Thursday, 18 February 2010

Clueless Tex flaunts his ignorance

I observe that Mr. Scott 'Tex' Johnson is now demonstrating his ignorance by challenging the authenticity of Dr. Peter Vandernat's 70% retail sales test for determining the legitimacy of any pyramid sales scheme. Perhaps we should refer Mr. Johnson to the only published academic paper which explains exactly how to evaluate a pyramid scam disguised as a 'direct selling scheme.' This intellectually-rigorous analysis is entitled: 'Marketing Fraud: An Approach to Differentiating Multilevel Marketing from Pyramid Schemes'; it was published in the 21st Journal of Public Policy and Marketing (Spring 2002) pages 139-151. In this paper( which Dr. Vandernat co-authored with William Keep), the irrefutable legal and mathematical reasons for the application of the 70% retail test to direct sales schemes are clearly set out. However, back in the early 1970s, FTC lawyers already knew that exorbitant controlled prices producing a lack of significant external revenue were the essential criteria which identified a closed-market pyramid sales swindle. About 20 years later, Dr. Vandernat (as senior economist at the FTC) calculated exactly what percentage of external revenue was generally required to legitimize a direct sales scheme.
Arrogantly, Mr. Johnson assumes that I have no knowledge of a much-publicized letter of January 14th 2004, sent by James A. Kohm (acting director of marketing practices at the FTC) to Neil H. Offen (president of the so-called 'US Direct Selling Association'). According to many 'Multilevel Marketing' racketeers and their apologists, this letter totally rejects all previous, and long-standing, FTC interpretations of federal law and federal court rulings which made it a fundamental requirement of direct sales schemes to have significant retail sales to persons who are not participants in these schemes. This dubious document is entitled 'Staff Advisory Opinion- Pyramid Scheme Analysis.'
Mr. Kohm's less-than-intellectually-rigorous analysis has been widely-circulated by deluded 'MLM' participants (like Mr. Johnson) to deceive potential recruits into believing that internal purchases made by 'MLM' participants are authentic retail sales.
Obviously, this half-baked rubbish has been spoon fed to Mr. Johnson by his 'Amway' handlers and, typically, he's swallowed it without a second's thought.
David Brear


Tex said...


Read the note in the lower left corner of page 139. LOL

I'll read and comment on the entire paper later.

Tex said...

I will note there are differences, and probably confusion and errors, on the part of the courts, over the definition of the 70% rule.

Therefore, the final court judgments cannot, by definition, be regarded as reliable.

Tex said...

I will make another preliminary comment; the authors appear to be making a relatively simple issue overly complex AND ignore important factors (such as whether the products are priced to be competitive in the market, and including overhead costs, such as the ATS), to the point their analysis has little connection to reality, not a new thing for economists, as they often get lost in their equations but have little to no practical business knowledge. No wonder you like them, Brear!

IBOFB said...

It's actually Brear who is flaunting his ignorance, or perhaps his dishonesty. Since that paper, Peter Vander Nat has modified his position somewhat -

“Deciding what a retail sale is can be tricky,” Peter Vander Nat, the FTC economist who co-wrote a 2002 paper on the subject, says it depends on intent.

“If people are buying because they want to use a company’s products, those sales can count as “retail.”

Joecool said...

IBOs buy products because they think Amway will make them rich. Once that dream disappears, so does their desire to purchase Amway products.

Tex said...


Intent is impossible to quantify. The only realistic measure is retail sales to non-IBOs.

I am reading the paper now, it is filled with errors and issues that do not apply to Amway.

Tex said...

Okay, I read it. It's TOTAL Bullshit. There is no reliance on the past or current regulatory requirements, gross misunderstandings of definitions, etc.