The company that profited from Plachter’s folly: Nu Skin International, a Utah-based multilevel-marketing firm that’s signing on thousands of eager “distributors”–many of them doctors, lawyers, coaches, even former professional football players. Its annual meetings feature such high-profile, high-dollar speakers as Ronald Reagan and Bill Cosby. Apparently, many law-enforcement officials don’t buy the company’s slogan: “All of the good, none of the bad.” The Federal Trade Commission and the Securities and Exchange Commission have contacted the company, and the offices of attorneys general in at least seven states are looking at it.
The officials are trying to determine whether Nu Skin’s independent distributors engage in illegal “pyramid” activities or whether its multilevel-marketing approach is legitimate. In a pyramid the pool of potential climbers eventually dries up and the scheme crumbles. The law’s blessing goes to companies that emphasize sales to consumers over the recruiting of distributors. And while the current Nu Skin literature stresses sales, many independent distributors soon learn that signing on new recruits can be more profitable. In companies like Nu Skin, where place in the ranking is partly determined by sales, some distributors buy more goods than they can sell. “We had people with horror stories who, in order to stay at the “executive’ level, were maxing out on their Visas,” says Robert Ward, assistant attorney general of Michigan, which has issued a notice of intended action against Nu Skin.
It’s easy to see why distributors think Nu Skin looks beautiful at first blush. Officials trumpet success stories: former cleaning woman Martha Lowrey, 49, of Kansas City, Mo., now hires her own maid. And Barbara Freundt, 39, of Newport Beach, Calif., used her Nu Skin proceeds to help buy a waterfront home and BMWs for her family–while seeing a big boost in her “self-esteem.” Aggressive distributors often show company-produced videos narrated by the ever-wholesome Bill Bixby and filled with alluring scenes of the high life. And though Nu Skin’s rules officially forbid it, some distributors try to lure newcomers with wild income claims: “$50,000 per month, not per year,” says one.
But that arithmetic doesn’t add up. Even if Nu Skin were to divide all of its projected 1991 wholesale revenues of $500 million among its 100,000 distributors, each would get an average of $5,000. Company spokesman Jason Chaffetz acknowledges that “there has been an occasional disgruntled person or two,” and that some journalists have written some “real ugly” articles. (Nu Skin devotees call critics “dream stealers.”) Company officials say they can’t control the behavior of every distributor. They can cut them off, but in seven years Nu Skin has dropped only 15–and has little incentive to do so. Executive vice president and general counsel Steven Lund says, “The mistakes they make are made in ignorance.” For Nu Skin, that ignorance has been blissful–and profitable.
