The American state of Utah, long known as a place of natural beauty and varied winter sports activities, is also known a home for several companies who market a wide range of health and personal care products for a network known as Multi-level Marketing, or MLM for short.
At least two of these companies are based in the city of Provo Utah, located about 30 miles south of the capital, Salt Lake City. These companies employ literally thousands of distributing sales associates, who market in their company’s products on a “pyramid” sales bases in which each independent distributor is expected to ‘recruit’ a number of other people to be on his ‘team’. The idea of this technique is that, in theory anyway, the initial recruiter will receive a portion of the commissions that each team member earns, and so on, as long as other associates manage to recruit new distributors as well. As in all such marketing schemes, the few at the top are the ones who benefit most from this way of selling.
While this may sound good to potential new sales people, it doesn’t always work out as planned. Besides, with so many hands in the ‘pie’ it makes the cost of the products they sell much higher than comparative products sold in regular chain pharmacies and health products stores.
The activities surrounding the way these companies promote their products, and subsequent profits made by the ones sitting on top of the pyramid have resulted in company activities being investigated by U.S. government authorities as a result of allegations that not all revenues and subsequent profits are being accurately reported to tax and revenue authorities; and that end of the year profit and loss statements may have been tampered with. These activities are nothing new in American business, however, as recent scandals involving such well known corporate entities as Enron and WorldCom wound in the federal bankruptcy courts, and their top corporate officers tried and convicted of massive fraud.
Still, because of the way the pyramid sales companies operate, their activities have recently attracted the attention of “the revenue boys”, and once such company, with a marketing distribution force of over 600,000, is particularly under scrutiny for omission of large sums of money from its annual revenue report. The investigation has become so intense that the company’s former auditor resigned rather than be suspected of complacency.
Many of these companies have shares sold on the public stock exchanges such as the NYSE and NASDAQ. With agencies as the Security and Exchange Commission, the top federal regularity agency dealing in shares sold to the general public, and threatening to suspend trading in these company’s shares, the situation involving ‘omissions’ may be quite serious indeed.
This means that these companies are selling an inferior product, when in fact most of their products are of good quality. What it does mean is that these companies had better get their act together if they want to continue to keep operating.