Sen. Jeff Klein introduced legislation on Friday that aims to crack down on multilevel marketing promotions that have been derided as “pyramid schemes” by consumer watchdogs.
The legislation comes as Klein and people who say they were ripped off by the multilevel marketer Herbalife released an undercover video that shows how the company’s CEO focused on recruitment.
“We have seen time and time again how Herbalife promises of the American Dream only wind up as a financial nightmare,” Klein said in a statement. “Today we heard from victims who have lost as much as $100,000 to this scam, while our undercover video shows that Herbalife International has known all along how its predatory practices are robbing victims of their entire life savings and preying on their entrepreneurial hopes and dreams.”
In the video, Herbalife CEO Michael Johnson emphasizes recruitment, especially of low-income people. Recruiters are called “the hunters” and new distributors are described as “the most vital part of our bloodstream.”
In the video, Johnson promises a monthly income of at least $20,000, while also shows a distributor promising a miracle cure for asthma using one of the company’s products.
Klein’s legislation is designed to increase oversight of multilevel marketing companies and require financial disclosure for open investigations, total sales that are generated by distributors and the average and median incomes earned by those who work as distributors for the company.
At the same time, the bill would require such companies to provide potential distributors with information on benefits, risks and the actual effects of each product, along with service and business opportunity in the person’s primary language.
Violating the regulations would result in fines of up to $10,000.