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CAI Consumer Awareness Institute Non-profit Corporation |
USANA
Health Sciences, Inc. faces severe challenge by Fraud Discovery Institute |
| Read some
VICTIM'S
STATEMENTS – plus fascinating background information on what was reported to the
Securities and Exchange Commission about USANA and its stock by the the Fraud
Discovery Institute. You will there find links to some great YouTube
presentations that should concern a lot of investors
and Associates.
Read also the reports posted in the Pyramid Scheme Alert web site. |
Len Clements and Marketwave – after Wave – of Deceptions. By Jon M.
Taylor, Ph.D., President, Consumer Awareness Institute In
the article by Len Clements entitled “An
Open Rebuttal to the Fraud Discovery Institute Report on Usana Health
Sciences,” he
attacks my research and me personally. Unable to effectively refute my
research, he frequently engages in personal attacks on me, which I
routinely ignore. However, since his arguments reflect on Barry Minkow and
his FDI, just a few of the litany of deceptions relating to my input seem
appropriate: 1.
(page 2) Clements refers to Robert Fitzpatrick and myself as
“anti-MLM zealots” and our “biased, anti-MLM propaganda.” The
reader should note that the vast majority of our writings and advocacy are
done gratuitously through our respective non-profit organizations, Pyramid
Scheme Alert and Consumer Awareness Institute. While we are occasionally
hired as consultants or expert witnesses, it does not cover but a small
fraction of what we have donated out of pocket to serve consumers. We are
entirely independent of any profit-making entities, especially MLM’s. I
don’t even sell anything on my site. This is not true of Len Clements,
who is selling books, periodicals, advertising, seminars, promotional
materials, consulting, etc. – all on behalf of the MLM industry. His
livelihood is dependent on his defending MLM. 2.
(page
18) Clements states my only practical experience was in an “old-school
breakaway program” 16 years ago. The company was Nu Skin, which still
uses its breakaway compensation plan, and it was 12 years ago, not 16. 3.
(page 2) Clements assumes Minkow was influenced by Fitzpatrick and myself
when he began his investigation in 2004 and that we “played
a significant role in his three year education into the MLM industry.”
My first contact with Minkow was an email from him dated January 16, 2007.
4.
(page 8) Clements touts Usana’s low product return rate (1.5% to
2.1% for the past three years). He asks why more buyers didn’t return
their products if they didn’t want them and didn’t resell them. First,
recruits are encouraged to use their products, not store them, and few
meet the strict refund requirements (unopened, time limits, etc.) Also,
victims seldom seek refunds for the same reasons they seldom file
complaints with law enforcement. They are taught to blame themselves for
their “failure,” they fear self-incrimination (since in every chain
selling program, virtually every major victim becomes a perpetrator –
having to recruit enough buyers to recover his/her initial and ongoing
investment), and they fear consequences from or to their upline or
downline – who are often close friends or relatives still in the chain.
For a more complete analysis of low return rates and “pay to play”
requirements of MLM or chain selling companies, read my full report
prepared for the National White Collar Crime Center - 5.
(page 8) Clements claims we “choose to believe
that the FTC requires 70% of all sales by MLM companies to be to
(non-distributor) retail customers.” If he read our writings, he would
know that we understand very well the origin of the “Amway safeguards”
and that these were not FTC demands, but a voluntary safeguard to which
Amway agreed. However, the Amway rules are neither enforced, nor
voluntarily complied with by the MLM companies that Clements defends,
including Amway (now Quixtar). 6.
(page 9) Clements creates the pejorative appellation “FitzMinklor” to
imply a unified conspiracy between the three of us. In fact, we could
hardly have come from more diverse backgrounds and viewpoints regarding
the field of marketing and direct selling. Fitzpatrick was involved in a
no-product pyramid scheme (The Airplane Game), I was involved in an MLM or
product-based pyramid scheme (Nu Skin), and Minkow was involved in
neither. Our varying perspectives give added credibility to our
agreed-upon conclusion: Usana is a highly fraudulent pyramid or chain
selling operation that has victimized investors, Associates, and Preferred
Customers – to the extent of hundreds of millions of dollars. 7.
(page 18) Clements refers to my PhD in psychology, obviously implying an
unrelated and unqualified background. He fails to mention my MBA degree
and my 30+ years experience in entrepreneurship and sales. Apparently
unaware of the rigors of PhD study, he didn’t know that my PhD included
two years’ training in statistics. I have also worked on the
administrative staff of two universities where I evaluated the research of
others. 8.
(page 18) Clements refers to my statistical findings on failure rates as
“educated guesses.” Nothing could be further from the truth. Years of
research went into these statistics, drawing from a base of experience
with legitimate direct sales programs that far exceeds that of Mr.
Clements. This was amplified by my direct involvement with MLM and
communications with hundreds of victims from a wide variety of MLM
programs. This background, combined with extensive independent surveys and
research on official MLM company reports enabled me to debunk the
misleading statistics supplied by the MLM companies – and to present a
much more accurate picture of loss rates to consumers considering MLM as
an income opportunity. I have ample evidence (including surveys of tax
preparers and statistics from gambling casinos in Las Vegas) that it is no
more appropriate to post “business opportunity” above the gaming
tables in Las Vegas than it is to tout an MLM such as Usana as a business
opportunity. The odds of profiting are far better for participating in
craps or roulette at Ceasar’s Palace than in MLM’s like Usana. In
addition to incentivized purchases when I was with Nu Skin, I kept careful
track of the out-of-pocket costs of MLM recruiting, which I found
absolutely essential to advance up the hierarchy of distributors, which
qualify one for sufficient commissions and bonuses to have any hope of
recouping “pay to play” investments – laundered as product
purchases. Clements will likely say “Well, that was Nu Skin.” I
have personally analyzed the compensation plans of over 250 MLM programs,
including that of Usana. And I can safely assert that virtually all
MLM’s, including Usana, have compensation plans that reward primarily
the recruitment of a downline and incorporate powerful incentives for
investing in the initial package and in making ongoing “pay to play”
purchases. 9.
(page 8 and whole report) The deceptive arguments Clements uses to prove
Usana is not a pyramid scheme, includes an out-of-context quote from the
FTC’s James Kohm regarding “internal consumption,” as follows: “In fact, the
amount of internal consumption in any multi-level compensation business
does not determine whether or not the FTC will consider the plan a pyramid
scheme.” Clements adds, “There it is, in black and white, straight
from the horse’s mouth. Case Closed.” But the case is far
from closed, as this quote illustrates. He left out important parts of the
letter from James Kohm, especially the following that leads to a
completely different conclusion than the portion he quoted out of context: "The
Commission's recent cases, however, demonstrate that the sale of goods and
service; alone does not necessarily render a multi-level system
legitimate. Modern pyramid schemes generally do not blatantly base
commissions on the outright payment of fees, but instead try to disguise
these payments to appear as if they are based on the sale of goods or
services. The most common means employed to achieve this goal is to
require a certain level of monthly purchases to qualify for commissions.
While the sale of goods and services nominally generates all commissions
in a system primarily funded by such purchases, in fact, those commissions
are funded by purchases made to obtain the right to participate in the
scheme. Each individual who profits, therefore, does so primarily from the
payments of others who are themselves making payments in order to obtain
their own profit. As discussed above, such a plan is little more than a
transfer scheme, dooming the vast majority of participants to financial
failure." “This
precisely describes Usana (and Nuskin and a host of others) and appears to
condemn them as ‘transfer schemes’ that ‘doom the vast majority of
participants to financial failure’,"
as pointed out by Robert Fitzpatrick of Pyramid Scheme Alert in a letter
to me dated April 26, 2007. Careful analyses of payout data from the
companies themselves by both Fitzpatrick and myself confirm the high loss
rates (approximately 99%) and harm to consumers. Other
deceptions in Clement’s paper would require reams of paper to debunk and
more time than you as a reader or I as a writer have time to consider. But
my 40-page “5 Red Flags” article cited above and linked to my law
enforcement page essentially answers all his challenges, summarizing years
of research on the topic. For that report and several related reports go
to – 10.
(whole report) Clements also buys into and promotes the whole complex maze
of deceptions essential to the success of the MLM or pyramid/chain selling
model. I would refer the reader to “30 typical Misrepresentations
Engaged in by Recruiting MLM’s.” –
linked from Item #1 on the law enforcement page of my web site at – http://www.mlm-thetruth.com/law_enforcement.htm Given
the time, I could debunk several dozen more deceptions in Clement’s
paper, which (as is true of all of his MLM treatises) is packed with
deceptions. However, this sampling should be sufficient to support my
conclusions about Len Clements and the business model he espouses. It is
true that (in addition to recruitment skills) a limited number of persons
can be “successful” at an MLM/chain selling program like Usana – but
only if they meet four requirements:
Len
Clements and the leadership of Usana meet all four requirements. May 5, 2007 |