Yet for all the empowerment rhetoric, companies like Melaleuca and Nu Skin appear to subsist in large part on the hopes and fears of Americans losing their grip on financial security. Industry watchdog Robert L. FitzPatrick says Nu Skin's business model "sets the average person upon his neighbor to get at his assets, savings, and investments." Their structure—vast numbers of foot soldiers feeding a tiny layer of top earners—may not offend Romney, who has dismissed questions about income inequality as a matter of "envy." But a close association with companies that seem to prey on consumers might not play well for a candidate who has battled allegations that the private equity firm he cofounded, Bain Capital, engaged in vulture capitalism. (Romney's campaign did not respond to requests for comment.)
On the campaign trail, Romney has repeatedly stressed his commitment to the middle class—to the point of remarking in one interview that he was "not concerned about the very poor" or "the very rich" but rather "the 90 to 95 percent of Americans who right now are struggling." But the hardworking conservatives Romney is courting—and has struggled to connect with—are the very same demographic that MLM companies are recruiting in droves.
Throughout its early years, Nu Skin was dogged by consumer advocates, regulators, and lawyers representing aggrieved distributors who claimed the company was an illegal investment scheme. In one 1991 case, a former Nu Skin distributor in California filed a class action asserting that as many as 100,000 people had lost $75 million by signing up with the company. Nu Skin settled in 1992 and gave distributors $16 million in refunds for merchandise they were sitting on. A group of Canadian distributors brought a case against Nu Skin that was settled in 2001 with a similar outcome.
A close association with companies that seem to prey on consumers might not play well for Romney, who has battled allegations that the private equity firm he cofounded, Bain Capital, engaged in vulture capitalism.
During the 1990s, Nu Skin entered into settlements with the attorneys general of Connecticut, Florida, Illinois, Michigan, Ohio, and Pennsylvania after a rash of complaints from distributors. Michigan's attorney general threatened the company with a lawsuit, accusing it of operating a pyramid scheme and violating state consumer protection laws. Nu Skin settled the case without admitting wrongdoing and agreed to pay $25,000 to cover the state's costs and give refunds to anyone who returned its products. In Connecticut, then-Attorney General Richard Blumenthal filed suit in 1992 alleging that Nu Skin was engaging in deceptive business practices. The company paid $85,000 to settle that case, in an agreement that had similar terms to those in Michigan. Two years later the Federal Trade Commission (FTC) cracked down on Nu Skin for making false claims about its products—including weight-loss supplements and baldness cures—and misrepresenting what new distributors would earn. (Its marketing materials blared: "If you're not earning $10,000 a month or more We Need To Talk!" and "$14,000 a month…$168,000 a year…A lot of other people are doing it right now.")
In 1994 Nu Skin signed a consent order with the FTC promising not to engage in false advertising and to cease misleading potential distributors. Three years later, it paid $1.5 million in civil penalties for violating the order.
That order, which bars the company and its distributors from making claims about potential financial returns without prominently disclosing the average earnings of distributors, is still in force. But at the meeting in Alexandria, and another I attended, there was near-nonstop talk of the fantastic opportunities available through Nu Skin, and very little in the way of qualifiers. At neither of these meetings did I receive information about what a typical distributor actually makes. (Nu Skin declined to respond to a detailed list of questions for this story.)
Though Sanchez touted blue-diamond distributor Farrington as proof of the potential for six-figure earnings with Nu Skin, the company's disclosure forms tell a different story. In 2010 only 13 percent of its active US distributors received any kind of monthly commission, the documents show. The average was $119 a month—and that's before factoring in the cost of the Nu Skin products and marketing materials distributors are told to purchase. (To become a distributor, you are urged to buy the business builder pack at $1,198; to remain in good standing at the next "executive" level, you must sell, on your own or through the people you've signed up, at least $2,000 worth of merchandise each month.)
The victims of multilevel marketing are largely invisible. Their losses are often too small to spur significant litigation. Many are convinced that if they fail to succeed as distributors, it's because they didn't try hard enough, not because the deck was stacked against them. Further cementing the code of silence, the victims of multilevel-marketing schemes are often perpetrators as well. "Because of the endless chain of recruitment, everyone who's been recruited has brought their friends and family into the business," explains Jon Taylor, who founded the Consumer Awareness Institute, an MLM watchdog group.
Taylor, a Utah native, has seen multilevel marketing from the inside, working for a year as a Nu Skin distributor in 1994. His disillusionment with the industry came after realizing that he was spending some $1,500 a month on Nu Skin training materials, products, publications, conferences, and advertising—all to get $246 in monthly commission checks. And he says he was one of the lucky ones. He hears regularly from people who feel they've been scammed by MLMs, but he's rarely persuaded any to come forward and go public with their stories. "There's a huge fear element," he says.
These days federal regulators seem distinctly less interested in policing MLMs than they were in the 1990s. An FTC spokeswoman pointed to a 2007 suit the commission brought against now-defunct MLM firm BurnLounge, which focused on the music industry. But the FTC has brought only a handful of cases against such companies in the past decade, despite the industry's explosive growth and a steady stream of letters to the commission about MLM business practices.
The era of diminished enforcement coincided with the presidency of George W. Bush, who seeded the FTC with MLM supporters after getting elected with substantial campaign cash from Amway, one of the nation's oldest multilevel-marketing companies.
In 2001, Bush installed Tim Muris, a lawyer whose firm once represented Amway, as the commission's chairman. David Scheffman, who was named director of the FTC's bureau of economics, had previously served as an expert witness for Equinox, a multilevel-marketing firm that was shut down by the FTC during the Clinton administration. The revolving door spun the other way as well: Jodie Bernstein, the head of the FTC's consumer protection division in the Clinton administration, became an Amway lobbyist, fighting proposed regulations that would have required MLM companies to disclose more information to potential distributors.
MLMs "desperately want to avoid being regulated," says Douglas Brooks, the lawyer who represented the Canadian Nu Skin distributors in their class action. "Disclosure is death."
That could be one reason why Nu Skin, like other MLMs, has increasingly set its sights overseas. Its record-breaking revenue, and its rising stock price, are largely the result of its entry into foreign markets, where it has found an untapped supply of potential distributors and, often, the added benefit of weaker regulation. Nearly 90 percent of the company's revenue now comes from overseas, particularly from Asia.
In November, at a Nu Skin "opportunity meeting" held in the banquet room of a Marriott in Tysons Corner, Virginia, Cheryl Huffman gushed about how the company can help families find true prosperity. A former elementary-school teacher from West Virginia with a warm voice and a fondness for words like "heart," she told the audience of about 150 that finding Nu Skin had allowed her to stay home with her kids while still earning a great living. She said she had just joined Nu Skin's "million-dollar club."
Huffman was a success story—the kind of person Romney refers to on the campaign trail when he lays out his vision of an "opportunity society" in which people who succeed through hard work "merit the rewards they are able to enjoy." It's a you-too-can-make-it maxim that aligns directly with Nu Skin's pitch; perhaps it's no wonder, then, that the company has invested so heavily in Romney's campaign. With a history of troubled relations with government regulators, its executives must appreciate the value of having friends in high places.
Back in Tysons Corner, Huffman told the crowd she had a stock response when people ask about her business. "You know what I sell?" she said. "I sell hope to people. Our very best product is the hope we give to people."