Direct Selling Association President Joseph Mariano has a message for New York Times columnist Joe Nocera. Earlier this month, the opinion writer added to the abundant ink that has been spilled on the topic of activist investor Bill Ackman’s $1 billion Herbalife short. This week Mariano penned a Letter to the Editor addressing the questions raised by Nocera.
The salient question appears in Nocera’s headline: “Riddle of the Pyramids: What Is Herbalife?” He compares the volleys between Ackman and Herbalife, with its bullish investors behind it, to a “hotly contested political race”—very entertaining at times, but a sideshow to more serious issues. In Herbalife’s case, that issue is whether a company is duping millions of individuals through deceptive business practices.
It is a question currently under investigation by the Federal Trade Commission (FTC) and the Department of Justice. Though the FTC declined to provide comment to the Times editorial page, Mariano gives some background on the regulations governing pyramid schemes in his response.
“There is no riddle,” Mariano writes. “Federal law and statutes in a majority of the states clearly define a pyramid as an operation that pays salespeople primarily for recruiting additional members into a network instead of selling products. The Federal Trade Commission further warns that pyramids may require members to buy large amounts of inventory, meaning you couldn’t consume it yourself, or unwanted items.”
Mariano also points to the clear distinction between the multilevel marketing business model and illegal business operations—a distinction that falls through the cracks of Nocera’s argument.
“We should consider the consequences to the individuals who sell and consume their products—and the communities their parent companies serve—before placing scarlet letters upon their legitimate businesses,” Mariano concludes.
