Illustration: Steve BrodnerInside a cramped doctor's office near a busy thoroughfare in Alexandria, Virginia, two women are getting their faces buzzed with a faintly humming device that looks like an electric razor. It's a "galvanic spa," and its electrical charges, combined with special gels and serums, are supposed to target "youth gene clusters" and reverse the effects of aging. But the group of about 20 men and women gathered here haven't come just for the free skin-care treatments. They're here to learn about a business opportunity.
This is a recruiting session for the Utah-based multilevel-marketing (MLM) company Nu Skin, which sells vitamins, dietary supplements, and beauty products through a network of independent distributors. The meeting is led by an energetic 42-year-old named Martha Sanchez, who frames her pitch with a lengthy explanation of just how hard it is to save for retirement. She flashes slides that illustrate how much of a nest egg you need to generate $5,000 a month in "residual" income: At 5 percent interest, it's a staggering $1.25 million.
The promise of a steady flow of passive income lies at the heart of Nu Skin's pitch. Its business model entails recruiting distributors, who in turn recruit more distributors, and so on, with each layer kicking the proceeds up the chain. Theoretically, as your "downline" grows, so do your monthly commission checks, even as your own effort diminishes.
Unlike franchises, which Sanchez notes can be stressful to run and require a big up-front investment, Nu Skin offers a low barrier to entry. Anyone who ponies up $1,198 can secure a "business builder" package that includes two galvanic spas and all the goo that goes with them to deploy on potential clients.
Sanchez walks the group through Nu Skin's various levels. Those who reach "executive" status, which is most easily accomplished by recruiting four more distributors, can earn an average of $10,000 a year. It's not much, she notes, but it's often enough to keep a family out of bankruptcy. Bring in eight executives and that's a new ballgame: "That's when you start making over $10,000 a month."
Where Nu Skin was once the target of federal investigations, last year Sen. Orrin Hatch invited its top lawyer to testify before Congress on trade policy. The company's former spokesman, Jason Chaffetz, is now a Utah congressman.
Nu Skin has created more than 800 millionaires, Sanchez insists. She has even brought one along: Art Farrington, a "blue diamond" distributor who she says earns more than $500,000 a year.
Farrington is also on hand to give a personal demonstration of Nu Skin's products. A former fighter pilot, he's in his 70s and says he's been using the galvanic spa on one side of his neck and face, leaving the other side untouched. He models the untreated side, then the treated one, tilting his head slightly so that the wrinkles smooth out a bit. I can't see any difference, but the other Nu Skin distributors respond with oohs, and the newcomers nod in approval.
Mike Sinisgalli is ready to get in on the action. He's an ex-Army officer and says he's decided to throw in with Nu Skin because he's "trying to lead a healthy lifestyle" and wants to pursue "something that bears the fruit of my own efforts." He was persuaded by an advertising supplement to the Wall Street Journal that ranked Nu Skin as one of the top "direct selling" companies in the country. "This, I can build it and I can keep it," he says.
Like other MLM firms that advertise financial independence in uncertain times, Nu Skin's stock price has skyrocketed, increasing from $9 in March 2009 to $54 this past March. Last year it posted a record $1.7 billion in revenue. And Nu Skin has accomplished this despite a controversial history of regulatory actions and lawsuits that have alleged it is little more than a pyramid scheme—a company whose primary customer base is its growing galaxy of distributors.
With Nu Skin's growth has come significant political influence, particularly in Utah. As governor, Jon Huntsman brought company executives on a trade mission to China, where Nu Skin has been eager to gain a foothold.
Nu Skin also has key supporters in Congress, including Sen. Orrin Hatch (R-Utah), the ranking member of the Senate Finance Committee. Where Nu Skin was once the target of federal investigations, last year Hatch invited its top lawyer to testify before Congress on trade policy. The company's former spokesman, Jason Chaffetz, is now a Utah congressman. "These are good companies to have in Utah," he told the Salt Lake Tribune in October. And then there's Mitt Romney, whose ties to Nu Skin and other MLM companies have yielded a torrent of campaign cash to fuel his presidential bid.
In 1999, Nu Skin's 10th international convention featured a speech by the CEO of the organizing committee for Salt Lake City's 2002 Winter Olympics, who had managed to secure a $20 million sponsorship from the company. The deal had helped to close some of the revenue shortfall plaguing the games, so Romney was effusive in his gratitude. Nu Skin and the Olympics had something in common, he told the 10,000 distributors in attendance: Both are "about taking control of your life and managing your own destiny."
Speaking at the same event, Nu Skin's then-president, Steven Lund, didn't dispel the impression that the company was trying to buy its way to legitimacy. "We have aligned ourselves with the Olympics because this alignment helps you do your jobs better," he said, according to the Deseret News, promising that the Olympic logo newly affixed to distributors' business cards would bring in loads of new recruits.
Years later, as Romney embarked on his first presidential bid, Nu Skin—founded and led by Mormons—was a natural base of support. The company's founder and chairman, Blake Roney, became a bundler for Romney's 2008 campaign. Roney was also a partner at Rainmaker Sports and Entertainment, a Utah consulting firm that worked for the Romney campaign in 2008. Nu Skin employees donated more than $50,000 to Romney during that election cycle.
Utahns have a joke about multilevel-marketing companies: MLM really stands for "Mormons Losing Money."
Three years later, as Romney was ramping up his current presidential bid, a handful of his former aides launched a super-PAC, Restore Our Future. When it filed its first financial report, two donations stood out—$1 million each from a pair of companies called Eli Publishing and F8 LLC. The Provo, Utah, address both firms gave traced back to an accounting firm that doubled as the official address of a foundation created by Nu Skin cofounder Sandra Tillotson. Corporate records show that the registered agents of Eli Publishing and F8 were, respectively, Steven Lund and his son-in-law.
When a local television reporter caught up with Lund to ask about the contributions, he said he had donated through a shell company for accounting reasons. But campaign finance watchdogs, who filed complaints with the Federal Election Commission, alleged the intent was to mask the money's source.
Nu Skin isn't Romney's only connection to the MLM industry. Gordon Morton, cofounder of the supplement company Xango (the self-described creator of the mangosteen beverage "category"), served on his 2008 campaign's finance committee. This past January, David Lisonbee, founder of the Sandy, Utah-based MLM company 4Life Research, donated $500,000 to Restore Our Future. And Romney's current finance chair, Frank VanderSloot, is the CEO of Idaho-based Melaleuca, a multilevel-marketing company that sells green cleaning products and nutritional supplements.
Melaleuca and its subsidiaries contributed $1 million to Restore Our Future last year. In 2010, Romney had lavishly praised the firm on the occasion of its 25th anniversary: "Under the leadership of Frank VanderSloot," he said in a statement, "Melaleuca has delivered on its promise of enhancing the lives of people."
Utahns have a joke about multilevel-marketing companies: MLM really stands for "Mormons Losing Money." The notion of selling to one's friends and neighbors is so intertwined with the culture that the final season of HBO's Big Love featured an MLM subplot. According to the Salt Lake Tribune, Utah has the highest concentration of such companies in the country.
There's a reason why MLMs, many of which peddle natural health products like Nu Skin's dietary supplements, have thrived there. Mormon scripture encourages the use of herbs as God's medicine, and the faith has a strong tradition of turning to alternative medicine. Its founder, Joseph Smith, reportedly shunned traditional doctors, believing a physician had killed his brother. The tight-knit Latter-day Saints community, and the trusting nature of its adherents, have made Utah a lucrative terrain for multilevel marketers. Mormons, who typically spend two years serving as missionaries, are also natural recruits for companies that need salespeople with a high tolerance for rejection. And finally, MLM firms often pitch themselves to women as a way to stay home with their kids while still earning substantial incomes.