (an extremely understandable one) to prevent having to view oneself as being duped. I think it's a shame though because we'll all be duped or scammed to some degree in our life, no need to change the past. Anyway reading "The Big Con" by David Maurer right now, a book by a sociologist about con-men in the 1940s. It's the basis for the movie "The Sting", and its remarkable how many people in the book are conned but refuse to believe it, and even years later still think their guy is out there, about to return their money at any time with 20x the profit or whatever.

EDIT: Also it is nearly impossible to look this stuff up on Google. MLM people have so carpet bombed the search sites the first 30 or so links will be links to Youtube videos with titles like "Is XYZ company a scam??" that find of course it's not. Occasionally a random legitimate news article will leak through. Otherwise they've literally walled the world off from anti-MLM information.

throwaway7645• 9 years ago

Yes, they've completely subverted the internet for their own use. You can send people in need to John Oliver's amazing piece though.

dsacco3• 9 years ago

I'm of the opinion that John Oliver is not really a good source for changing people's minds. I agree with a lot of his points and he cites sources, but I find him difficult to watch. A lot of his show appears to endorse an echo chamber: he frequently criticizes the subjects by making them appear ridiculous.

That's a very pervasive problem in political satire. It's often pandering. You have hosts taking clips of someone doing or saying something the demographic audience is going to clearly disagree with, then acting absolutely gobsmacked at how stupid/malicious/unaware they are. That's not persuasive to anyone and doesn't complement changing someone's mind, it's just ridiculing the people they currently agree with.

Ostensibly the show is supposed to be informative, because he does appeal to the other side's rationality to try and persuade them. I think the usual argument for the format is that a sobering account doesn't capture enough attention, which is why jokes are interspersed. But those jokes are heavy handed enough that opponents probably will be put off. If the goal is actually convincing someone that MLMs don't really work for most people, I think there are probably better sources of information if they're willing to be proven wrong in the first place. And if they're not willing, they may take someone who is as abrasive as John Oliver as ridicule.

sharemywin7• 9 years ago

To me you're kind of misusing the term scam. To me it's no more of a scam than buying a stock at the wrong time or working for a startup with options or any affiliate program. A lot of the time the products are really good at first they're usually hard to sell in retail and then usually the market catches up at the retail level and the product becomes a commodity. And at the same time the market saturates with reps and it becomes a bad opportunity.

sharemywin7• 9 years ago

tupperware, avon, Amway's cleaners were all great products in their day(expensive but some consumers aren't cheap, Think Coach purses - retail example of that kind of product).

sharemywin7• 9 years ago

working for uber, opening a restaurant, start a music or sports career. All generally pretty bad ideas, but not really scams)

opportune3• 9 years ago

Often with MLMs you have to buy the product yourself first and then sell it. So people end up buying $1000 worth of energy drinks they can never sell, because their "employers" fed them so much bullshit about it being easy money. I would call that a scam

Vanayad• 9 years ago

Well, I know people that made a living and brought up two children with the help of Herbalife, so it is not THAT bad. It is not easy, and not a good job, on those points I do agree though.

Top192• 9 years ago

What's with all the survivorship bias in these responses? For every person you know that's made money in an MLM, that mathematically means there were 1,000 people AT MINIMUM below them who were scammed somewhere around $300 to usually $20,000 (when you're poor that can be 3 months worth of savings and the difference between taking multiple overdraft hits + a title loan) to live a hijacked version of the American Dream. The burned relationships are even more significant, again especially with people in poverty where family is everything. Look at "A Framework for Understanding to Poverty" by Ruby Payne for more on this.

Btw of course a scam will make some people successful, that's what scams do, take people's money. If someone isn't getting rich, it isn't a scam in the end.

That being said, MLMs are weird and quite honestly conceptually bizarre to reason through. They thrive on this and they operate in the gaps and blindspots of human reasoning.

Here's another way to describe MLMs:

-1). They get you hyped up on success and by borrowing the best of innovations that were mastered by Evangelical churches and various performing arts over the last 200 years (see Aimee Mcpherson, the amazing female preacher from LA and the inspiration for the male preacher in "There Will Be Blood" with Daniel Day Lewis).

-2). By pretending to have a business they can sell you a $500 or so "gold" level business kit to launch your business.

-3). They then get you so hyped up you talk to all of your friends, reluctantly 2 or 3 of them buy. Now the MLM has made $500 + $1000 or so from your friends. That means you as a "mark" has been taken for $1500.

-4). Rinse and repeat with your other friends, burning social circles and harvesting the ashes as you go.

Chickenosaurus• 9 years ago

Does anyone know of any legitimate MLM based companies that sell products that could probably be successfully sold without MLM?

In other words, can MLM be a useful tool for non-scammy companies?

One Billion Dollars Short, Bill Ackman, and the Siege Of Herbalife (2015)

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