In 1999, when Mitt Romney was put in charge of organizing the 2002 Winter Olympic Games in Salt Lake City, there was an unusual company among those angling to be Olympic sponsors. Along with the Coca-Colas and the McDonalds, there was a company called Nu Skin, based in Provo, Utah, that sold anti-aging products and nutritional supplements. Its distribution network is what is called, in the industry, multilevel marketing. Critics have another name for that kind of business: a pyramid scheme.
Nu Skin, which was founded in 1984, had already had a number of run-ins with the law. In 1991, after an exposéon ABC News’s “Nightline,” a handful of attorneys general accused it of violating laws that are supposed to prevent pyramid schemes. The company made some minor fiddles with its practices and settled the complaints.
Then it was accused by the Federal Trade Commission of making unsupported claims about a handful of its products, including a wrinkle cream (“can roll 10 years off”) and “a skin treatment that claimed to heal third-degree burns,” according to an article by Peter Elkind in the latest issue of Fortune Magazine. It settled in 1994 for $1.2 million.
Three years later, the F.T.C. was back again, levying a $1.5 million fine against Nu Skin “for making false claims about its weight-loss products,” writes Elkind (who is, for the record, a friend and former colleague). Despite these blemishes, Nu Skin sought, just a few years later, to become an Olympic sponsor — a $20 million investment that would allow it to slap the Olympic rings on its products.
Here is how Elkind describes what happened next: “Sponsorship by a supplement company was controversial at a moment when the International Olympic Committee was warning athletes to avoid supplements, since they might contain banned substances. But Romney defended Nu Skin after it submitted its products to independent review.” He also appeared at a Nu Skin convention in 1999, where he essentially endorsed the company and its products: both Nu Skin and the Olympics, he said, are “about taking control of your life and managing your own destiny.” Steve Lund, a co-founder of the company, described the value of the Olympic sponsorship as “incalculable.”
You know how multilevel marketing companies work, don’t you? You sign up to become a “distributor” of a company’s products — but at the same time you also agree to become a customer. You have to buy a certain dollar amount of products each month, and then you have to recruit others, who, in turn, buy products from you. Then they have to do likewise — and on and on. That’s the essential pyramid.
The people at the very top can make millions; in Nu Skin’s case, 34 distributors have made $20 million or more. But, according to the company itself, some 87 percent of its distributors made no commissions at all in 2011. Indeed, most people who sign up lose money.
In addition, these companies often sell products of dubious value. In the case of Nu Skin, Elkind spoke to a number of scientists who scoffed at Nu Skin’s anti-aging claims. Because so many multilevel marketing companies are based in Utah, critics joke that the initials MLM stand for Mormons Losing Money. (Nu Skin executives insist that their products work as advertised, and that distributors are not taken advantage of.)
Elkind’s story is primarily a rollicking tale of the battle between Nu Skin and a handful of short-sellers, who are betting that the company’s products and practices are headed for trouble. (Herbalife is another multilevel marketing company the shorts have targeted.) But that may be wishful thinking. In the last decade, government investigations into multilevel marketing companies have largely withered away. The reason is that the companies have learned how to make friends with powerful politicians. In 1994, Republican Senator Orrin Hatch from — where else? — Utah sponsored a law, according to Elkind, “that deregulated the nutritional supplement industry, allowing it to sell products without prior F.D.A. review.” Nu Skin expanded into China with the help of Utah’s governor at the time, Jon Huntsman Jr. It put two former senators on its board. Most recently, the F.T.C. promulgated something called the Business Opportunity Rule, which is meant to offer a measure of protection for people who are pitched stay-at-home business opportunities. Incredibly, the multilevel marketing industry was exempted from the rule.
And then there is Mitt Romney, who’s never cut his ties to the industry. Why would he? Industry executives have been generous donors to his presidential campaign. One co-founder of Nu Skin chaired his national finance committee four years ago. Another threw him a fund-raiser.
And Lund, the third co-founder, has donated $3 million to Restore Our Future, the “super-PAC” that is backing Romney. “Mitt Romney is a pretty close friend,” Lund told Elkind. “We have been in his house many times. He and Ann had Thanksgiving at our house one year.”
For Romney, these are the ties that bind.
(The New York Times)
