expert report stacie bosley, ph.d. for the united states ......6. i am being compensated by the ftc...
TRANSCRIPT
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ExpertReport–StacieBosley,Ph.D.FortheUnitedStatesFederalTradeCommissionRegardingSuccessByHealth(SBH),adivisionof
SuccessByMediaHoldingsInc.
ContentsI.CaseOverviewandExpertQualifications.............................................................................................2
II.PurposeandMaterials..................................................................................................................................3
III.ConceptualFramework..............................................................................................................................3
IV.MarketingProgramOverviewandSummaryofFindings...........................................................6
IV.1OverviewoftheSBHMarketingProgram.................................................................................6
IV.2SummaryofFindings.......................................................................................................................17
V.CommissionPlanAnalysis.......................................................................................................................19
VI.SBHAffiliateTraining...............................................................................................................................42
VI.1IncentivizedAffiliatePurchases.................................................................................................42
VI.2AffiliateRecruitmentandDuplication.....................................................................................50
VI.3Retail.......................................................................................................................................................52
VI.4SBHOne‐YearCommitment.........................................................................................................55
VII.IncomeRepresentationsandAffiliateData...................................................................................56
VII.1IncomeRepresentations...............................................................................................................56
VII.2AffiliateDataandSBHUpdates.................................................................................................67
VIII.Safeguards..................................................................................................................................................75
IX.OverallConclusions...................................................................................................................................79
AppendixA.CurriculumVitae.....................................................................................................................81
AppendixB.MaterialsReviewed................................................................................................................85
AppendixC.MathematicalAnalysisofaPyramidScheme.............................................................88
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I.CaseOverviewandExpertQualifications
1.ThisreportwaswrittenattherequestoftheFederalTradeCommission(FTC)andaddressestheSuccessByHealth(SBH)businessopportunity.
2.MynameisDr.StacieA.Bosley.IhaveadoctoraldegreeinAppliedEconomicsfromtheUniversityofMinnesota.InmycapacityasanassociateprofessorofeconomicsatHamlineUniversity,Iresearchmulti‐levelmarketing,directsellingandpyramidschemes.Ipublisheda2015paperintheJournalofPublicPolicyandMarketing1thataddressestheintersectionofmulti‐levelmarketingandpyramidschemeactivitythroughacasestudyofFortuneHiTechMarketing,whichwassubjecttoanFTCenforcementaction.Ialsopublisheda2018paperintheJournalofFinancialCrimethatanalyzescounty‐levelriskfactorsassociatedwithpyramidschemevictimization.2Mostrecently,Ipublisheda2019articleintheJournalofBehavioralandExperimentalEconomicsthatexplorespyramidschemevulnerabilityusinganeconomicexperiment3andanotherarticlethatexploresinformationdisclosureandconsumerearningsexpectationsinmulti‐levelmarketing,forthcominginEconomicInquiry.4Ihavealsopresentedresearchonthesetopicsatnumerouseconomicsconferencesaroundthecountry,includingthe2019MidwestFederalTradeCommissionCommonGroundConferenceandthe2018FederalTradeCommissionConsumerProtectionEconomicsSymposium.
3.Beyondformalacademicresearch,IwasinvitedtocreateaTED‐Edlessononpyramidschemefraud5andoftenrespondtomediaquestionsrelatedtopyramidschemes,multi‐levelmarketingandbroaderissuesinconsumerfinancialfraud.
4.IhaveservedasanexpertwitnessfortheFederalTradeCommissioninpyramidschemelitigation.InFTCv.VemmaNutritionCompany,Case2:15‐cv‐01578‐JJT,Isubmittedmultiplewrittendeclarationsandtestifiedina2016preliminaryinjunctionhearingintheUnitedStatesDistrictCourtfortheDistrictofArizona.OtherthaninVemma,Ihavenottestifiedasanexpertwitnessinthelastfouryears..Withrespecttospecificfederallegislationandregulatoryrulechanges,Ihavesubmittedformalcommentsandpublisheda2017opinionpiece.6
1Bosley,S.&McKeage,K.(2015).MultilevelMarketingDiffusionandtheRiskofPyramidSchemeActivity:TheCaseofFortuneHi‐TechMarketinginMontana.JournalofPublicPolicy&Marketing,34(1),84‐102.2Bosley,S.&Knorr,M.(2018).Pyramids,Ponzis,andfraudprevention:Lessonsfromacasestudy.JournalofFinancialCrime,25(1),81‐94.3Bosley,S.,BellemareM.,Umwali,L.&YorkJ.(2019).Decision‐MakingandVulnerabilityinPyramidSchemeFraud,JournalofBehavioral&ExperimentalEconomics,80,1‐13.4 Bosley, S.,Greenman,S.,&Snyder,S.(2019).VoluntaryDisclosureandEarningsExpectationsinMulti‐levelMarketing,EconomicInquiry,publishedonlineasEarlyView(https://doi.org/10.1111/ecin.12840).5Seeed.ted.com/lessons/how‐to‐spot‐a‐pyramid‐scheme‐stacie‐bosley.6SeeBosley,S.(September29,2017).FlawedAnti‐PyramidActReflectsConfusionOverPastandPresent.MorningConsult.availableatmorningconsult.com/opinions/flawed‐anti‐pyramid‐act‐reflects‐confusion‐past‐present/andBosley,S.(2013).CommentsRegardingtheFederalTrade
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5.Myuniversityteachingfocusesonmicroeconomics,quantitativeanalysis,managerialeconomicsandbehavioraleconomics.Eachoftheseareasisrelevanttotheanalysispresentedinthisreport.Microeconomicsisthestudyofindividualdecision‐makingandresponsestoincentives.Behavioraleconomicsexaminesdecision‐makingwithaspecialfocusoncognitivebiasesanderrorsinjudgment.Quantitativeanalysisprovidesabackgroundinanalyticalapproachestounderstandingdataandpatterns.Lastly,managerialeconomicsstudiesdecision‐makinginsidebusinessesandorganizations.Anunderstandingoftheactionsofthefirm(e.g.,insettingcompensationpoliciesandprocedures)andtheactionsoftheindividual(e.g.,injoiningandparticipatinginabusinessopportunity)arehighlyrelevanttotheanalysisthatfollows.Atrueandcorrectcopyofmycurriculumvitae,whichincludesalistofallpublicationsthatIhaveauthoredinthelasttenyears,isattachedasAppendixA.
6.IambeingcompensatedbytheFTCattherateof$200perhour.Mycompensationinnowaydependsontheoutcomeofthecase.
II.PurposeandMaterials
7.ThepurposeofthisreportistoanalyzetheSBHmarketingprogramtodeterminewhetherSBHisoperatingasapyramidschemeandwhetherthecompanyanditsrepresentativesaremakingmisleadingrepresentationstoconsumers.TheSectionsthatfollowsetforthmyanalysisandinclude:astatementoftheconceptualframeworkIapply,includinglegalassumptionsprovidedtomebyFederalTradeCommissionstaff;anoverviewoftheSBHmarketingprogramandsummaryofreportfindings;areviewofthecompany’sincentivestructure;adiscussionofAffiliatetraining;areviewofincomeandlifestylerepresentations;ananalysisof“safeguards”toprotectconsumers;adiscussionofavailableoperationaldata;andoverallconclusions.
8.Asthisreportrepresentsanassessmentofavailablematerials,theopinionshereinarebaseduponmaterialsmadeavailablebyFTCstaffaswellasmaterialsavailabletothepublic(e.g.,YouTubevideosandthecompany’swebsitecontent).AcompletelistingofreviewedmaterialsisprovidedinAppendixB.Thesematerialsincludedocumentsandaudio‐visualfilesavailabletoSBHAffiliates,includingthefirm’sCommissionPlan,aswellastrainingandmarketingmaterials.IhavealsoreviewedconsumerandAffiliatetransactiondata,providedbyFTCstaff.
III.ConceptualFramework
9.ForpurposesofmyanalysisoftheSBHmarketingprogram,Iwillapplytworelateddescriptionsofapyramidscheme:onebeingageneraleconomiccharacterizationand,the Commission’sRuleConcerningCooling‐OffPeriodforSalesMadeatHomesoratCertainOtherLocations,ProjectNumberP087109.
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other,adefinitionborneofrelevantcourtfindingsrelatedtomultilevelmarketingprogramsknownastheKoscottest.7
10.Fromaneconomicperspective,apyramidschemeexistswhenacompensationstructureisdesignedtocreateaperpetualrecruitmentchainthatdoomsthevastmajorityofparticipantstofinancialloss.Itrequiresongoingrecruitmentasnewentrantsmustrecruitothersinordertocovertheirownpersonalinvestment.Whenanewparticipantrecruitsothers,allindividualswhojoinbecomepartofher“downline,”whilethoseaboveherareconsideredher“upline.”Downlineactivity(recruitmentandassociatedpayments/purchases)isneededinordertocoverparticipationcostsandpotentiallyachieveadvertisedearnings.WhiletheCompensationPlandetailsmayvary,theessenceofthesystemisthatearningsaredependentontheongoingabilitytorecruitothersintothesamesystem.Bydesign,thiscreatesasystemwherethevastmajorityofparticipantscannotrecouptheirpersonalinvestment.Aslongasrecruitmentcontinues,membershipgrowsatanexponentialrate.Atanymomentintime,themostrecententrantsmakeupthevastmajorityofmembership.Thismajorityistheverygroupthatisinapositionoffinancialloss,astheyhavenotacquiredthedownlinerecruitsnecessarytooffsetpersonalinvestments.Bynatureofthestructureitself,apyramidschemeisamoney‐transferschemethatsiphonsmoneyfromlaterentrantstocompensateearlierentrants,deliveringeasilyforeseenlosses(fromastructuralperspective)tothevastmajorityofparticipants.
11.Itshouldbenotedthattheoutcomesofexponentialgrowthandwidespreadlosses,articulatedabove,areexpectedatanypointintimeanddonotrequirethatthefirmhasreachedmarketsaturation.AsdemonstratedinAppendixCandbelow,inthecontextofSBH’sCompensationPlananalysis,thepercentageofparticipantsinthelowestlevelsoftheorganizationwillconstitutethemajorityofparticipantsatanymomenttheschemeisanalyzed.TheanalysiswillshowthatlossratesarenotaccidentalandcanbeanticipatedgiventherecruitmentincentivesinherentintheCompensationPlan.Asthepromisedrewardsarerealizedonlyifsuccessfulrecruitmentcontinuesindefinitely,positiveearningssuggestionsareinherentlydeceptiveandcannotbefulfilledfortheoverwhelmingmajorityofparticipants.Theabsolutenumberofpeoplewhowillultimatelybeharmed(leftwithlosspositions)growsexponentiallyastheorganizationexpands.Manyparticipantswillexitwhenrecruitmentbecomesmoredifficult.Newrecruitsthentaketheplaceoftherecentdropouts,creatingachurningbase.Mostinthechurningbasewilllosemoneywhileafewadvancetohigherlevelsoftheorganization.Thevastmajorityofoverallparticipantsarenotexpectedtoearnenoughtocovertheirpersonalinvestment.
12.Whilepyramidschemescantakearelativelysimpleform(e.g.,giftingschemeorchainemail/lettersolicitation),theycanalsobeembeddedwithinabusinessopportunitythatoffersaproductorserviceforsale.MyunderstandingisthatcourtsusetheKoscottest(1975)toaddressthistypeofbusinessstructure.TheKoscotanalysisassumesadirect 7Thedefinitionsusedinthisreportareadaptedfromthedefinitionsinapeer‐reviewedarticlewrittenbyWilliamKeepandPeterVanderNat(Keep,W.&VanderNat,P.2014.MultilevelmarketingandpyramidschemesintheUnitedStates.JournalofHistoricalResearchinMarketing,6(2),188–210).TheKoscottestarisesfromInreKoscotInterplanetary,Inc.,86F.T.C.1106(1975).
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sellingcontextwhereparticipantsmakepaymentsthatentitlethemtoearnbasedonsubsequentsalesandrecruitment,eitherdirect(salesorrecruitmentbytheparticipanthim/herself)orindirect(salesorrecruitmentbythoseinhis/herdownline).Suchstructuresarecommonlyknownasnetworkmarketingormultilevelmarketing(MLM)programs.TheKoscotanalysisappliesthegeneraleconomiccharacterizationofapyramidschemetoaspecificcontext‐thatofmultilevelmarketing‐andisusedbythecourtstodistinguishbetweenlegalmultilevelmarketingprogramsandpyramidschemes.TheKoscotteststatesthatapyramidscheme,organizedandpromotedasanMLM,ischaracterizedbythepaymentbyparticipantsofmoneytothecompanyinreturnforwhichtheyreceive(1)therighttosellaproductand(2)therighttoreceiveinreturnforrecruitingotherparticipantsintotheprogramrewardswhichareunrelatedtosaleoftheproducttoultimateusers.
13.MyunderstandingisthattheKoscottest,whichwasadoptedbytheFTCin1975,hasbeenaffirmedinmultipleFederalcourtopinionsincludingOmnitrition(1998),Gold(1999)andBurnLounge(2014).Iamnotanattorneyandthisreportdoesnotpurporttocontainadetaileddiscussionofthelegalissuessurroundingpyramidschemes.Totheextentthatthisreportdependsuponlegalanalysis,IrelyuponthedeterminationoftheapplicablelawprovidedtomebyFTCstaff.InadditiontotheKoscottest,Ihavebeenaskedtoapplytwoprinciplesfromthe9thCircuit’sdecisioninBurnLoungethatarerelevanttothesecondprongoftheKoscottest.Thefirstprincipleisthatprogramparticipantsmayonlybeconsidered“ultimateusers”oftheprogram’sproductsiftheparticipantspurchasetheproductsforpersonalconsumptionbasedonconsumerdemand,notprimarilyforthepurposeofparticipatingfullyintherewardsundertheCompensationPlanforthebusinessopportunity.Thesecondprincipleisthat,inorderforthesecondprongoftheKoscottesttobesatisfied,itisnotnecessaryforcompensationtobecompletelyunrelatedtosalestoultimateusers.Statedanotherway,theexistenceofsomesalestoultimateusersforpurposesofconsumptiondoesnotpreventaplanfrombeinganillegalpyramidstructure.
14.IhavealsobeenaskedtoconsidertheadditionallimitsonamarketingschemeoperatedbyMr.NolandassetoutinapriorOrderagainsthim(2002‐07‐02FTCFinalJudgmentandOrderforPIastoJDNoland).Inrelevantpart,theOrderprohibitsMr.Nolandfrom“makingorassistinginthemakingof”falseormisleadingincomeclaims,discussedfurtherinSectionVII.TheOrderfurtherbarsMr.NolandfromengaginginanMLMthatpays“rewardswhichareunrelatedtothesaleofproductsandservicestoultimateusers”whererewardsare“’unrelated’tothesaleofproductsandservicestoultimateusersifrewardsarenotbasedprimarilyonrevenuefromretailsales.”Furthermore,theOrderstatesthatretailsales“doesnotincludesalesmadebyparticipantsinamulti‐levelprogramtootherparticipantsorrecruitsortosuchaparticipant’sownaccount”andthatultimateusersare“purchasersofretailsales.”
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IV.MarketingProgramOverviewandSummaryofFindings
IV.1OverviewoftheSBHMarketingProgram
15.SBHofferscoffee,teaandsupplementsthroughamulti‐levelmarketing8distributionstructure.Figure1showsthearrayofproductsofferedbySBH.9IndividualscanparticipateinSBHasacustomerorasanAffiliate(i.e.,asaproductdistributor).Customerscanpurchaseproductinoneofthreeways:buydirectlyfromanAffiliate;purchasethroughtheAffiliates’SBH‐providedwebsite;orpurchasethroughthecompany’sownwebsite.IfacustomerpurchasesproductdirectlyfromanSBHAffiliate,theAffiliatesetsthepriceandpersonallyprovidestheproductfromtheirowninventory.IfacustomerpurchasesfromtheAffiliate’swebsiteorthemainSBHwebsite,SBHshipstheproductdirectlytothecustomer.Whenbuyingonline,thecustomerpurchasestheproductsatthesamepriceasanAffiliate(i.e.,“wholesaleprice”)butthecustomerisnoteligibletoearncommissions,bonusesorotherrewards(e.g.,trips).Tohaveaccesstosuchrewards,anindividualcansignupasanAffiliateandearnsaidrewardsasprescribedbytheSBHCommissionPlan.
16.TheSBHwebsitestatesthattheSBHAffiliatewillearnmoneybyreferringconsumerstoSBHproducts(https://successbyhealth.com/?u=successbyhealth):
“MakeMoneyReferringOurProducts&ServicesThroughourpowerfulaffiliateprogram,wealloweveryonetheopportunitytoprofitfromourcompany’sproductsandsuccess.TheSuccessByHealth(SBH)AffiliateProgramissimpletojoinandrequiresnomonthlyproductpurchasestoearncommissions.Simplyreferourproductsandservicestoothersandearn!”
8ThoughSBHFounderandCEOJayNolandsometimesrejectsthe“MLM”termandpreferstorefertotheSBHcommissionsystemas“affiliatemarketing”(2017‐10‐31LetsTalkCoffeewJayNoland(PrivateVideoReleased)),thestructurematchesaconventionalmulti‐levelmarketing(MLM)structurewiththepotentialforrewardsfrompersonalpurchases,personalsales,andthesalesandpurchasesofdownlinerecruits.9Arecentvideo(SBHPower2andVOZTravelTraining)suggeststhatSBHisalsoaddingtravelservicestoitslineofofferings.TravelproductswillnotbeaddressedinthisreportastheyarenotyetfullyintegratedintotheSBHCommissionPlanandthevideocontentmirrorstheincentivestructureandtrainingdiscussedinthisreport.
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Figure1.SBHProductLine(2018‐05‐05SBHBusinessOverviewB‐2)
17.Thecompany’sflagshipproductisaproprietarybrandofcoffee.TheSBHBusinessOverviewconnectstheubiquitousdemandforcoffeearoundtheworldwiththefinancialrewardsavailabletoSBHAffiliates(BusinessOverview|SuccessByHealth).AsshowninFigures2and3,SBHclaimstobepositionedtocapturemarketshareby“transferring”demandfromsubstituteproductstoSBH,creatinga“baseofconsumersforlife.”Marketingmaterialssuggestthatonepercentoftheglobalcoffeemarketwouldgenerateaprojected$24billioninrevenue.AsstatedinFigure3:“WithSuccessByHealthdoing$24billioninannualsales,thatmeansupto$12Billionisbeingpaidincommissionstoouraffiliates…peryear!”10Mr.Nolandarguesthat“ifwemessitup”andonlygetone‐half,one‐quarter,orone‐eighthofonepercent,SBHwouldstillbeamultibillion‐dollarcompany,payingoutbillionsofdollarsincommissionstoitsAffiliates(2017‐10‐31LetsTalkCoffeewJayNoland(PrivateVideoReleased)).AsshowninFigure4anddiscussedincompanyvideos(e.g.,2019‐02‐08SBHCommonSenseBusiness),SBHarguesithas“fourkeypoints”ofdifferentiation:taste,health,price,andfinancialrewards.
10Thesecalculations–movingfromsevenbillionpeople,tofourbillioncoffeedrinkers,toonepercentofthemarketandaprojected$24billionand$12billioninrevenueandcommissions,respectively–areacommonelementoftheSBHpromotionmaterials.Similarargumentscanbefoundinnumeroussources,includingthefollowing:2017‐10‐31LetsTalkCoffeewJayNoland(PrivateVideoReleased),2018‐06‐04SBHMoneyTalk–FinancialFreedomwithSBH,2019‐02‐08SBHCommonSenseBusiness,and2019‐01‐286a_SBHProspectingSystemCoffee.Ofnote,SBHstatesinawrittendocumentthatthecoffeemarketisa“$100+BILLIONayearindustry.”2019‐08‐04SBHBusinessOverview.Onepercentofthatwouldbe$1billion.
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Figure2.ConnectionbetweenCoffeeandFinancialHealth(ImagefromBusinessOverview|SuccessByHealth)
Figure3.Capturing“1%”(ImagefromBusinessOverview|SuccessByHealth)
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Figure4.“FourKeyPoints”(ImagefromBusinessOverview|SuccessByHealth)
18.SBHispromotedasapathwaytoentrepreneurialrevenueandasananswertothechallengesofthemoderneconomy.Inapromotionalvideo(2017‐10‐30SBHPlanB),thenarratorstepsthroughtherisksofthelabormarket,traditionalinvestments,andsmallbusinessventuresarguingthatSBHisthebest“PlanB”optionavailable.Quotes(below)andimages(inFigures5and6)summarizetheargument.
“Unemploymentisaconstantthreat.Companiesaredownsizing.Thestockmarketisunstable.Expertssayitisgoingtogetalotworsebeforeitgetsbetter.”“Mostfamiliesonlyhaveresourcestocoveronemonth’sworthofexpensesifyouonlyrelyononesourceofincome,sayyourjob.”“Youcouldsuffer.Yourfamilycouldsuffer.Yourkidscouldsuffer.Yourjobisnotaguarantee.Ifyouworkforsomeoneelse,youhavenocontrol.Howsecurecouldyoupossiblybe?Sothen,whatareyouroptions?”
Thenarratorcontinues:youcouldpickupasecondjob,“butyouprobablywon’tmakeenoughmoneytopaytaxes,additionalchildcare,extragasinyourcar,andwhoreallywantstwobosses?”Youcouldinvestina401Kplan,but“rememberthatmoneyisinthestockmarket,needIsaymore?”Youcouldstartyourownbusiness,butyouwould“needpilesofupfrontmoney”and“85%ofnewbusinessesfailwithinoneyear.”Whileafranchise“hasaprovensystem,”“whohasanextramilliondollarslayingaroundtobuyone?”
19.Incontrasttothesetraditionalapproachestoincomeandwealthgeneration,SBHisdescribedasa“home‐basedbusinesswithaprovensystemandalowstart‐upcost.”SBHissaidtobelucrativeandopentoanyone,regardlessofpastexperience.
“Imaginetakingbackcontrol,beingincontrolofyourtime,cashflow,andqualityoflife.Youknow,thosepeoplethattakevacationsanytimeoftheyear.Thosepeopleplaying
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golfatoneo’clockintheafternooninthemiddleoftheweek.Thosepeopledrivingthefinestcars,livinginthenicestneighborhoods,chancesaretheyowntheirownbusinessandtheyowntheirlife.Thegoodnewsis,youcantoo.”[SBHis]“acompanywhereyoucanhavelittleornobusinessexperienceorexpertise.Acompanywhereyoucanworkparttimeorfulltime.Acompanywhereyoucanworkfromthecomfortsofyourownhome.Acompanywhereyouhaveanopportunitytomakesomerealmoney.Youhavecontroltomakewhatyou’reworth.SuccessbyHealthcanchangeeverything.Thecaryoudrive.Thehomeyoulivein.Thevacationsyoutake.Thecontrolofyourlife.”“Beapartofarecession‐proofmarket.”“SuccessByHealthcanbeyourPLANB.Youcaneitherbeinfearoftheseunstabletimesoryoucanhavecontrol.It’suptoyou.”
20.SBHissaidtoembodythewisdomofthewealthy,who“donottradetimeformoney”but“useotherpeople’stime”and“otherpeople’smoney”togenerate“residualincome”(BusinessOverview|SuccessByHealth).Residualincomeisdescribedas“passiveincome”thatispaidtotheAffiliate“whetherornottheyare‘working’”(BusinessOverview|SuccessByHealth),wherethisincomestreamissaidtobegeneratedbytheongoingdemandforcoffeeorotherSBHproducts.AsstatedintheSBHPlanBvideo(2017‐10‐30SBHPlanB):“Residualincomeismoneythatcomesinoverandoveragain,evenifyoudon’twork,andwecanshowyouhowtomakeit.”
21.TostartonthepathtoearningincomewithSBH,thefirststepistosignonasanAffiliateandconsidertheenrollmentpackoptions,showninFigure7.ThenewAffiliatecanpaya$49feeorpurchaseaproductpackfor$125(ProductStarterPack),$500(AcceleratorPack)or$1,995(SuperAcceleratorPack).AsdiscussedfurtherinSectionVI,Affiliatesareencouragedtobuythehighestpricedenrollmentpackiftheyareseekingmaximumrewardsfromthebusinessopportunity.Thesizeoftheenrollmentpackissaidtobeconnectedtooneoftherecruit’sthreeself‐determined“types”anddesiredoutcome.AsshowninFigure8,therecruitistoldtheycanchooseamong(1)earningsupplementalincome,(2)earningreplacementincome(i.e.,incomethatwouldreplaceanexistingjob),or(3)obtaining“financialfreedom.”
22.JayNoland,SBHFounderandCEO,discussesthefinancialpossibilitiesintheSBHCEO’sCompanyVisionMessage(https://successbyhealth.com/?u=successbyhealth):
“ThefinancialopportunityherewithSuccessByHealthissecondtonone.Weprovideaplatformthat’savailableforeverybody.SowhetheryouwanttosupplementyourincometobeabletopickoneortwoofyourbillstogetthatpaidfromyourSuccessByHealthbusiness,orifyouwanttoreplaceyourincome.Weknowtherearepeoplethattheyreallywouldlovetocomeawayfromthejob.Theyjustneedtobeabletohavethetoolsandresourcestodoso.Wecanhelpyouwiththat.Or,ifyou’dliketoachievefinancialfreedom,meaningyouwouldliketobeabletoownyourlifefromhereonoutinjustahandfulofyears,tobeabletohavecompletecontrolfinancially,tobefree.WewanttoprovidethatopportunityherewithSuccessByHealthforwhateveryourfinancialgoalsare.”
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Figure5.TheProblemswithSBHAlternatives(Imagesfrom2017‐10‐30SBHPlanB)
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Figure6.SBHastheSuperiorPlanBOption(Imagesfrom2017‐10‐30SBHPlanB)
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Figure7.HowtoGetStarted(ImagesfromBusinessOverview|SuccessByHealth)
Figure8.TypesofPeople(ImagefromBusinessOverview|SuccessByHealth)
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23.AsdepictedinFigure9,theenrollmentpackpurchaseisdescribedasthefirstoffourstepsforthenewSBHAffiliate.Thesecondstepistobecomea“productoftheproduct”throughpersonalpurchaseanduseofSBHproducts.AsdescribedinSectionVI,thisoftentranslatestoinstructionstoestablishapersonalauto‐orderthatwillcontinueonamonthlybasisuntiltheAffiliateinitiatescancellation.WhiletheAffiliateistechnicallynotrequiredtopurchaseproductorestablishanauto‐order,sectionsVandVIdescribetheincentivesandtrainingthatdirecttheAffiliatetopurchaseproductonamonth‐to‐monthbasis.ThethirdandfourthstepsaretobuildateamofdownlineAffiliatesandfollowSBHtraining,learningtotrainfor“duplication.”Inthiscontext,duplicationreferstotheabilitytobringinnewrecruitsandtrainthemtorepeatone’sownactions,therebybuildingadownlineorganizationthatadherestothe“FourStepstoSuccess.”AsexplainedintheSBHFastStartSystem(2019‐01‐24SBH_FastStartSystem_v20190115):
“ThekeytolongtermsuccessisDUPLICATION.Duplicationcomesfromputtingtogethersimplestepsthatcanbefollowedandrepeatedbyalargegroupofpeople.”
Figure9.FourStepstoSuccessinSBH(ImagefromBusinessOverview|SuccessByHealth)
24.Tosupportduplication,SBHprovidestrainingmaterialsforthenewAffiliate,includingtheSBHFastStartSystem(2019‐01‐24SBH_FastStartSystem_v20190115).TheFastStartSystemprovidesdocuments,audiolinksandvideosthatincludestep‐by‐stepinstructionsforpromotingtheSBHproductsandbusinessopportunity.Thesematerialsincluderetailandprospectingscripts,whichdirectthenewAffiliatetousespecific,SBH‐createdlanguage.TheFastStartSystemalsoincludesmessagingtopromoterecurringAffiliatepurchases(2019‐01‐282_PowerOfAnAutoOrderProgram)andadviceforestablishingaone‐yearcommitmentwithnewlyrecruitedAffiliates(1YearCommitmentForm).Affiliates
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areinstructedtousetheseSBH‐providedmaterialsandtraintheirrecruitstodothesame.IwilldiscusstrainingmaterialsindetailinSectionVI.
25.AffiliatecompensationisdeterminedbytheSBHCommissionPlan,whichincludessixcompensationtypes(or“Phases”).Anewversionofthepayplan–CommissionPlan2.0–wasintroducedonAugust1,2019.Thisnewversionmaintainstheoriginalcompensationtypesandaddssixadditionalsourcesofincome.IdiscussbothversionsoftheCommissionPlanindetailinSectionV.Thefirstsourceofcompensation–retailprofit–iscontingentoncustomerdemandforSBHproductsandthemodeofpurchase.Thecompany’sretailprofitprojections(e.g.,$54,000peryearfrom100monthlycustomers)assumethatcustomerswillbuydirectlyfromanAffiliateandbewillingtopayapricethatexceedstheAffiliate’spurchasecost,eventhoughcustomerscanpaythesamepriceastheAffiliatebypurchasingthroughtheAffiliate’swebsiteorthecompany’swebsite.WhileanAffiliatecanearnasmallcommissiononthecustomerpurchasesmadethroughhis/herwebsite(discussedfurtherinSectionV),Affiliatesareencouragedtohelpthecustomerearn“free”productsbyconvertingthemfromcustomertoAffiliatestatus(discussedinSectionVI).Furthermore,ifaretailcustomerpurchasesproductdirectlyfromtheSBHwebsite,theAffiliate–whomayhaveintroducedthecustomertoSBHproducts–receivesnocompensationfromthetransaction.Beyondretail,theremainingsourcesofcompensationarebasedontheaccumulationofpurchasevolume,largelygeneratedthroughtherecruitmentofnewAffiliateswhopurchaseproductandsimilarlyrecruitadditionalparticipants.
26.RecruitmentiscentraltotheSBHsystemandincomeprojections.InalivepresentationtoSBHAffiliatesandprospectiverecruits,JayNolandexplainsthefinancialbenefitshehasderivedfromrecruiting(2019‐04‐15SBHLiveGroupPresentationwithCEOJayNoland):
“Overtwomillionpeoplearepartofmyteam,andeverytimetheydosomething,Imakesomemoney.Nowhowmanyofyouallwouldliketohavetwomillionpeoplepitchinginonyourcarpayment?Whowouldliketohaveovertwomillionpeoplepitchinginonyourmortgage?Howmanyofyouthinkyouwouldn’thaveamortgage?Howmanyofyouthinkyouwouldn’thaveacarpayment?WhatifallIdidduringthecourseoftheyearwasjustmadeonedollaroffoftheeffortsoftwomillionpeople,whatwouldthatpayme?”
27.The“PowerofTen”isthemostfrequentarticulationoftherecruitmentimperative.11AccordingtothePowerofTen,newAffiliatesaretoldtheywillaccumulateSBHcommissionsandbonuseswhentheypurchaseanenrollmentpack,establishanauto‐order,recruit10additionalAffiliates,andtrainthoseAffiliatestorepeatthatprocess.Again,thesestepsarenotrequiredtoearncompensation,butAffiliatesaretrainedtofollowthesestepstomaximizereturnsfromtheSBHCommissionPlan(discussedfurtherin 11ThePowerofTenisdiscussedfrequently,invideos(including2017‐10‐31LetsTalkCoffeewJayNoland(PrivateVideoReleased),2019‐04‐15SBHLiveGroupPresentationwithCEOJayNoland,2018‐06‐04SBHMoneyTalk‐FinancialFreedomwithSBH,and2017‐11‐07SBHCommissionPlan),indocuments(suchasBusinessOverview|SuccessByHealthand2019‐01‐289_SBHGroupPresentationScriptCTM)andonthecompanywebsite(https://successbyhealth.com/affiliate‐details/?u=successbyhealth).IwilladdressthisagaininSectionV.
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SectionsVandVI).Thisbehaviorissaidtobuilda10‐by‐10structurewheretheAffiliate’s10recruitseachbringin10(100newAffiliates),whoeachbringin10(1,000newAffiliates),whoeachbringin10,andsoon.AsMr.Nolandexplainstorecruits(2019‐04‐15SBHLiveGroupPresentationwithCEOJayNoland):“Allyougottodoisfindtenotherpeoplewhowanttodothesame.Nowwegetintoresidualincome.”Ifexecutedproperly,thisprocessissaidtoturnthenewAffiliateintoa“coffeemillionaire”(2017‐11‐07SBHCommissionPlan).
28.SBHAffiliatescanearncompensationexclusivelythroughrecruitmentandinternalpurchases,withoutanyverifiedretailsalestoultimateusers.SBHrepeatedlyhighlightshigh‐incomescenariosthatarebasedexclusivelyonongoingrecruitmentandinternalmonthlypurchases.Aswithenrollmentpacks,month‐to‐monthAffiliatepurchasestriggercompensationevenifthoseproductsareneversoldtoasingleultimateuser.12
29.BeyondthecompensationavailablethroughtheCommissionPlan,SBHadvertisesluxurytripsasarewardforsuccessfulengagementwiththefirm.Toqualifyforthesetripsandearnmaximumbenefitsfromthecompensationstructure,thecompanyencouragesAffiliatestoattendSBHseminarsandevents.TheSBHFastStartSystemdescribestheimportanceofpayingtoattendtrainingevents(2019‐01‐24SBH_FastStartSystem_v20190115):
“Anextkeystepintogrowingyourbusinessismajortrainingevents.Thefastestway,again,thisisthefastestwaytobuildlarge,long‐termmomentumwithyourteamistotakeasmanypeopleaspossibleonyourteamtoourmajortrainingevents.”“Ifyou’relookingtoreplaceyourincomeorfinancialfreedom,whenwe’redone,whenyou’redonelisteningtothisrecording,itwouldbegoodtostopandthengogetregisteredrightnowbeforemovingon.”
Training‐relatedexpensesincludeeventtickets,travel,accommodations,andforegoneincome.SectionsVIincludesfurtherdiscussionofAffiliateexpenses.
30.WhilethereislimiteddiscussionofSBHAffiliateexpenses(i.e.,thesizeoftheenrollmentpackasaninitialinvestment),incomeandlifestyleclaimsareintegratedintonearlyallofthereviewedSBHpromotion,trainingandcompensation‐relatedmaterials.Claimsincludespecificincomeprojections(e.g.,thespecificstepstobecomea“coffeemillionaire”)andgeneralrepresentationsoffinancialfreedom,timefreedom,andlifestylerewards.SBHillustrationsprojectincomeofover$5millioninbonusesandover$1millionperyear,orevenpermonth,incommissionsforproperexecutionofthePowerofTenstrategy(seeSectionVandVI,infra).Disclaimerssometimesaccompanyrepresentations,wheredisclaimerlanguagetypicallystatesthatthereisnoguaranteeofanyparticularincomelevelandthatindividualresultsmayvarysignificantly.WhileincomeandlifestyleclaimswillbeembeddedintheCommissionPlanandAffiliatetrainingdiscussion(SectionsVandVI),SectionVIIwillspecificallyaddressSBHincomerepresentationsanddisclaimers.
12RecallthatanAffiliatepurchaseisnotconsideredanultimateuserpurchaseunlessthatpurchaseisindependentoftheindividual’spursuitofrewardsinthebusinessopportunity(i.e.,thepurchaseisnotmotivatedbytheirdesiretoearnrewardsthroughthecompensationstructure).
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IwillcontrastSBHclaimswiththerealitiesoftheSBHcompensationstructureandavailableinformationonAffiliateoutcomes,drawnfromSBHtransactiondata.
31.SBH’smaterialscontainwhatappeartobeattemptsat“safeguards”thatmightlimitrisktoconsumers.IdiscusstheseinSectionVIII.TheTermsofUsedocument,forexample,includesastatementonnotmakingincomeclaims,butthereisnoindicationthatthispolicyiseffectiveorenforcedascompanymaterialsandSBHleadersthemselvescontradictthepolicyinpubliclyavailablematerials.Therearenoexplicitpoliciesorproceduresthatwouldservetolimitrisktoconsumers.
IV.2SummaryofFindings
32.IfindthatSBHfocusesitstraining,advancement,andearningsontherecruitmentofnewSBHAffiliatesandthepurchasesmadebythoseAffiliates.Recruitment‐centeredtrainingandincentivesdwarfthoseassociatedwithretailtoultimateusers.WhenSBHdoesaddressretail,itdoessowithretailprofitprojectionsthatarebuiltonerroneousorunsupportedstatements.ProjectionsassumethatcustomerswillbecontinuallywillingtopayapricethatexceedstheAffiliate’spurchasecost,ignoringthefactthatnon‐Affiliatecustomerscanaccessthelowerwholesaleprice(i.e.,thesamepricepaidbyAffiliates)throughtheAffiliate’swebsiteortheSBHwebsite.Recruitmentincentivesandtrainingundermineretailactivity,asAffiliatesseektoconvertcustomersintoSBHAffiliates.
33.IfindthatSBH’scompensationschemedirectlyrewardsrecruiting.SBHAffiliatescanearncompensationexclusivelythroughrecruitmentandinternalpurchaseswithoutanyverifiedretailsalestoultimateusers.EnrollmentpackbonusesareoneexampleofthedisconnectbetweenAffiliatecompensationandproductsales,astheAffiliateearnsimmediatecommissionfromthepurchaseofanenrollmentpackwhethertheproductsinthepackareeversoldtocustomersornot.WhileitiscommonlyunderstoodthatanMLMfirmcannotmakeadirectpaymentforrecruitmentofanewdistributor,firmssometimesuseenrollmentpackbonusestoindirectlypayforsuchrecruitment.Inthisway,theSBHenrollmentpackbonusservesasathinlyveiledrecruitmentreward.Affiliatesaretrainedandencouragedtobuyandrecruitandtotrainotherstodothesame,andtheSBHcompensationsystemwilltheoreticallypaymillionsofdollarsinrewardswithoutasingledollarofproductsold.SBHdoesnotevenhavethepretenseofapolicyorprocedurethatwouldrequireaminimumlevelofretailsales.
34.IfindthatSBHispromotedasalegitimatebusinessopportunitybutis,inpractice,anendlesschainoffer.Inthechain,productsarepurchasedmerelyasawaytoparticipateinthepyramidschemepayoffstructure.RelativetootherpyramidschemesIhavereviewed,SBH’smarketingprogramisparticularlyegregious.MLMfirmshavebeenallegedtohaveunlawfulcompensationstructureswhentheyemployeda2‐by‐2or3‐by‐3structure,asinFTCv.VemmaNutritionCompany,Case2:15‐cv‐01578‐JJT,andFTCv.AdvoCareInternational,Case4:19‐cv‐00715.Incontrast,SBH’s10‐by‐10structureisespeciallyaggressiveanddeceptivegiventhatsofewwillfindenoughrecruitstomoveoutofalossposition.Positiveprofitreliesontheongoingabilitytorecruitindividualsintothesystembuttherecruitmenttargets(10+102+103andsoon)willbeunattainablefortheoverwhelmingmajorityofparticipants.Forexample,oneadvertisedbonus–saidtobe
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attainablebyanyAffiliatewhoadherestothesystem–wouldrequiretherecruitmentof111,110(10+100+1,000+10,000+100,000)totaldownlineAffiliatesforeachpersonwhoearnsthebonus.Suchastructureisexpectedtogeneratelossesforaminimumof90percentofparticipants,andthelossratemaybeashighas99percent(seeSectionVandAppendixC).
35.AstheSBHcompensationstructurenecessarilycreatesapyramidscheme,incomerepresentationsassociatedwiththisstructureareinherentlydeceptive.Thatsaid,SBHemploysincomeclaimsthatcreateadditionalriskofharm,asconsumerswhorelyupontheseclaimsmaybewillingtomakesignificantinvestmentsinpursuitofadvertisedearnings.SBHmaterialsandrepresentativespresenttestimonialsandincomeprojectionsthatdonotproperlyreflectpotentialprofitorthelikelihoodofprofit.SBHclaimsthatthosewhoadequatelydemonstratebelief,commitmentandadherencetothe“proven”systemwillachievetheprojectedoutcomes,independentofmarketconditions,timingofentry,orthenumberofotherSBHAffiliates.DisclaimerscannotadequatelycounteractthemisleadingnatureofSBHmisrepresentations.Instarkcontrasttothefirm’sclaimsandrepresentations,SBHtransactiondatashowthatatleast94%ofSBHpurchases(indollars)aremadebySBHAffiliatesandthatover98%ofAffiliatespayinmoretoSBHthantheyreceivebackincommissions,leavingtheoverwhelmingmajorityinalossposition(seeSectionVII.2,infra,formorediscussionofSBHtransactiondataandAffiliateoutcomes).
36.WhileMLMprogramsofteninclude“safeguard”policies13thatmightcurbpotentialharmbyensuringaminimumamountofgenuineretailactivity,IfindthatSBH’spoliciesrepresenttheantithesisofsafeguards.Forexample,SBHprohibitsrefundswhichwouldallowanAffiliatetosellbackunsoldproductandinsteadarticulatespenaltiesanAffiliatewouldfaceiftheyattempttoreturnproducts.TheFoundersprogram,addressedinSectionV,raisesadditionalconcernsregardingtheexplicitconnectionbetweenrecruitment,personalpurchasesandcompensationwithinSBH.TheFoundersprogramisyetanotherexampleofdisregardforsafeguardsthatmight,intheory,ensuresomeminimallevelofretailsales.
37.IfindthattheSBHcompensationstructureincentivizesrecruitmentofnewAffiliatesandAffiliatepurchasesabovesalestoultimateusersandthatprojections–ofthenumberofretailcustomersandthenumberofnewAffiliates–areunfoundedanddeceptive.HavingreviewedthenewestversionoftheSBHCommissionPlananda2019SBHvideowhichintroducesadditionalincentives(SBHPower2andVOZTravelTraining),myfindingsandconclusionsareunchanged.SBHCommissionPlan2.0continuestoincentivizerecruitmentofnewAffiliatesandinternalpurchasesaboveallelse.AffiliatesareexplicitlypaidforrecruitingnewAffiliates,andthosepaymentsarenotcontingent,inanyway,onbonafideretailsales.SBHcontinuestomisrepresentlikelyearningsandhasnotestablishednewpoliciesorstructuresthatmightminimizetheriskforconsumerinjury.The2019video(SBHPower2andVOZTravelTraining)andrelaunchedFounder’sProgram(discussedinSectionV)demonstratethatthecompanyiscontinuingtoencourageandrewardAffiliate 13Iamnotcommentingonwhethertypicalsafeguardpoliciesareeffectiveorenforced,butonlyonthecontrastbetweenSBHpoliciesandthosethatarecommonintheMLMindustry.SafeguardpoliciesarediscussedindetailinSectionVIII.
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recruitmentandexpenditures,wherethatactivityisdisconnectedfromgenuinedemandforSBHproducts.
38.ItisclearfrommyreviewofSBH’smarketing,training,andincentivestructurethatSBHusesitsdeceptiveandinflatedincomeclaimstodriverecruiting,whichisthehallmarkofanillegalpyramid.TheprimaryroutetorewardsisthroughrecruitmentofnewAffiliatesandpay‐to‐playpurchasesbynewandexistingAffiliates.IncomeandlifestylerepresentationsaremisleadinganddonotaccuratelydepictrealizedorexpectedAffiliateprofitorthelikelihoodofprofit.Safeguardpolicies,astheycurrentlyexist,cannotsufficientlycorrectfortheemphasisonrecruitmentandincentivizedinternalexpenditures.Infact,SBHpoliciesmayexacerbateconsumerharm.
39.Thetotalityofevidence,outlinedindetailinsubsequentSections,indicatesthatSBHisoperatingasapyramidschemeaccordingtoboththegeneraleconomiccharacterizationofapyramidschemeandtheKoscotcriteriadiscussedinparagraphs10‐13.ItisimportanttonotethatthisfindingdoesnotprecludetheexistenceofsomegenuineretailsalesinSBHbutsuggeststhattheintendedmodeofoperationtreatssuchsalesasincidental,asabyproductofAffiliaterecruitment.ConsumersarebeingluredintotheSBHbusinessopportunitywithmisleadingincomeandlifestylerepresentationsand,asAffiliates,theyaretrainedtorepeatthosemisrepresentationstoprospects.Iftheyultimatelyjoinandfollowthepay‐and‐recruitincentiveandtrainingstructure,theyareparticipatinginanillegalrecruitmentchainthatwillleavethevastmajorityinalossposition.
40.Ultimately,theSBHmarketingprogramandrepresentationsofthatprogrammisleadconsumersintoapyramidschemethatwilldeliverlossestothevastmajorityofparticipants,bydesign.TheselossesareattributabletothestructureandexecutionoftheSBHprogram,ratherthantheactionsorfailureofindividualparticipants.
V.CommissionPlanAnalysis
41.TheSBHCommissionPlanestablishesthefinancialincentivestructureforAffiliates.IhavereviewedtheCommissionPlanandthemorerecentversion,CommissionPlan2.0,introducedinAugustof2019.IbeginthisSectionwithadiscussionoftheoriginalSBHCommissionPlan,whichcameintoeffectinthelatesummerorearlyfallof2017,andaddressCommissionPlan2.0attheendofthisSection.Figure10showsacompensationoverview,basedontheoriginalSBHCommissionPlan.ThesixformsofcompensationintheCommissionPlanaresometimesreferredtoasthe“6Phases.”Table1providesasummaryofdefinitionsandexamplesofeachPhase.Figures11‐22(infra)provideimagesthatincludedescriptionsandexamplesforeachcompensationPhase.Iwilldiscusseachinturn,referencingtheimages,Table1,andrelatedvideocontentproducedbySBH.
42.AsdepictedinFigure10anddescribedinTable1,thefirstwayanSBHAffiliatecanearnmoneyisthroughretailsales,knownasPhase1.Profitcanbeearnedthroughonlineorofflineretailtransactions,butPhase1onlyreferstotheofflinetransactions.RecallthatonlinetransactionsoccurwhenacustomermakesapurchasedirectlythroughanAffiliate’sSBHwebsite(withthepaymentprocessedby,andproductshippeddirectlyfrom,SBHtothecustomer).OfflinetransactionsoccurwhenanAffiliatebuysinventoryfromSBHandthenresellsthatinventory,person‐to‐person,toaretailcustomer.
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Figure10.CommissionPlanOverview(ImagefromBusinessOverview|SuccessByHealth)
43.FounderandCEOJayNolandwalksthelistenerthroughthemechanicsoftheSBHCommissionPlaninapre‐recordedvideo(2017‐11‐07SBHCommissionPlan)andbeginswithadiscussionofretailprofit.Mr.NolandbeginsbyassumingthattheAffiliatepurchasesaboxofcoffeefor$20,sellsitfor$35,andsellsthreeboxesofcoffeepermonthtoeachcustomer.AsinFigure11,Mr.Nolandthenimaginestheprofitthatwouldbeearnedfrom100customerswhowillmakemonthlypurchasesforafullyear,generating$54,000inincomefortheAffiliate.Iwilldiscussthesehypotheticalincomescenariosafterintroducingthe“6Phases”oftheCommissionPlan.
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Table1.SBHTypesofCompensation(basedonBusinessOverview|SuccessByHealth)Type(Phase) Description(1)RetailSales
IfanAffiliatepurchasestheproductat“wholesaleprice”andresellsthatproducttoanofflineretailcustomerforahigherprice,theAffiliateearnsthedifferencebetweentheretailandwholesaleprice.AnSBHexampleofretailprofitisshowninFigure11.Theinitial$45estimateassumesanofflinecustomerwhopurchased3boxesofcoffeeamonth,wheretheAffiliatepurchasedeachboxfor$20andsolditfor$35.The$45issimplymultipliedby10,20and100customerspermonth,toarriveatapossibleyearlyretailprofitof$54,000.
(2)Auto‐OrderBonuses
Productcreditisearnedbasedonauto‐ordervolume,whichincludestheAffiliate’spersonalvolume,customervolume,anddownlinevolume.5%productcreditisearnedonpersonalauto‐orderpurchases.$65inproductcreditisearnedif5directAffiliatesorcustomersareonaminimumof$60monthlyauto‐order.With10suchorders,theAffiliateearns$130inproductcredit.AsdescribedinFigure12,thisbonusrewardstheAffiliate“forbeingonauto‐order”andformaintainingauto‐ordercustomersanddownlineAffiliates.
(3)AcceleratorBonuses
IfanAffiliaterecruitsanewAffiliatewhopurchasesa$500AcceleratorPack,therecruiterearns$125.IfthatnewAffiliateinsteadpurchasesa$1,995SuperAcceleratorPack,therecruiterearns$400or$500(changedovertime).IftheAffiliatebringsinnewAffiliateswhocollectivelypurchaseatleast3ofthesepackswithinthefirst7daysofenrollment,therecruiterearnsanadditional$50credit.AsshowninFigure13,AcceleratorBonusesaresaidto“putmoneyintheirpocketsfast.”
(4)TierCommissions
TheAffiliateearns10%onhis/herpersonalordersandanycustomerordersmadethroughtheirSBHAffiliatewebsite.ThisisknownasTier0commissions.TheAffiliatecanalsoearncommissionsontheirdownline“tiers,”asshownintheimageontheright(imagefromhttps://successbyhealth.com/affiliate‐details/?u=successbyhealth).Thelowertiersareassociatedwiththefollowingcommissionlevels:Tier1,10%;Tier2,6%;Tier3,4%;Tier4,3%,andTier5,2%.Eligibilityforcertaintiersdependsonthesizeoftheenrollmentpackpurchasedorotherqualifications,asdescribedbelow.OverallTierCommissionswilldependonthenumberofdownlineAffiliatesandthevolumeassociatedwitheachAffiliate,asshowninFigures14‐18.TierCommissionsaretheformofincomeMr.Nolandreferstowhenhediscussesthepathtobecominga“coffeemillionaire.”
(5)GenerationInfinityBonus
ThisbonusispaidtoanAffiliatewhoadvancestoSuperBusinessAffiliate(SBA)byreaching$15,000inmonthlypurchasevolume.Thisbonuspays1%ondownlinepurchasevolume,downtothenextqualifiedSBA.AstheSBAcontinuestorankadvance,thispercentagecanrisefrom1%to4%.AsshowninFigure19,thisbonusissaidtopayon“infinitegenerationsthroughdevelopingstrongteams.”
(6)$1M/$5MBAMBonus
BAMbonusesrangefrom$1,000to$5millionandarebasedonthePowerofTenandminimummonthlypurchasesof$100or$500perAffiliate.Figures20‐22showthenumberofdownlineAffiliatesrequiredtoearneachbonuslevel.Forexample,anAffiliateearnsthe$1million(or$5million)BAMBonusbyrecruiting101+102+103+104+105=111,110Affiliateswhoeachhavepersonalpurchasesof$100(orauto‐orderpurchasesof$500)permonth.
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Figure11.PotentialforRetailProfit(ImagefromBusinessOverview|SuccessByHealth)
44.Inthe2017compensationexplanationvideo,Mr.Nolandturnsfromretailprofittoauto‐orderbonuses,knownasPhase2.Auto‐orderbonusesawardproductcreditformonthlypurchasecommitments,asdescribedinTable1(supra)andshowninFigure12.AccordingtoNoland:
“Ifyousetupanauto‐order,thatmeansanorderthat’sgoingtocomeouteverysinglemonth,youpickthedaywhenyouwantittocomeoutandit’sjustgoingtoautomaticallyrun.Soyougopicktheproductsyouwant,putinyourcreditcardinformation,itwillrunandcomerighttoyourdoorstep.”“Theauto‐orderprogramissostrongbecauseofthefactthatit’sgoingtogiveyoutheabilitytoearneverytimeyouorderandtoalsogetfreeproduct,andalsogivesyoutheabilitytogetfreeshipping.”
ThisbonusissaidtoallowAffiliatesto“gettheirmoneybackfromtheirownpurchases,”thoughthebonustakestheformofproductcreditanddoesnotprovidetheopportunitytoreceivecashorotherdirectpayment.Iaddresstrainingrelatedtoauto‐ordersinSectionVI,asSBHhasspecificmaterialsdedicatedto“thepowerofanauto‐order.”
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Figure12.Auto‐OrderBonuses(ImagefromBusinessOverview|SuccessByHealth)
45.Mr.NolandthendescribesPhase3,theAcceleratorBonus,whichwill“helpyoumakesomequickacceleratorcommissionsfast”(2017‐11‐07SBHCommissionPlan).Mr.NolandexplainstheconnectionbetweenanAffiliate’spersonalenrollmentpackpurchase,theirrecruits’enrollmentpackpurchases,andpersonalcompensation:
“Let’sjustsayyoustartedwiththe$500AcceleratorPack,whichwesuggestyoudoifyouwanttoreallybuildarealsolidbusiness.Youdon’thaveto.YoucangetstartedwithSBH,bytheway,thiswholegame,getstarted,thewholepartygetsstartedforjust$49,yourwholebusinessgetsstartedfor$49.That’sit,andthat’sanannualfee.Butimaginethis,ifyoustepuptotheplateandyoustartbuildingarealhome‐basedbusiness500bucks,andyougooutthereandyoupersonallyreferthreeotherpeople,andthey’redoing500each,lookwhathappenshere.”
Mr.Nolandexplainsthatthisgenerates$150*3+$50(productcredit),foratotalof$500inrewardsifdonewithinfirst7days,so“nowyourmoneyisbackinyourpocket.”Figure13showssimilarrewards,with$125and$500inbonusesforthesaleofanAcceleratorandSuperAcceleratorPack,respectively,andthepotentialforanadditional$50productcredit.
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Figure13.AcceleratorBonuses(ImagefromBusinessOverview|SuccessByHealth)
46.Mr.NolandthenwalksthroughtheprojectedincomethatispaidthroughTierCommissions(Phase4),whereTier0includestheAffiliateandhis/herpersonalcustomers,Tier1includestheAffiliate’spersonalrecruitsandtheircustomers,Tier2isthenextlevelofrecruitsandtheircustomers,andsoon.Tier0volumepays10%commission,andthepercentagesforTiers1‐5rangefrom10%to2%,asdescribedinTable1(supra).(ThesepercentagesdecreasedinCommissionPlan2.0,whichIdiscussbelow.)AnAffiliateisonlyeligibletoearnTierCommissionsfromthebottomtwotiersiftheyhavepurchasedanenrollmentpack(AcceleratororSuperAccelerator)oriftheyhaverecruitedatleasttwonewAffiliatesandachievedaminimummonthlyvolumethreshold.Specifically,theAffiliatemustaccumulate“$15,000inteamaffiliatesalesinonecalendarmonthwithnomorethan$7,500insalescomingfromanyoneteam”(2019‐01‐2812_SBH6PhaseCommissionPlan).AswillbedescribedinSectionVI,AffiliatesareoftenencouragedtopurchaseanAcceleratorPacktoensurethatthisqualificationrequirementissatisfied.
47.TierCommissionsaredirectlytiedtothe“PowerofTen,”asshowninFigure14:“The‘PowerofTen’SuccessStrategyisanexampleofhowanAffiliatecanfullyleveragethepotentialoftheTierCommissions.Maximizingthisapproachhappensthroughdevelopingateamthatduplicatesthesamestepstosuccess.”“Step1”istoget“my10”and“Step2”istoteach“eachnewTeamMembertodothesamething”andget“their10.”Asthiscontinues,the“Powerof10unfolds.”
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Figure14.OverviewofTierCommissions&ThePowerofTen(ImagefromBusinessOverview|SuccessByHealth)
48.Mr.NolandexplainshowTierCommissionswouldgeneratemonthlycommissionchecksiftheAffiliaterecruitsintoa10‐by‐10structure(2017‐11‐07SBHCommissionPlan):
“Well,ifyou’vegot10doing500[inmonthlyproductpurchasevolume]acrosstheboard,andthentheyteachthese10todo500,whenyougetrightheretotiertwo,I’mgoingtogiveyouasimpletheoreticalexample.Ifthese10areonlydoing500whoteachthese10todo500,that’sgoingtopayyouabout$3,500amonth,justwitha10‐by‐10.Ifthatjustgoesonemoretier,ifthatjustcomesdowntohere,andeverybodyisjustdoing500.Thesefolksherearejustdoing500,that’sgoingtojumpyoutoover20,000plusdollarspermonth,whilehelpingallofyourfronttierpeoplemakeabout$3,500amonth.Andwhenthatgoesanothertier,itjustgetsridiculous.Westartbreakingcoffeemillionairesonthisfourthtierinthisexample.”
Thesesamecommissionnumbersareshowninthe“AccumulativeCommission”columninFigure16.Figure15showsTierCommissionnumbersifthedownlineAffiliateseachpurchase$100permonth,ratherthan$500.
49.ToexplainMr.Noland’sTierCommissioncalculations,assumethatanAffiliaterecruits10newAffiliateswhopurchase$500permonth.Thisis$500*10=$5,000inTier1volume,whichgenerates$5,000*10%=$500permonthinTier1Commissions.Ifthese10Tier1Affiliateseachbringin10newrecruitswhomaintainthesamepurchasevolume,thisresultsin100*$500=$50,000inmonthlyproductvolumeand$50,000*6%=$3,000inTier2Commissions.Ifweaddthe$500incommissionsfromTier1,TierCommissionsnowtotal$3,500permonth.Ifthose100Tier2participantseachrecruit10newAffiliateswho
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alsopurchase$500permonth,thisgeneratesanadditional1,000*500*4%=$20,000inTierCommissionsfromTier3.Ifthis10‐by‐10recruitmentcontinues,Table16showsthepotentialforbecominga“coffeemillionaire”when10,000downlineAffiliatesarerecruitedintoTier4(i.e.,$173,500*12months=$2,082,000)andthepotentialforover$1millionpermonthwhen100,000AffiliatesarerecruitedintoTier5.
Figure15.TierCommissionswith$100MonthlyPurchaseperAffiliate(ImagefromBusinessOverview|SuccessByHealth)
Figure16.TierCommissionswith$500MonthlyPurchaseperAffiliate(ImagefromBusinessOverview|SuccessByHealth)
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50.Figures17and18provideanotherexampleoftheseTierCommissionprojections,whichrelyonongoingAffiliaterecruitmentintoa10‐by‐10structureandcorrespondingAffiliateauto‐orders.TheseprojectionsarebasedexclusivelyonAffiliatepurchasesandarenotdependentonthesaleofproducttobonafideultimateusers.OnearticulationofthisfactisshowninFigure18,whichstates:“ThisisanexampleofSBHAffiliateswhoeachplacejusta$500monthlyordereach.”TheSBHAffiliateCommissionPlan(2019‐01‐2812_SBH6PhaseCommissionPlan)describestheincomepotentialfromTierCommissionsthisway:
“Our6‐TierBonusprogramprovidesforUNLIMITEDIncome.Youcanmakeasmuchmoneyasyouwant.ThereisNOLIMITonthewidthoftheaffiliatesyoucanrefertotheprogram.”
Figure17.6‐TierCommissionswith$100AffiliateMonthlyOrders(Imagefrom2018‐05‐05SBHBusinessOverviewB‐2)
Figure18.6‐TierCommissionswith$500AffiliateMonthlyOrders(Imagefrom2018‐05‐05SBHBusinessOverviewB‐2)
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51.ThenextphaseofcompensationinSBHistheGenerationInfinityBonus,orPhase5.EligibilityforthisbonusrequirestheAffiliatetorankadvancetoSuperBusinessAffiliatebygenerating$15,000inmonthlyvolume,withnomorethan$7,500fromanyoneteam(notethiswasoneofthewaystoqualifyforfullTierCommissions).ThisrequirestheAffiliatetorecruitatleasttwodownlineAffiliatestoachievethisbonus.AsshowninFigure19,youearnthisbonusthroughfourdownline“generations”ofSuperBusinessAffiliates.Sincenotalldownlinememberswillhaveachievedthisrank,thisbonusissaidtohavethepotentialtopaypastfivetiers,“potentiallytoinfinity.”
Figure19.GenerationInfinityBonus(ImagefromBusinessOverview|SuccessByHealth)
52.ThelastofthesixcompensationphasesintheoriginalSBHCommissionPlanistheBAMBonus.Thisbonus,depictedinFigure20,isalsobuiltonacombinationofthePowerofTenandauto‐orderpurchasesmadebyAffiliatesrecruitedintothe10‐by‐10structure.Thesebonusesaresaidtoreachatotal$1,111,000ifthe10‐by‐10structurebuildstosufficientdepthandeachnewAffiliatepurchases$100permonth.IfeachnewAffiliatepurchases$500permonth,BAMBonusescouldbe$5,555,000.
53.Mr.NolanddiscussesthesebonusesinhisCompensationPlanvideo(2017‐11‐07SBHCommissionPlan):
“It’sverysimple.ItgoesbacktothatPowerofTen.That’syou,here’syourmission.Findone,two,three,four,five,six,seven,eight,nine,10.Findtwo,10otherAffiliatesandhere’sallyougottodo,andeveryoneofyoucandothis.Ifyoucan’tdothis,there’ssomethinggoingon,causethisissimple.You’vegottofind10whocanalldoatleast$100acrosstheboard.Everymonth,a$100order.”
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“Thenthese10help10dothesamething.Sowhenyou’vegotthese10,you’vegot100whoarealljustdoing100,whatwe’regoingtodoispayyouaBAMBonus,extraontopofthecompensationplan,$1,000.Fora10‐by‐10,justmovingfiveboxesofcoffeeor$100.Areyouready,BAM!Thatjusthityou,thatquick.Nowhere’sthepowerofhowtogettoamillion.Howdowehelppeoplemakeamilliondollarsadditionalbonus?Wejuststartfocusingonthepeoplethatwe’refirstworkingwithtohelpthemgetthe$1,000bonus.Thisisthewholedrivingforcebehindtheplan.Helpthese10nowget$1,000,sowhenwehelpthese10,theirgoingtostartworkingwitheachoneoftheir10todothesamething.They’regoingtoseeyoudidit,they’regoingtosay‘Icandoit.’Sowhenthose10get10,they,these10areallgoingtogetthe1,000,sothey’reallgoingtogeta$1,000BAMBonus,BAM.Butthenyou,assoonasyouhelpthemget10toget10,nowthatdropsdownto…1,000Affiliates,here’swhatyouget,$10,000BAMBonus.”
Figure20.BAM!Bonuses(ImagefromBusinessOverview|SuccessByHealth)
54.Mr.Nolandcontinuesbyfocusingontheconnectionbetweenadditionaldownlinerecruitment,monthlyAffiliatepurchases,andthelargestBAMBonuses:
“Now,thesepeople[thenewestrecruits],we’vegottofocusongettingthemgetthe$1,000.Whentheygetthe$1,000it’sgoingtopushthisthingdown,right?Andwhentheypushitdowntheygetthe$1,000,you’regoingtopickupa$100,000.”“Now,we’reworkingwiththesepeople,right?Andthesepeople,whatareweworkingwith?Tohelpthemgetthe$1,000.Sowhenwehelpthatnexttiergetthe$1,000,sothesepeoplerighthere,whentheygetthe$1,000,guesswhat?Nowthey’regoingtogetthe1,000butyou’reallthewayuphere.Thesepeoplepickingupthe1,000,thesepeoplepickingupthe10,000,thesepeopleherepickingupthe100,000,andyou’repickingupthewhat?Onemilliondollars.”
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“Howdidithappen?Youjustsimplyhelpingthese10peoplesellfiveboxesofcoffee,ororderfiveboxesofcoffee,andthemdoingthesamething.Wetakethatdownfivetiers,that’sa$1,111,000inBAMBonuses.Nowifthatisn’taseriouscommissionplan,Idon’tknowwhatis.”
55.Figures21and22showsimilarrepresentationsofBAMBonuses,referredtoas“RetirementBonuses.”AswiththeAcceleratorBonusesandTierCommissions,BAMBonusesarebasedonAffiliaterecruitmentandAffiliatepurchasesandarestructurallyindependentofsalestoretailcustomers.WhileMr.Noland,attimes,mentionssellingtheproduct,salesarenotrequiredtoearnrewardsandtraininginstructionsto“beaproductoftheproduct”competewiththelimitedincentivetodevotetimeandenergytoretail.
Figure21.$1MBAMBonus(Imagefrom2018‐05‐05SBHBusinessOverviewB‐2)
Figure22.$5MBAMBonus(Imagefrom2018‐05‐05SBHBusinessOverviewB‐2)
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56.AsMr.Nolanddescribesthesixtypesofcompensation(or6Phases),hedrawsimagesandnumbersthatmatchthediscussionabove.Figure23providesscreenshotsfromthisvideo(2017‐11‐07SBHCommissionPlan).Mr.Nolandfirstdiscussesthepotentialfor$54,000inannualretailsales(topleftimage),thenprovidesanexampleofcoveringone’spurchaseofanAcceleratorPackthroughrecruitmentofthreenewAffiliateswhoalsopurchaseanAcceleratorPack(toprightimage).Hethenproceedstodrawthe10‐by‐10downlinestructurethatwouldmaximizetheTierCommissionsandBAMBonuses,assumingthateachnewAffiliateinitiatesamonthlyorderofatleast$100.
Figure23.Mr.NolandandtheSixPhases(Imagesfrom2017‐11‐07SBHCommissionPlan)
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57.AfterMr.NolandexplainsthesixphasesoftheCommissionPlananddescribesthefinancialrewardsthatcanbeobtainedthroughthesystem,hetheninvitestheviewertojoinSBHandstrivefortheserewards(2017‐11‐07SBHCommissionPlan):
“AllIwanttoknowis,areyoucomingwithus?AreyoureadytoBAMthisthingout?AreyoureadytohittheseGenbonuses?Areyoureadyforthissix‐tier?Areyoureadyforaccelerator,auto‐orderbonuses,andretailprofit?Becausesomebody’sgoingtogetit,wewantittobeyou.”
IwilldirectlyaddresstheincomeandlifestylerepresentationsandassurancesmadeinthisvideoandotherSBHmaterialsinSectionVII,butitisimportanttonotethattheseincomeillustrationsrely,almostexclusively,ontheongoingabilitytorecruitAffiliateswhowillmakepaymentstoSBH.
58.Table2showsrecruitmentandcompensationthatcorrespondstoMr.Noland’sdescriptionoftheSBHsystem,whichreflectstheincentivesintheSBHCommissionPlan.IassumethateachAffiliatepurchasesa$500enrollmentpack,maintainsa$100monthlyorder,recruits10additionalAffiliates,andteachesthoseAffiliatestorepeatthoseactions.14ThisexamplemaintainstheassumptionputforwardbyMr.NolandandSBH:thateachAffiliateisabletorecruit10newAffiliates.Asinthecompany’sownillustrations,IfocusontheprimaryformsofSBHincome:downlineTierCommissions,AcceleratorPackBonuses,andBAMBonuses.IthenaddonretailsalesinTable3.ToexplainthecalculationsinTable2,Iprovidethefollowingexamples:
Month1:AnindividualjoinsSBHasanAffiliate–thispersonisreferredtoastheTier0Affiliate.TheTier0AffiliatepurchasesanAcceleratorPackandbeginsa$100monthlyorderinMonth2.Atthistime,theTier0hasnorevenuetooffsetthe$500initialpaymenttoSBH.Month2:TheTier0Affiliatehasrecruited10newAffiliatesintoTier1whohaveeachpurchaseda$500AcceleratorPack(theywillstarttheir$100monthlyorderinmonth3).Inmonth2,theTier0Affiliateearns$125*10=$1,250inAcceleratorPackbonuses.This$1,250inincometranslatesto$1,150innetprofitforthemonth.Combiningthisprofitwiththepriormonthexpenditureof$500,theTier0Affiliatewouldhypotheticallyhaveapositivecumulativenetprofitof$650.Month3:100newAffiliatesarerecruitedintoTier2bythe10Tier1Affiliates(whowereTier0’sdirectrecruits).EachTier2recruitpurchasesa$500enrollmentpack,buttheTier0Affiliate,atleastintheoriginalCommissionPlan,doesnotearnAcceleratorBonusesonthosepurchases.Inmonth3,therearenow10individuals(notincludingtheTier0Affiliate)whoaremakinga$100monthlypurchase.TheTier0Affiliateearns$100inTierCommissionsbasedonthefollowingcalculation:[$100inTier1Commissions=10%*$100*10Affiliates].Inaddition,theTier0Affiliateearnsa$1,000BAMBonus,foratotalof$1,100inrevenueand$1,650incumulativenetprofitinthistheoreticalexample.
14 NotethatthisscenarioreflectsFigure13(rightside)fortheAcceleratorBonus,Figures15and17forTierCommissions,andFigure20(leftside)andFigure21forBAMBonuses.ItalsomatchesthescenariodescribedbyJayNolandinthecompensationexplanationvideo(2017‐11‐07SBHCommissionPlan).
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Month6:100,000newAffiliatesarerecruitedintoTier5bythe10,000Tier4Affiliates.EachTier5recruitpurchasesa$500enrollmentpack,buttheTier0AffiliatedoesnotearnAcceleratorBonusesonthosepurchases.Inmonth6,therearenow11,110individuals(notincludingtheTier0Affiliate)whoaremakinga$100monthlypurchase.TheTier0Affiliateearns$34,700inTierCommissionsbasedonthefollowingcalculation:[$100inTier1Commissions=10%*$100*10Affiliates]+[$600inTier2Commissions=6%*$100*100Affiliates]+[$4,000inTier3Commissions=4%*$100*1,000Affiliates]+[$30,000inTier4Commissions=3%*$100*10,000Affiliates].Inaddition,theTier0Affiliateearnsa$1,000,000BAMBonus,foratotalof$1,034,700inrevenueand$1,151,450 incumulativenetprofitinthistheoreticalexample.
59.Notethatasystemwhichexclusively(orprimarily)compensatesforrecruitmentandassociatedinternalpurchasesisapyramidscheme,evenifitisstructuredasabinarysystemwhereeachparticipantonlyrecruitstwoadditionalparticipants(seeFTCv.VemmaNutritionCompany,Case2:15‐cv‐01578‐JJT(D.Ariz.)).Witharecruitmentfactorof10,theSBHAffiliateorganization–ifitexpandsasadvertisedbythefirmanditsfounder–growsexponentiallysoquicklythatitwouldexceedthepopulationoftheU.S.atthe10thlevelofrecruitingandexceedthepopulationoftheworldinthefollowinglevel.Byassumingthatonecanfind10recruitswithinonemonth,lossesarecontainedtothosewhohavejustbeenrecruited,butthatgroupquicklyconstitutes90%ofparticipantsasshowninthelastcolumnofTable2.
60.Lossamountsandlossratesareexpectedtobeevenhigherifittakesmultiplemonthstoachievetheneededrecruitmenttocoverone’spersonalinvestmentor,morelikely,ifoneneverachievestheneededrecruitmentlevelstoreachpositiveprofit.Forexample,lossratesconvergeto99%ifthoseinthelowesttwolevelsoftheorganizationareinalossposition(seeAppendixC,tableC.1).IwouldexpectlossratesintheSBHAffiliatebasetoexceed90%,especiallyasparticipationgrowsandrecruitmentbecomesincreasinglymoredifficult.TheabilitytoreachprofitabilityisalsochallengedbythefactthattheAffiliateisnotoperatinginisolation.Othersimilarlysituatedrecruitsarealsoattemptingtobuildsuchadownline.GiventhedesignoftheSBHsystemandtheincentivizedAffiliatebehavior,itispossiblethatsomeparticipantswillprofit,especiallywithearlyentry,butonlyattheexpenseofotherparticipants.
61.Theseresultsarenotalteredinanymeaningfulwaywhenretailprofitsareaddedtotheearningsscenario.Table3providesanexamplewhichmatchestheSBHassumptionsofretail,namely,thattheAffiliatecanreadilysellpersonalinventoryfora75%markup(e.g.,sellinga$20boxofcoffeefor$35).EvenundertheassumptionthattheAffiliatecansell100%ofpersonalinventoryatthismarkup,cumulativenetprofitfortheTier0Affiliateonlyrisesby$1,318overtheyear,representing0.05%oftheoverallcumulativenetprofitinthistheoreticalscenario.Tier0Affiliatecompensationisnotdependentonthefinal“use”oftheproductpurchasedbydownlineAffiliates(e.g.,retailedtoanexternalcustomer,personallyconsumedbythedownlineAffiliate,usedforsamplesinprospecting,storedandnotconsumed).Tier0Affiliatecompensationisonlyconnectedtotheultimateuseoftheproductshe/shepurchasesfromSBH,andthatconnectionistrivialrelativetootherrewardsandincentives.
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Table2:SBH
Com
pensationScenarioandDownlineStructure–WithNoRetailSales
Tier 0 Affiliate an
d His/H
er The
oretical Outcomes Over O
ne Year
Mon
th
Tier 0
Affiliate’s N
ew
Dow
nline
Mem
bers
Tier 0
Affiliate’s
Cumulative
Dow
nline
Tier 0
Affiliate’s
Dow
nline Tier
Commission
s
Tier 0
Affiliate’s
Accelerator
and BAM
Bon
uses
Tier 0
Affiliate’s
Offlin
e Retail
Profit
Tier 0
Affiliate’s
Person
al
Purcha
se
Tier 0
Affiliate’s
Net Profit
in Pay
Period
Tier 0
Affiliate’s
Cumulative
Net Profit
Minim
um
Num
ber (%) o
f Tier 0 Affiliate’s
Dow
nline in a
Loss Position
1 ‐
‐
$0
$0
$0
$500
‐$500
‐$500
2
10
10
$0
$1,250
$0
$100
$1
,150
$650
10 (100
%)
3 100
110
$100
$1
,000
$0
$100
$1
,000
$1
,650
100
(91%
) 4
1,000
1,110
$700
$10,000
$0
$100
$10,600
$12,250
1,000
(90%
)
5 10,000
11,110
$4,700
$100,000
$0
$100
$104,600
$116,850
10,000 (90%
)
6 100,000
111,110
$34,700
$1,000
,000
$0
$100
$1
,034
,600
$1
,151
,450
100,000 (90%
)
7 1,000,000
1,111,110
$234,700
$0
$0
$100
$234,600
$1
,386
,050
1,000,000
(90%
)
8 10,000,000
11,111,110
$234,700
$0
$0
$100
$234,600
$1
,620
,650
10,000,000 (90%
)
9 100,000,000
111,111,110
$234,700
$0
$0
$100
$234,600
$1
,855
,250
100,000,000
(90%
)
10
1,000,000,000
1,111,111,110
$234,700
$0
$0
$100
$234,600
$2
,089
,850
1,000,000,000
(90%
)
11
10,000,000,000
11,111,111,110
$234,700
$0
$0
$100
$234,600
$2
,324
,450
10,000,000,000 (90%
)
12
100,000,000,000
111,111,111,110
$234,700
$0
$0
$100
$234,600
$2
,559
,050
100,000,000,000 (90%
)
Assumptions:
‐ Anindividual(Tier0Affiliate)joinsSBH
inMonth1andbringsintenfrontline(direct)recruitsinthesubsequentmonth.
‐ Eachnew
Affiliaterecruitstenfrontlinerecruitsinthemonthfollowingthejoinmonthanddoesnotrecruitanyadditionalfrontlinerecruits.
Notethatthisassum
esthatthisrecruitmentlevelispossibleforeachandeverySBHAffiliate.
‐ EachAffiliatepurchasesa$500AcceleratorPackandmaintains$100inproductpurchaseseachmonth.
‐ Noexpensesareincludedbeyondproductpurchases.
‐ BonusesandCom
missionsarepaidinperiodofqualification.
‐ BonusesrepresentedincludeAcceleratorPackBonuses,TierCom
missionsandBAM
Bonuses.Noretailsales,productcredit,GenerationInfinity
Bonuses,tripincentives,salestaxes,orshippingandhandlingareincluded.TierCom
missionsdonotincludeanycommissionspaidonthepersonal
purchasesm
adebytheTier0Affiliate.
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Table3:SBH
Com
pensationScenarioandDownlineStructure–With100%RetailSales(i.e.,allofproductpurchasedinthe
priorm
onthissoldata75%
markuptoretailcustom
ers)
Tier 0 Affiliate an
d His/H
er The
oretical Outcomes Over O
ne Year
Mon
th
Tier 0
Affiliate’s N
ew
Dow
nline
Mem
bers
Tier 0
Affiliate’s
Cumulative
Dow
nline
Tier 0
Affiliate’s
Dow
nline Tier
Commission
s
Tier 0
Affiliate’s
Accelerator
and BAM
Bon
uses
Tier 0
Affiliate’s
Offlin
e Retail
Profit
Tier 0
Affiliate’s
Person
al
Purcha
se
Tier 0
Affiliate’s
Net Profit
in Pay
Period
Tier 0
Affiliate’s
Cumulative
Net Profit
Minim
um
Num
ber (%) o
f Tier 0 Affiliate’s
Dow
nline in a
Loss Position
1 ‐
‐
$0
$0
$0
$500
‐$500
‐$500
2
10
10
$0
$1,250
$438
$100
$1
,588
$1
,088
10 (100
%)
3 100
110
$100
$1
,000
$88
$100
$1
,088
$2
,176
100
(91%
) 4
1,000
1,110
$700
$10,000
$88
$100
$10,688
$12,864
1,000
(90%
)
5 10,000
11,110
$4,700
$100,000
$88
$100
$104,688
$117,552
10,000 (90%
)
6 100,000
111,110
$34,700
$1,000
,000
$88
$100
$1
,034
,688
$1
,152
,240
100,000 (90%
)
7 1,000,000
1,111,110
$234,700
$0
$88
$100
$234,688
$1
,386
,928
1,000,000
(90%
)
8 10,000,000
11,111,110
$234,700
$0
$88
$100
$234,688
$1
,621
,616
10,000,000 (90%
)
9 100,000,000
111,111,110
$234,700
$0
$88
$100
$234,688
$1
,856
,304
100,000,000
(90%
)
10
1,000,000,000
1,111,111,110
$234,700
$0
$88
$100
$234,688
$2
,090
,992
1,000,000,000
(90%
)
11
10,000,000,000
11,111,111,110
$234,700
$0
$88
$100
$234,688
$2
,325
,680
10,000,000,000 (90%
)
12
100,000,000,000
111,111,111,110
$234,700
$0
$88
$100
$234,688
$2
,560
,368
100,000,000,000 (90%
)
Assumptions:
‐ Anindividual(Tier0Affiliate)joinsSBH
inMonth1andbringsintenfrontline(direct)recruitsinthesubsequentmonth.
‐ Eachnew
Affiliaterecruitstenfrontlinerecruitsinthemonthfollowingthejoinmonthanddoesnotrecruitanyadditionalfrontlinerecruits.
Notethatthisassum
esthatthisrecruitmentlevelispossibleforeachandeverySBHAffiliate.
‐ EachAffiliatepurchasesa$500AcceleratorPackandmaintains$100inproductpurchaseseachmonth.
‐ Noexpensesareincludedbeyondproductpurchases.
‐ BonusesandCom
missionsarepaidinperiodofqualification.
‐ FinancialrewardsrepresentedincludeAcceleratorPackBonuses,TierCom
missions,BAMBonusesandofflineretailsalesprofit.Noonlineretail
sales,productcredit,GenerationInfinityBonuses,tripincentives,salestaxes,orshippingandhandlingareincluded.TierCom
missionsdonot
includeanycommissionspaidonthepersonalpurchasesmadebytheTier0Affiliate.
‐ 100%
ofproduct,purchasedinthepriorperiod,issoldinhand‐to‐handtransactionswithretailcustom
ers.Productissoldata75%
markup,
similartotheexam
pleofsellinga$20boxofcoffeefor$35.
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62.IftheAffiliateattemptstoretailmoreproduct,bypurchasingmoreinventoryandattemptingtosellitatamarkup,theAffiliatewouldbetakingthisriskinpursuitofasmallrewardrelativetothecommissionsandbonusesthatcanbeearnedthroughrecruitmentofadditionalAffiliates.Furthermore,arational,cost‐minimizingretailcustomerwouldbeincentivizedtopurchaseproductdirectlythroughtheAffiliate’sSBHwebsite(orthecompany’swebsite)toaccesstheSBHwholesaleprice,resultingina10%commission(or0%commissionifthroughthecompany’swebsite)ontheretailsaleratherthanthe75%returnsuggestedinSBHmaterials.AsdiscussedinSectionVI,trainingmaterialsfurtherunderminetheminimalretailincentivesintheSBHCommissionPlanbytrainingAffiliatestoconverttheretailcustomertoanewAffiliateandbyencouragingtheAffiliatetopurchaseproductforpersonalconsumptionandsampling(i.e.,buyingproductfromSBHandprovidingfreesamplestoconsumerstoenticethemtomakeapurchase).
63.Beyondthelimitedincentivestoretailandthetrainingthatactivelydiscouragessuchretail(discussedinSectionVI,infra),theprojectednumbersofretailcustomersareunsubstantiatedandfanciful.AsshowninTable4,ifasingleAffiliateexecutedtheplanasshownintheSBHillustrations–recruiting10Affiliatesand100monthlycustomers,andgettingotherstodothesame–thissingleAffiliatewouldbuildadownlineorganization(includingcustomers)thatgrowstooveronebillionindividualsbythe8thmonth,andover11billionindividualsbythe9thmonth.NotethatotherSBHAffiliateswouldbesimultaneouslytryingtobuildthesamestructure.Again,themathematicalrealitiesofthisexponentialgrowthundercutprofitabilityforallbutasmallshareofSBHparticipants.Thisistheveryreasonwhysuchstructuresareinherentlydeceptive.
Table4.HypotheticalRetailCustomersinthePowerofTenStructure
Month
Tier 0 Affiliate’s New
Downline Members
Tier 0 Affiliate’s Cumulative Downline
Number of Retail Customers
when each Affiliate has 100 Customers
Total Number of Affiliates
and Customers (in the Tier 0
Affiliate organization) 1 ‐ ‐ 100 100 2 10 10 1,100 1,110 3 100 110 11,100 11,210 4 1,000 1,110 111,100 112,210 5 10,000 11,110 1,111,100 1,122,210 6 100,000 111,110 11,111,100 11,222,210 7 1,000,000 1,111,110 111,111,100 112,222,210 8 10,000,000 11,111,110 1,111,111,100 1,122,222,210 9 100,000,000 111,111,110 11,111,111,100 11,222,222,210 10 1,000,000,000 1,111,111,110 111,111,111,100 112,222,222,210 11 10,000,000,000 11,111,111,110 1,111,111,111,100 1,122,222,222,210 12 100,000,000,000 111,111,111,110 11,111,111,111,100 11,222,222,222,210
64.ThechangesinCommissionPlan2.0donotaltermyconclusionsinanyway.Whatfollowsareaseriesofstatements,madebyJayNoland,intheSBHHeatCall(2019‐08‐01SBHHeatCall).ThesestatementsdescribethesimilaritiesbetweentheoriginalCommissionPlanandthenewone.Ifanything,thesestatementsfurtherconfirmthecentralityof
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ongoingAffiliaterecruitmentandthestrongincentivesforinternalpurchases,includingthepurchaseofenrollmentpacksandmonthlyauto‐ordersbyAffiliates.Mr.NolandbeginsbyspeakingaboutsimilaritybetweentheoriginalCommissionPlanandCommissionPlan2.0.
“Nothinghaschanged,we’veaddedthingstotheplan,sowe’veaddedmoney.”“Everythingisstillthesame…samevolume,noneofthemonthlyvolumerequirementshavechanged,isjustthatwewantyounowfocusingondoingiteveryweek,andifyoudothateveryweekyouleavenobonusesonthetable.”[Oftheoriginalsixwaystoearn]“Thosearethingsthatwerealways,thatwerealreadythere,thatarestillthere.”
65.Mr.NolandthenmovestoadiscussionoftheAcceleratorBonus,saying:“wehadittowhereyougotpaidanytimeyousoldapack,”“yousellthepack,yougetpaid”creating“rocketfuel.”HeproceedstodiscussthechangesinthisbonusinCommissionPlan2.0.
“Nowanytimeabusinesspackissold,uptofourpeoplenowaregoingtogetpaidonthatonebusinesspackthatwassold.Soinsteadofonepersongettingpaid,thepersonwhosoldit,we’regoingtocreatesomegreatresidualincomeopportunitythroughpeoplesellingthesepacksorgettingpeoplestartedinthebusiness.”
Mr.NolandnotesthattheStarterPackisnowalsopartoftheAcceleratorBonus.
66.Afterdiscussingenrollmentpackbonuses,Mr.NolandthenturnstodiscussingtheTierCommissions,saying:“Inordertogetrewardedonmoretiers,youneedtomoveonupintheplan”andyouneedto“encouragepeopletomoveupthroughtheplan.”HethendiscussesthePowerofTen:
“Whatifyouhave10?YouknowourPowerofTen?Everybody’soutthereshowingthebusinessandthenyouhave10people,thatarealljustmovingone,ah,packeachduringthecourseofthemonth,lookatthisjumphere.Nowyouaremakinganextra$1300,plusyour$415fromyou,andifyouaddthose10got10,thatwouldbeanextra$7,000.Andthenthe10’s10got10,thatwouldbeanextra$40,000…inthissimpletheoreticalexample,showingyouhowthispay‐planworks.Nowagain,there’snoguaranteesofincomewithourplan.Ifyoudon’tdoanythingandyourteamdon’tdoanything,youdon’tmakeanymoney.Butifyoudo,thisisanexampleofshowingyouhowitworks.”
67.Mr.Nolandthendiscussesanewformofcompensation–thePower500andPower1000Bonuses–thatfurtherincentivizeenrollmentpackpurchaseandAffiliateauto‐orders:
“So,first14daysfromthetimeapersonbuysapack,theycanearna$500bonusaslongastheyareaminimumpackqualifiedwiththeproductstarterpack.Thenumberonerequirement:apersonneedstopurchaseatleastaproductstarterpack,that125packorhigher,that’sthefirstthing.Now,theyneedtohavetwopeople…thattheypersonallyreferred…thathavepurchasedanyofthebusinesspacksaswell.Theyneedtohavetwopeopleona100QVauto‐order,anditcanbethesametwopeople.Somakesureyouunderstandthat,andfromtheirTier1,thatmeansanybodythatyoupersonallyrefer,theirvolumehastoequal,theirQVhastoequal$1,000withinthat14
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days.Alright?Sosimpletheoretical,simpletheoreticalexample.Persongetsstartedtoday.Theybuyaproductstarterpack.TheygooutandrefertwopeoplepersonalthatbuyanAcceleratorPack.OnegetsanAcceleratorPack,anothergetsanAcceleratorPack.EachAcceleratorPackcarries500QV,alright?SonowI’vemetmyQVrequirementof$1,000.IgeteachofthosepeoplethatgottheAcceleratorPack,Igetthemtosetupa100QVauto‐order.Iftheydothat,bam!I’veearned$500.What’sthatgoingtodoforyourteam?That’sgoingtogiveyoutheabilitytoencouragepeoplepurchasingpacks,numberone.Numbertwo,peoplegettingonauto‐ordertohelpstabilizeyourvolumeandcreateconsistentcommissionsandcreatespeed,andmoreimportantly,getmoneyinyournewpeople’shands–asubstantialamount–rightaway.”“Togeta$1,000bonus,youhavetopurchaseorupgradetoanAcceleratorPackorhigher.Youhavegottofourpersonalsthatboughtanypack,andyou’vegottohavefourpersonalsthat,ah,areon100QVauto‐ordersetup.”“Sotogetapersona$1,000bonus,they’vegottojustdosomesimpleworkwithintheirfirst14daysandtheyareoffandrunning.”
68.Mr.Nolandthendescribesanewmatchingbonus,whichpaysa5to20percentmatchontheTierCommissionsearnedbypersonallyreferredAffiliates,explainingthattomoveupinthepercentmatch“you’vegottohavemorepersonalsthatboughtabizpackatanytimeandthatdida100QVauto‐order.”IntermsoftheBAMBonus,Mr.Nolandstatesthattheyareidenticaltothepriorversion:
“Youcanearnbetweenamillion,youcangofromamilliontofivemillionjustthroughgettingthose10by10by10s,andgettingthemalldoing100or500,youearnallthewayup:1,000,10,000,100,000,amillionandthen5,000,50,000,500,000…and5milliononthosebonuses.”
Mr.Nolandconcludeswiththeassurancethattheseresultsareattainable:“Ifyoujustgotowork,you’vegotit.” “Themoneyopportunitytomakeandchangeyourlifeisridiculous.Allyouhavetodoisgotowork.”
69.BeyondtheCommissionPlanincentives,SBHmaterials15discussanSBHFoundersClub.ThiscluboffersrewardsthatareoutsideofthepublicSBHCommissionPlan,includingaccesstoapercentageofthefirm’srevenue,rightstoa“retirementpool,”eventticketsandotherperks.Foundersmustcommittoahigh‐pricedenrollmentpack,amonthlyauto‐order,andotherexpenditurestoremainintheclub.JayNolandexplainsthecommitmentasfollows(2019‐04‐04174518955175763‐001):
“WithaFounder,here’showitworks.It’sapackage,soyou’renotjustbuyingaposition,you’rebuyingproduct,soyou’rebuyingaproductpackthatcomeswithloadsofadditionalbenefitsandprestige,that’sabigone,causeyou’llbeabletosay‘I’maU.S.
15Thesematerialsincludeinclude2019‐05‐28Only3DaysLeft_EndofSBHVolumeMonth,2019‐04‐04FoundersPackRelaunch,2019‐07‐02ExistingFoundersPackRelaunchApplication,2019‐07‐02FoundersPackRelaunchApplication,and2019‐04‐04174518955175763‐001.
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Founderandwewillacknowledgeyouandrecognizeyouassuch.Sothepackitselfis$2,995.Itcomeswiththreethousand,overthreethousandtwohundreddollarsinproduct.”“EachSBHUSAFoundermust…youmustmaintaina100QVauto‐order,alright.Soinsteadofjusthavinga$100order,you,thisnowhastobeanauto‐order.Steppingthatupincommitmenttomakesurethatwegiveyougreathabits.”
70.Foundersmustalsocommittoattendingeveryeventandmaintainingthemonthlyauto‐order.Iftheydo,Mr.Nolandsuggeststhattherewardswillbelife‐changing(2019‐04‐04174518955175763‐001):
“Youcan’tmissanymonthof100,youcan’tmissit,nomatterwhat,youcannotmissamonth,andifyoudidmissthatmonth[inthepast],youhavetomakeitup”and“youhavetobeinDallasthisweekend.”“Nowwe’regettingreadytoexplode,sonowthatweareinapositiontoexplodewewanttherightpeopleinthere,gettingtheopportunitytoreaptherightrewards.”“Reallyandtruly,what’stherealpayouthere?It’sgettingintheretirementpool.You’retalkingabouthundredsofthousands,andeventuallymillionsofdollarsthatcanbemade,potentially,ifsomebodymakesitthere.Noteverybody’sgoingtomakeittotheretirementpool.Butfortheonesthatdo,thepayoutonitislike,youcan’tevenkeepitinthisworld.Let’sjustsayoveraten‐yearperiod,youmadeamilliondollarsextra,ortwomilliondollarsextra.Itmightevenbethreeorfourmilliondollarsextra.Whoknows,nobodyknowsforsurewhatitwillbe.Butallyouhadtodowaswhatyou’resupposedtodoanywayandbuyalittlebitofextraproducts,andgoretailthem,andgetabunchoffreestuffwithit.”“Whatelseareyougoingtodotogetwealthy?”
71.TheSBHFoundersClubprovidesaclearpictureofthedirectconnectionbetweenAffiliatepurchases–atthetimeofentryandonanongoingmonthlybasis–andfinancialrewardsinSBH.TheFoundersClubandCommissionPlan2.0arediscussedina2019video(SBHPower2andVOZTravelTraining),wherethisvideoalsointroducesanewPower2Bonusandpromotesthefutureintroductionoftravel‐relatedproductsandassociatedenrollmentandFounderpacks.ThenewPower2Bonusisbasedonaparallelstructuretothe10‐by‐10recruitmenttree,whichorganizestherecruitsintoabinarystructurewithtwo“legs.”Figure24showstherelationshipbetweentheoriginal“PersonalReferralTeam”andthe“Power2Team.”ThePower2bonusrewardsAffiliatesforrecruitingnewAffiliateswhopurchaseanenrollmentpack.AsdescribedbyMr.NolandandshowninFigure25:“WhatvolumeispoweringthePower2?Onlyvolumefrombusinesspacks.”
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Figure24.Power2TeamStructure(imagefromSBHPower2andVOZTravelTraining)
Figure25.Power2andEnrollment“Biz”Packs(imagefromSBHPower2andVOZTravelTraining)
72.Mr.NolandexplicitlydescribestheconnectionbetweenPower2earningsandAffiliaterecruitment(SBHPower2andVOZTravelTraining):
“Whatmakesthissopowerfulisthefactofthisthat,inordertogetpaidinthePower2,you’vegottogorecruit.See?Wedotwothings:wesellproductandwerecruitotherpeopletosellproducts.Soifyou’rejustfocusedonjustsellingproductsandnot
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recruitingotherpeopletosellproducts,you’renotgettingotherpeople’seffortsinvolvedinhelpingyoubuildmoreresidualincome.”[Thisbonus]“makespeoplerecruitinordertocapturepayinthePower2…makingpeoplegetresidualincome,makingpeoplegetfree.”
Mr.NolandalsonotesthatthisbonusrequiresAffiliatepurchases:“Withourcompanyyoudon’thavetomakepurchasesasAffiliatesbutyoudoinourPower2,butnotasastandardAffiliatetomakemoney.”
AsshowninFigure26,thePower2bonusissaidtobe“anunlimitedcashmachinebecauseitgoesdownthroughinfinity.”AdditionalincomeclaimsrelatedtothePower2bonuswillbeincludedinSectionVII.Together,thechangesmadeinCommissionPlan2.0,theFoundersClubandthePower2bonusshowthat,ifanything,SBHisincreasingtheincentivesforAffiliaterecruitmentandinternalpurchasesovertime.
Figure26.Power2Bonusas“UltimateCashMachine”(imagefromSBHPower2andVOZTravelTraining)
73.Insum,theSBHincentivestructurepromotesongoingrecruitmentofAffiliatesandinternalpurchases,creatinganendlessrecruitmentchainthatisexpectedtoleavethevastmajorityofparticipantsinalossposition,bydesign.ThemodelsinthisSectionillustratethatthestructureoftheprogramitselfpredictablyleadstopoorresultsforthevastmajorityofparticipants,regardlessofaccidentalorexternalfactors.Whilemanynewbusinessesfailbecauseofadversebusinessconditions,poormanagement,badluck,oranynumberofotherreasons,withthistypeofprogram,failureformostparticipantsisinherentinthesystem.Thesemodelsprovideausefuleconomiccontexttoexplainwhycourtshavecondemnedpyramidschemes.InthenextSection,Iwilldiscussthewaysin
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whichSBHAffiliatesaretrainedtooperationalizethiscompensationstructure.IfindthattheSBHtrainingmaterialsandprescribedbehaviorsalignwiththeSBHCommissionPlanincentives.VI.SBHAffiliateTraining
74.SBHAffiliatetrainingisprovidedinmultipleforms,includingwrittendocuments,in‐persontrainingpresentations,pre‐recordedvideos,livepresentationsstreamedovertheinternet,andpaidtrainingevents.OneoftheprimarysourcesoftrainingistheSBHFastStartSystemdocument.ThemessagesanddirectivesintheFastStartSystemexemplifythecontentinallSBHtrainingmaterials.Inthatsense,theFastStartSystemisnotunique,andthisSectionincludescontentfromothertrainingdocumentsandvideosaswell.AsdescribedinSectionIV,theFastStartSystemincludesdocumentsandaudiofilesdesignedforthenewSBHAffiliate(2019‐01‐24SBH_FastStartSystem_v20190115).TheAffiliateistoldtorelyonthesimple,systematicFastStartSystemandteachtheirrecruitstodothesame:
“TheSBHFastStartSystemisaverysimpleandsystematicsystemofsuccessforSBHAffiliates.”“Ourstepbystepsystemcanbe followedbyanyone. It is important though thatyoufolloweachstep in theorder theyare listedandmakesureALLyourTEAMdoes thesame.”
ThissystemiscenteredonAffiliatepurchases,ongoingAffiliaterecruitment,andtrainingforduplication,withsomelimitedattentiontoretailsales.ThesefocalpointsmirrortheSBHcompensationstructure(discussedsupra).Idiscusseachoftheseelementsinturn.
VI.1IncentivizedAffiliatePurchases
75.OneoftheprimarymessagesinSBHtrainingistheimportanceofAffiliatepurchases.Affiliatepurchasesincludetheinitialenrollmentpackandongoingpurchases(e.g.,monthlyproductauto‐ordersandpaidtrainingevents).Ibeginwiththetrainingassociatedwithenrollmentpacks.AsshowninFigure8(supra),therecruitisfirstaskedtochoosethetypeofpersontheywishtobe(i.e.,Type1‐SupplementIncome;Type2‐ReplaceJob;orType3‐FinancialFreedom)andtochoosetheenrollmentpackthatbestmatchesthattype.InanaudiolinkembeddedintheFastStartSystem,Mr.Nolandfirstexplainsthe“businessbuilding”choices:
“IwanttotakesometimetoreallyhelpyouunderstandwhatyouneedtodotoproperlygetstartedwithSBHandtoproperlygetcommittedwithyourbusinessherewithSBH.Thefirstthingyouwanttodoisdecideonhowyouwanttobuildthebusiness.Doyouwanttojust,simply#1supplementyourincome,or#2replaceyourincomeandhavenomorejob,or#3,doyouwantfinancialfreedom.That’simportantforyoutomakethatdecisionrightnow.Eachoneofthosestepsrequiresadifferentlevelofcommitment.Thehigherthereward,thehigherthecommitment.”
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“Ifyoujustwanttosupplementyourincome,well,that’snotatonofcommitmentherewithourcompany.Youcouldjustsimplygetinvolvedwiththebusiness,getyourfewproducts,begintoexposeyourwebsitethatwegiveyou,starttalkingtootherpeopleabouttheproductandjustkindofsellproductsasyougo,hereandthere.Ifyouwanttoreplaceyourincome,wellyou’regoingtohavetogetmorefocusedhere.You’regoingtohavetogetmorecommittedwithwhereyouaregettingstartedandthenwe’vegotasimplesixmonthplantohelpgetyououtofthatjob,basedonyoufollowingourstepsandbeingcommittedtothosesteps.Ifyouwantfinancialfreedomwehavean18monthplan.It’sverydetailedanditreallyrequiresahighlevelofcommitmentbecausethere’sthingsyou’llhavetodoonaday‐to‐daybasis.”
76.Mr.NolandthenexplicitlyconnectsthesizeoftheenrollmentpacktothelevelofcommitmentandthemagnitudeoffinancialrewardsinSBH:
“Nowyouwanttopurchasethebusinesspackthatmatcheshowyouwanttobuildyourbusiness.Again,thehigherpackyoustartwiththemoreinitialcommissionplanbenefityou’regoingtogetfromthecompanyand,again,you’regoingtoneedproductsbecausetheseproducts,you’regoingtoneedthemtouse,topersonallyuse,tosampletootherpeople.There’snothingmorepowerfulthanasampleasfarasamarketingtool,andyou’regoingtoneedtohaveproducttoselltomakeretailprofit.EachofthesethreethingshelpyoudevelopmoreSBHcustomersandnewSBHAffiliates,andtodoitfaster.Themoreinventoryyouhaveonhandtostartyourbusiness,thefasteryourbusinesswilltypicallygrowasyouimplementthistraining.”
77.IntheFastStartSystem,thenewrecruitisremindedthatthe$49Affiliatemembership,describedas“optionA,”includesnoSBHproducts.Ofthe$125pack(i.e.,“optionB”),therecruitistold“ifyoujustwanttosupplementyourincome,that’sagoodplacetogetstarted.”Greaterbenefitsareascribedtothe$500pack:
“Now,let’stalkaboutgettingoutofthatjob.Let’stalkaboutgettingfinanciallyfree.Let’smoveontooptionC,whichisourAcceleratorPack.It’s$500.”“So$500AcceleratorPack,wetypicallysay,look,ifyou’relookingtoreplaceyourincome,getoutofthatjob,that’sagoodplacetostart.It’suptoyoubutwesuggestthat’sagoodplacetostart.”
The$1,995option–theSuperAcceleratorPack–issaidtoprovide:“thebestpossiblechanceoftakingadvantageofthecommissionplanbenefits,andontopofthat,havingagoodvarietyofproductstouse,tosample,tosell,andontopofthat,beingabletosaytopeople,‘Here’swhereIstarted,Istartedwiththefullestcommitment.’”“Ifyou’relookingforfinancialfreedom,agoodplacetostartwouldbewiththatOptionD,theSuperAcceleratorPack,butthat’suptoyou.”
78.ThesamemessageispresentedbyMr.NolandintheSBHCEO’sCompanyVisionMessageontheSBHwebsite(2018‐04‐09SBHCEO'sCompanyVisionMessage),theSBHBusinessOverview(2018‐05‐05SBHBusinessOverviewB‐2),andtheSBHGroupPresentationScript(2019‐01‐289_SBHGroupPresentationScriptCTM).AsdescribedintheGroupPresentationScript:“ThehigherthePackyouinitiallystartwith,themoremoney
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youcanmakefordoingthesamething.”Figure27providesanexcerptfromtheGroupPresentationScript,wherethesizeoftheenrollmentpackisexplicitlyconnectedtotherecruit’scommitmentandgoals.Someonewhosimplywantssupplementalincomeistoldtochoosethe$49membershipor$125SamplePack,someonewhowants“NoMoreJob”shouldpurchasetheAcceleratororSuperAcceleratorPack,andsomeonewhowants“FinancialFreedom”shouldtake“MassiveAction”andstartwiththeSuperAcceleratorPack.Therecruitisencouragedto“Doyoubesttopushyourself.”
Figure27.AdviceonEnrollmentPacks(2019‐01‐289_SBHGroupPresentationScriptCTM)
79.Inalivetrainingandrecruitmentsession(2019‐04‐15SBHLiveGroupPresentationwithCEOJayNoland),Mr.Nolandexplainsthatahigher‐pricedenrollmentpackprovidesinventoryforsharingandsellingandopensupqualificationforhigherTierCommissions(asdiscussedinSectionV):
[$49]“That’sifyoujustwanttobeanAffiliate.Sowhat’sgonnahappen,Igaveyouanexampleofsixtiers.Whenthatthinggetstodownfifthandsixthtier,that’swhenthatmoneyreallyraisesup.SowhenyoubecomeanAffiliate,youdon’thavetobuyanythingelse.You’vejustgottotalkifyouwantto.We’llpayyoufourofthosetiers.Soyou’llgetfourfor$49,ifyoutalk.We’llgiveyouawebsite,abackoffice,andeveryyearwe’lljustchargeyou49bucks,justlikeaCoscomembership.”“Soifyouwanttocomeinat$49that’sokay.Butthenyoumightwanttocomeinandgetsomeproductsinyourhandsothatwhensomebodygoes‘Yeah,Iwantsome’youmakethatmoneyrightthen.Doesthatmakesense?Soyoucanmakeatleast50%.”
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“Soyoumightwanttohavesometosell.SosomepeoplestartwithaBusinessPack.See,Isuggestthatifyoureallywanttogetthisthingrolling,andgetondowntheroadtofreedom,yougetstartedwithoneofourBusinessPacks.”
80.Mr.Nolandthenexplainstheadditionalbenefitsofupgradingfromthe$125pack:“$125pack,yougetalittlebitofproduct,butyou’restillatfourtiers.Someofy’allsayIwanttogetadditionaltiersquicker,soyou’llcomeinwithanAcceleratorPack,it’sonly$500.Soyouspend$500and,guesswhat’sgoingtohappen?You’regoingtohavesomeproducts.Youcanturnthat$500,andwe’regoingtogiveyou$600inproductsbytheway,ifyoujustmade50%,your$500isgoingtoturninto$900.Isthatsmartmoney?Sosomepeoplesay‘Getmegoinglikethatandletmepickupfivetiers.’Somepeoplesay‘HowdoIgetsixtiersoutofthegate?’That’sourSuperAcceleratorPack,$1,995.Nowyou’regoingtogetallkindofbenefits.We’llgiveyou$200infreeproduct,sonowyou’vegot$2,200thatifyoujustwentandsoldit,you’regoingtohavehowmuchcomein?Evenat50%.You’regoingtomakeovera$1,000rightthere.Justgoingoutandexchangingsomethingthatpeoplearealreadybuying.Pluswe’regoingtogiveyoutickets,we’regoingtogiveyoufreetraining.Allkindsofstuffisgoingtocomewiththat.Sopeopleaskmeallthetime,‘Jay,justtellmewhatIshoulddo.’Isaythefirstthingyougottadoisquitbeingafraid.You’vegottostopbeingafraid.You’vegottostartlisteningtoyourself.Youknowwhensomethingfeelsright,andacouplethousanddollarsforabusiness,what’sthatreally?Likeifyoustartatraditionalbusiness,youallknowwhatitwouldcostyoutostartatraditionalbusiness?It’sabout250grandafteryoudoallthethings.Eventhesmallones,they’regoingtospendacouplehundredthousand.”“After23yearsofmedoingthis,numberoneproblem.Peopledon’ttakethisseriously.Numberone.ButeverybodyIknow,personally,theygotstarted.Theysaid‘Look,what’sthebiggestpackIcangetcauseitain’tgoingtoscratchatraditionalbusiness.’Sotheywouldgo,‘Ok,I’mgoingtogetme$1,995.”
81.WithintheFastStartSystemaudiomaterials,Mr.Nolandencouragesthenewrecruittousecredittofinancetheenrollmentpackpurchase(2019‐01‐24SBH_FastStartSystem_v20190115):
“Don’tletyourcircumstancekeepyouwhereyou’reat.”“Ifyoucan’taffordit,youcan’taffordnotto.”“That’sevenmoreofareasontotakeadvantageofthesuccessprinciplecalled‘OtherPeople’sMoney’soutilizeacreditcardorsomeoneelsethathasacreditcardandleveragethatmoneytogetyourselfintoapositionwhereyoucanremovethewords,‘Ican’taffordit’andgetthemoffofyourlips,forever.”“Ididthat,frommycreditcard,mymom’s,otherpeople’s,turnedintomultibillionsofdollarsinrevenue.”
82.Inthelivepresentation(2019‐04‐15SBHLiveGroupPresentationwithCEOJayNoland),Mr.Nolandfurtherestablishesthecaseforfundingthehigher‐pricedenrollmentpackwithacreditcard,againreferringtocreditas“otherpeople’smoney:”
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“WhatI’mgoingtodoisputitonacreditcard.I’mgoingtouseotherpeople’smoney.I’mgoingtodowhat’sbeenhappeningtomealltheseyears,peopleusingmymoney.Howmanyofyouallgotacreditcard?Whosemoneyisthat,yoursorotherpeople’s?Andtheyaregoingtochargeyou,whatonit?They’regoingtochargeyouinterestonthat,thinkaboutwhat’sgoingon.They’regoingtochargeyouinterestsothey’reusingyou.Youcanflipthescriptonthem.Younowtakethemoneythatthey’rechargingyouintereston,andyouleverageit.Right,yougetyourSuperAcceleratorPack,yourpayment’sonlygoingupabout60bucks,theaverage,theminimumpaymentgoesupabout3%,onaverage.Sonowyoutake2,000,yourpaymentgoesup60dollarsextra,youselltwoofthesebags,youmakeyourpayment.Right?”“Wehaveasystemtohelpyoumoveallofthatproductintwoweeks.”“Whensomebodyworkswithme,IfI’mworkingwithsomebodydirect,Isayyou’regoingtogetaSuperAcceleratorPack.Heregoesascript.I’mgoingtowalkrightwithyouandwe’regoingtomovethisproductintwoweeksandgetyouintoprofit,getyouhookedonprofits.”
83.Inthelivepresentation,Mr.Nolanddescribestheenrollmentpackpurchaseasthefirstofthe“FourStepstoSuccess,”referencedinSectionIVandshowninFigure9(supra)andFigure28(infra):
“Soyougottogetin.Everybodysay‘Igottagetin.’Soonceyougetinwe’regoingtotakeyouthroughfoursteps.Yougetin,first.Numbertwo,beaproductoftheproduct,usetheproduct.Three,youstartbuildingateam,justmakealist,we’regoingtoshowyouhowtobuildateam.Four,payattentiontothetraining.We’regoingtoshowyouexactlywhattodo.”
Figure28.FourStepstoSuccess(2019‐01‐0213_SBHWeeklyGettingStartedTraining)
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84.Intermsofmonth‐to‐monthpersonalproductuse(i.e.,Step2)andsampling(i.e.sharingSBHproductswithprospects),theFastStartSystemstatesthefollowing(2019‐01‐24SBH_FastStartSystem_v20190115):
“NowmakesurethatyouareusingsomeoralloftheSBHproductssothatyoubegintobecomeawalkingtestimonialofthepoweroftheSBHproducts.”“Factstell,storiessell.”“Nowatthesametime,whatyouaregoingtoneedtodoisstarthandingoutsamplestootherpeople.Theseproductsarereallyyourbestmarketingtool.Thegoalistohandoutatleast30sampleswithinyourfirsttwoweeksinthebusiness.”
85.Theseongoingpurchasesareideallymadewithinanauto‐ordercommitment,whichisdescribedintheFastStartSystemaswaytoensureconsistencyforuse,freesamplingtoothers,andcompensation:
“Auto‐OrderisnotmandatorybuthelpsmakesureyoureduceormeetcertainqualificationsintheSBHCommissionPlan.”“Theseareforthepeoplethataremostcommittedinthebusiness.Soifyou’relookingto,youknow,replaceyourincome,getridofajob,oryouwantfinancialfreedom,youdon’thavetobeonauto‐orderbutwehighlyrecommendit.”“Withourcompany,wedon’thaveanyminimumPVorpersonalvolumerequirements,sothere’snominimumpurchaserequirements,inordertogetcommissionswithourcompany,butwhathappensisasyousetupanauto‐order,andasyoustarttosetupyourownpersonalvolume,eachpartofyourpersonalvolumepurchasescountstowardyourrankqualificationssothat’sagreatwayforyoutorankadvanceisthroughyourownpersonalpurchases.”
86.TheFastStartSystempromptstheAffiliatetoreadandutilizethe“PowerofanAutoOrderProgram”document,whichexplainsthespecificreasonsthattheyshouldpersonallycommittoamonthlypurchaseandtrainandencouragetheirrecruitstodothesame.Thefollowingarestatementsinthatdocument(2019‐01‐282_PowerOfAnAutoOrderProgram)whichemphasizetheimportanceofrevenuestability,personalproductuse,andsettinganexampleforyourdownline:
“WhyanAuto‐Order?ThepurchaseofaSBH’sproductscreatestherevenuestreamthatsupportsandenablesalloftheCompany’sactivities; frommanufacturing,marketing,distribution,topayingsalariesandcommissions.Foranycompanytosucceeditisnecessaryforsalestogrowconsistently.TheSBHAuto‐OrderProgramisanimportantpartofthatsalesgrowthandcanbeyourcommitmentofconsistencytoourCompanyandyourteam’sgrowth.SBHAffiliatesusinganAuto‐Ordertopurchasetheirproductsregularlyarefeelingtheeffectsof theproductsdaily.Byusing theproductsonaregularbasis, individualenthusiasmgrowsasSBHAffiliatestrulybecomea“productoftheproduct”anddeveloptheirowntestimonials.”“Consistencyisessentialtosuccessfullybuildingyourbusinessandyoursalesorganiza‐tion.Evenonapart‐timebasis,consistencyisacentralandkeyfactorinachievingsuccess
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withanybusiness.Agreat leader leadsbyexample.Manyof thepeople inyoursalesorganizationwillfollowyourlead.”“SomeofthepeopleyoureferwillaskyouradviceandopinionofourAuto‐OrderProgram,soitstandstoreasonthatyoumustbeusingtheSBHAuto‐OrderProgrambeforeyoucanadvisethemingoodfaithtomakethatcommitment.”“InourCommissionPlanallvolumegeneratedbyyoursalesorganizationaccumulatesandisoneofthebasisforyourcommissions.Itmakessensethenthatasyoursalesorga‐nizationgrows,youwantthesalesvolumetogrowandincreaseeverymonth.BymakingsurethatthepeopleinyoursalesorganizationpurchaseourCompany’sproductscon‐sistently, your sales growth is assured. This is the power of the SBH Auto‐OrderProgram.”
87.The“PowerofanAutoOrderProgram”documentthenestablishesadirectconnectionbetweenauto‐ordersandAffiliatesuccess,referencingalargerstudyregardingauto‐orderpurchasesinthedirectsellingindustry:
“Typically,mostsuccessfulAffiliatesinDirectSalesareontheircompany’sAuto‐OrderProgram.ThemostsuccessfulpeopleintheCompanyusetheproductsregularly.Also,usually themost successfulpeople inourCompanyemphasize the importanceof theAuto‐OrderProgramtothepeoplethattheyrefertohelpassuretheirsuccess.”“SBHReferrerswhosucceedintheirbusinessdosobecausetheyhavemorepeoplebu‐yingandusingthecompany’sproductsmonthly.ThepeopletheyrefersucceedbecausetheyexperiencetheeffectsandresultsofourCompany’sproducts.WewantourAffiliatestobecome‘productsoftheproducts.’ThiscreatesmoreexcitementandmoremotivatedAffiliatesinyourorganization.”“Youcouldsaybasedonthisstudythat:1)IfyougoonourAuto‐Orderprogramwhenyousignup,thenyou’llhaveapproxi‐matelyan85%chanceofearningregularcommissioncheckswithin2years;2)IfyousignuppeopleinyoursalesorganizationonourAuto‐OrderProgram,thenapproximately92%ofthemwillstaywithyouforatleast2years,andapproximately85%ofthemwillalsoearnregularcommissions,……ontheotherside…3)Ifyoudon’tsignuponourAuto‐OrderProgramthenyouhaveapproximatelya96%chanceofquittingwithin2yearsand,therefore,notearningcommissions.”
“Someusethesestatisticsaspartoftheirprospectingandreferringstrategies.Intheirreasoningwithprospectstheysaysomethinglikethis:‘IcansignyouupandgetyouonourAuto‐OrderProgramandgiveyouapproximatelya92%chancetosucceedwithin2years,orIcansignyouupwithoutgettingonourAuto‐OrderProgramandgiveyouapproximatelya96%chancetofailwithin2years.It’syourchoice.’”
“AsyoucanseeanAuto‐OrderProgramcanbeabsolutelycriticalforyoursuccess.Thestudiesshowthatwithoutit,youareonlyhopingforResidualIncome.”
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88.IntheSBHProspectingSysteminstructions(2019‐01‐286a_SBHProspectingSystemCoffee),theAffiliateisprovidedspecificinstructionsforworkingwithapotentialrecruit.Withrespecttoauto‐orderpurchases,theAffiliateistoldtodothefollowing:
“ExplainPoweroftheAuto‐OrderProgram:SetappropriateAuto‐Order”“Ask:Doyouthinkworkingthistogetherwecanhelpyoumakeatleast$60withinyourfirst30days?StatisticsshowpeopleonAuto‐Orderhaveabetteropportunityforsuccess.”
89.Beyondenrollmentpacksandmonthlyproductpurchases,trainingmessagesalsospeaktotheimportanceofattendingSBHtrainingevents.Ticketscancosthundredsorthousandsofdollarsforasingleeventandrequiretravel,lodgingandtimeawayfromworkorothercommitments.Inalivetrainingevent(2019‐04‐15SBHLiveGroupPresentationwithCEOJayNoland),Mr.Nolandreferencestheopportunitiesforadditionaltrainingandthewealththattheywillgenerateifattendeessimplyfollowhislead:
“Youcangetin,andthenyoucancomerightbacktomorrowtogettrained.NowtomorrowI’mgoingtojumpyoufouryearsaheadinthebusiness.”[Iwillshowyou]“whyIthinkthewayIthinkthatgetsmewhatIgot.Idon’thavetoworkeveragain.Sothewordsthatarecomingoutofmymoutharefreedomwords.Iwanttoteachyouhowtoputthesewordsinyourmouth.”“Thathasgottobetherealestthingthatyoueverhavedealtwithwhenitcomestobusiness.Havingsomebodythat’sgeneratedbillionsofdollarswalkinandgo,‘I’mgoingtoshowyouhowtodoit.’Allyougottodoispayattention.Allyougottodoisgetin.”
90.Thetrainingopportunityreferencedinthelivepresentationrequireda$195tickettoattend.ThisisoneofmanysuchtrainingopportunitiesthatrequireanadditionalpaymentbySBHAffiliates.Additionalvideos(2018‐08‐08SuccessByHealth‐4thofJulyBash,2019‐05‐04SBHH3Maui2018DreamVideo,2018‐08‐112018SBHWealthWarriorsBootCampHighlights!)promotethepowerofattendingsuchevents.Inonesuchpromotionalvideo(2019‐03‐14RED‐STRAIGHTTALK‐NOJOKE)withscreenshotsshowninFigure29,Mr.Nolanddescribesthefinancialbenefitsofattendinga$795training:
“Gettingcontrolandhoninginonyourred,andgetdowntoreallymakingmoney.YouknowI’vetrainedsomeofthetopactivemoneyearnersinthisentireindustry.I’vehelpedpeoplemakemillionsofdollars,andsomeofthemoversevenfigureincomemonthly.Multiple,multiple,multiplesmakeoversixfigurespermonth.”
Othereventpromotions(includinghttps://successbyhealth.com/red/?u=successbyhealth,https://successbyhealth.com/millionaireworkshop/?u=successbyhealth,andSBHWorkshops_Successbyhealth)showapatternofhigh,non‐refundableentrypricesandspecificorimpliedincomeclaimsusedineventpromotion.
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Figure29.REDEventPromotion(Imagesfrom2019‐03‐14RED‐STRAIGHTTALK‐NOJOKE)
VI.2AffiliateRecruitmentandDuplication
91.ForthenewAffiliateseekingmaximumrewards,theFastStartSystemtrainstheindividualtoenterwiththelargestenrollmentpack,establishamonthlyauto‐order,attendpaidtrainings,then“buildateam”to“duplicate.”TheFastStartSystemprovidesspecificadviceforbeginningtobuildateam,qualifyingtheAffiliatetorankadvanceto“BusinessAffiliate”andaccesshigherearnings.TheFastStartSystemstatesthattheBusinessAffiliatequalificationrequirementscanbemetpurelywithenrollmentpackpurchasesandrecruitmentofnewAffiliates.
“Now,thisisrealsimple.Youwanttostartgrowingsolid,residualincomerightawayandgettingBusinessAffiliatequalifiedisagreatwaytodothat.Youjustsimplyneedtogenerate$5,000inteamvolumewithinonecalendarmonthand,again,youwanttodothisbyutilizingtheeffortsofotherpeopleonyourteam.Now,averysimplewaytoachievethisistojuststartoutwiththeSuperAcceleratorPackandthenhavethetwoinitialpeoplethatyourefertoyourteamcomeinwiththeSuperAcceleratorPack.”“Now,that’sjustonewaytogetBAQualified.Youcandothatinamultitudeofways.Youcouldstartwithalowerpackandhavemorepeopledoingalittlebitoragainyoucoulddoacombinationthereof.It’scompletelyyourchoice.”
92.VariousSBHvideosanddocumentsbuildonthisFastStartSystemframeworkandprovideadditionaltraining,especiallywithrespecttoAffiliaterecruitment.InalignmentwiththeSBHCommissionPlan,trainingoftenfocusesonhigherlevelsofrecruitment(i.e.,thePowerofTen)andtheimportanceofteachingrecruitstoduplicate(i.e.,torepeattheiruplinemember’sactionsandteachtheirrecruitstodothesame).Figure30providesimagesfromapre‐recordedvideo(2018‐06‐04SBHMoneyTalk‐FinancialFreedomwithSBH),whereMr.Nolanddescribestheneedtorecruit10newAffiliatesandduplicate,theresultbeingatransformationfromthedifficultlifeoftraditionalemploymenttotheliberationofbeinga“coffeemillionaire.”Heexplainstheresultsofbuildingthe10‐by‐10structure:
“Thisisallaboutduplication.Whenthey[your10personalrecruits]gofind10,they’refinding10butit’saddingtoyourTier2.SowhenthatTier2comesintoplay,yourfirstTierisallmaking$500,you’renowmaking$3,500inthisexample.Nowyou’retalking
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aboutreplacingtheincomeofmostjobs.Now,whenyourTier2justdoesexactlywhatyoudid,andwhatthepeoplethatreferredthemdid,whentheygofind10…guesswhathappens?Nowthey’remakingthe$500,yourTier1areallmaking$3,500permonthinresidualincomeandnow,inthisexample,you’remaking$23,500permonthinthisexample.Nowyou’retalkingaboutwalkawayincome.You’retalkingaboutfinancialfreedomincome.Whenyougotothenexttier,rememberwepayyouthroughsixtiers.”“Sothatfourthtier,nowwhenthey’redoingthesamething,they’refinding10,nowyourfirsttierareallmakingthat$23,500,yoursecondtieraremakingthat$3,500,thatnexttierismakingthat$500,right?Butyou’renowmaking,inthistheoreticalexample,$173,500amonth.That’sanextremeexample.You’reacoffeemillionaire.”“Whenthey[fifthtierAffiliates]allgooutandjustfindten…nowthat’spayingyou$1,173,500inthisexample.Nowyou’renotjustamillionaire,you’reamulti‐millionaire.”
Figure30.ThePotentialofSBHandthePowerofTen(Imagesfrom2018‐06‐04SBHMoneyTalk‐FinancialFreedomwithSBH)
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93.InreferencetotheBAMbonus,Mr.Nolandexplainstheroleofrecruitmentandduplicationinachievingthehighestlevelsofincomeinapre‐recordedSBHvideo(2017‐10‐31LetsTalkCoffeewJayNoland(PrivateVideoReleased)):
“We’regoingtopayoutoveramilliondollarstofolkswhoduplicatethePowerofTen.Findtenpeoplepersonallythatareonatleast$100ordereverymonth.Oncetheyhaveten,so10‐by‐10,we’llpayyoua$1000one‐timebonus.Whenyouhelpyour10dothesamething,they’llgeta$1000,you’llget$10,000.Whenthose10helptheir10dothesamething,thosepeoplethatareyourfronttiersaregoingtoget$1,000,secondtiersget$10,000,youget$100,000.Andthenthenexttier,youpickupamilliondollarsbyhelpingyourfronttiergetthe$100,000bonus,andthey’rehelpingtheirpeoplegetthe$10,000,whoarehelpingtheirpeoplegetthe$1,000.Soit’sgoingtoreallybepowerfulwatchingtheduplicationtakeoverhere.Sothereyouhaveit.Wehaveapowerhousecommissionplan,we’vegotaproductthatnobody’sgoingtobeabletocompetewith,andwe’vegotthethingthatyou’relookingforthemost,what’sthatthing?Whatdidwestartouttalkingabout?Residualincome.Residualincome.Thethingthatyou’vegottohavetogetfree,Ijustshowedyouapowerhouseplantogetit.”
94.Recruitmentandduplication,framedintermsofthePowerofTen,arediscussedfrequentlyandconsistentlyinvideos(including2017‐11‐07SBHCommissionPlan,discussedindetailinSectionV,and2019‐04‐15SBHLiveGroupPresentationwithCEOJayNoland)andindocuments(includingBusinessOverview|SuccessByHealthand2019‐01‐289_SBHGroupPresentationScriptCTM).AsshowninFigures14‐18and20‐22(inSectionV),recruitmentandduplicationdeterminefinancialsuccessinSBH,andthePowerofTenprovidesspecificrecruitmenttargetsfortheSBHAffiliate.AsdiscussedinSectionV,theexponentialgrowthofa10‐by‐10structurewillleavethevastmajorityofAffiliatesinalossposition.Whencombinedwiththeincentivesandinstructionstopayintothesystem,recruitmentandduplicationtranslatetoanillegalcompensationstructure.TheFourStepstoSuccess,theFastStartSystemandthePowerofTentrainthenewrecruittoparticipateinandpromoteapyramidscheme.Anyclaimsassociatedwiththissystemaredeceptive.IwilladdressclaimsfurtherinSectionVII.
VI.3Retail
95.WhiletheprimaryemphasisinSBHtrainingandcompensationisonAffiliatepurchases,recruitment,andduplication,thereissomediscussionofretailsalesintheSBHmaterials.Referencestoretailandretailprofitseemtoservetwobasicpurposes:incomeclaimsandriskmitigation.Intermsofincomeclaims,retailprofitisyetanotheravenueforinflatingexpectedearnings.WhileclaimswillbediscussedfurtherinSectionVII,recallthatSBHrepresentationsfrequentlysuggestthattheAffiliatecanearn$54,000peryearinretailprofit.Forexample,theGroupPresentationScripttrainstheAffiliatetoexplainthepotentialforretailprofittoprospectsinthisway(2019‐01‐289_SBHGroupPresentationScriptCTM):
“The1stwaywegetpaidasanAffiliatewithSBHisRetailSales:WeBuyWholesale,weSellRetailandwekeepthedifference(Profit).Theaverageprofitperbagofcoffeeis$15.00;theaveragecustomerpurchasesabout3boxespermonth($45).(Exampleof
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10Customers=$450/mo,20Customers=$900/mo,100Customers=$4,500/mo…$54,000/yr)”
96.AsdescribedinSectionV,thereisnobasisfortheseprojections,especiallywhenweconsiderthewayinwhichthesenumberswouldgrowwithadditionalrecruitmentofAffiliatesandcustomers.Themathematics(seeTable4)areuntenableevenbeforeweconsidertheotheraspectsthatundermineretailprofitpotential;namely,pricingandtrainingmaterials.AsdiscussedinpriorSections,theretailcustomerwithconsistentdemandwouldbeexpectedtopurchasetheproductdirectlythroughtheAffiliate’sSBHwebsiteorthecompany’swebsitetoaccessthewholesaleprice.ThisaloneunderminestheretailprofitprojectionsusedwithinSBHtrainingandpromotion.Inaddition,theSBHFastStartSystemtrainstheAffiliatetooffertheproductatlowerpricesandultimatelyconvertcustomerstoAffiliates(2019‐01‐24SBH_FastStartSystem_v20190115):
“Iftheyliketheproduct(s),askthemiftheywouldliketogettheproductatRetail,Who‐lesale,orforFREE.Mostpeoplewillsaytheywanttogettheproductsfor“FREE.”“IftheywantproductsforFREE,setanappointmentwiththemandshowthemthebusinessplan.Fromthere,theycansignup,buyproductsatWholesalepricing,andstartearningCommissions,andearnFREEProduct.IftheyjustwanttogetproductatWholesalepricingwithoutsigningup,theycanpurchasedirectlyfromyourSBHwebsite.IftheywanttheproductsatRetailpricing,havethempurchaseproductdirectlyfromyou.”“Ifyousample,youwillgetmoreappointments…howyougetmoreappointmentsisbypeoplesayingtheywanttheproductsforfree.Soseehowthesystemthereisputtogethertokindofleadfromonethingtothenext.”“Mostpeople,whenyougothroughthisprocess,they’llsaytheywantitforfree.”
97.Theretailsalesscript(2019‐01‐284_SBHRetailSalesScript)similarlytrainstheAffiliatetoofferlowerpricesforSBHproducts:
“IneedyoutohelpmeoutbybuyingatleastabagortwoofcoffeefrommeonetimeatRetailPricing.Ifyoulikeit,IwillshowyouhowtogetitatWholesalePricingfromthenon.”“THEYWILLASKHOWMUCHDOESITCOSTANDYOUTELLTHEM:Say“It’sonly(ChooseYourPrice)Retailperproduct.Ifyoulikeit,Iwillshowyouhowtogetitatwholesalefromthenon.”
Despitethistraining,Mr.NolandrepeatedlysuggeststhatAffiliateswillbeabletoearnsubstantialretailprofits:“$54,000peryearinretailprofitalone…wecanhelppeoplegetoutoftheirjobswiththat,sothat’sstrong”(2017‐11‐07SBHCommissionPlan).
98.Intermsofriskmitigation,itisclearattimesthatSBHandMr.NolandarelikelyawareoftheneedforretailactivitywithinanMLMstructuretoavoidbeingfoundtobeapyramidscheme.Forexample,policy9intheSBHTermsofUsedocument(TermsofUse–SuccessByHealth)states:“AFFILIATEunderstandsthatcommissionsaresolelyearnedonthesaleofcompanyproducts.”PromotionmaterialsrefertothebillionsinSBH“sales”ascomingfrom“MycoCafeCustomers”(e.g.,BusinessOverview|SuccessByHealth).SBHmaterials
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andMr.Noland’scommissionexplanationsoftenbeginbydiscussingretailcustomers,buteventuallyconflateAffiliatepurchaseswithretailsales.Inthequotesfromalivepresentation,Mr.Nolandstartsbytalkingaboutthe“averageperson”andtheirexpectedcoffeeconsumption.HethenmovesintothePowerofTentrainingwhererewardsarebasedonconsistentAffiliatepurchases.Hislanguageimpliesthatthecoffeeissoldtocustomers,buttheprimarysourcesofAffiliatecompensationarepaidoutwhetherthoseproductsareeverresoldornot(2019‐04‐15SBHLiveGroupPresentationwithCEOJayNoland):
“Theaveragepersonisgoingtotakethreeofthese[bagsofcoffee]aweek,andhere’swhatIneedyoutodo.Moveaboutsixofthesebagsaweek.Find10people.Youdoitto,you’vegottodoit.Leadbyexample.”“Youget10peopletomovesixofthesebagsaweekwithyou,I’mgoingtostartsendingyou$500everymonth,whetheryouworkornot.”“Nowthey’regoingtolookatyouandsay,‘Well,Icandothattoo.’Therightpeoplego,‘Icanget10peopletomovesixbagsaweek.’Whenthose10get,theyalldowhat?Theyget10otherpeople,howmany?Ten.Thisain’tdifficult,theyjustget10.Everybody’smovinghowmany?Sixbagsaweekor125involume.”“Whenyour10get10,movingsixbags,those10arenowgoingtoget$500amonth.Butbecauseyou’resittingontopofthatteam,you’regoingtoget$3,500amonth…whetheryouworkornot.”“Itstartstoduplicate.”“Nowyourten’stenget10,andthey’reallmoving6bagsor125involume.”
Mr.Nolandcontinuestodiscussearningsasthe10‐by‐10structuregrows.Hethentiesthewealthbacktocustomerdemand,arguingthatpeopleareaddictedtocoffeeandwillcontinuetoreorder,“andyoustartgettingpaidmonth,aftermonth,aftermonth,aftermonth,andthenthenextmonth.”Heasksthecrowdtorepeatthiswithhim.Thiscanleavetheimpressionthatlargeamountsofcoffeearebeingpurchasedandconsumedbyretailcustomers,eventhoughtheCommissionPlanrequiresnoretailsales(seeSectionV).Inmyexperience,itiscommonforMLM‐basedpyramidschemestodiscussretailsalesinpromotionalmaterialsandpolicieswhilehavingnomeaningfultrainingorincentivesassociatedwithretailactivity.
99.ThereisonemorewaythatretailprofitisusedwithinSBH—asanargumentforquickandcertainearnings.TheFastStartSystemdescribesretailprofitasawaytobuildconfidenceandcommitment:
“Nowmakingprofitsrightawayisastrongmotivator,especiallywhenitcomestoyourconfidencebeingbuiltandboosted.SomakeitagoaltosellatleasttwoSBHproductswithinyourfirst48hoursinthebusiness.That’sright,sowithinyourfirstcoupleofdaysinthebusiness,haveatleasttwooftheseproductssoldatretailpricingsoyoucanmakesomeprofit,showingthatthebusinessworksandyouwillbeabletosharethatwithotherfolksthatarecomingintoyourteam.”
Thoughretailprofitmaybediscussedtoelevateexpectations,createtheimpressionoflegitimacy,ortocreateearlyconfidence,thebalanceoftrainingunderminesretailand
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focusestheAffiliate’sattentiononrecruitmentofnewAffiliates.ThisemphasisonrecruitmentmatchestheincentivesintheSBHCommissionPlan.
VI.4SBHOne‐YearCommitment
100.TheFastStartSystemalsodiscussestheimportanceofmakingaone‐yearcommitmenttoSBHandreferencesa“1YearCommitmentForm.”ThisdocumentasksthenewAffiliatetomakethiscommitmentexplicitandexplainstherelationshipbetweenthiscommitmentandtherewardsavailablethroughSBH(1YearCommitmentForm):
“Thedifferencebetweensuccessandfailureinlifeisawrittenplanthatisspecific,achievable,andtiedtoatimelinewithameasureofaccountability.ThisplanwilldefinebehaviorsIwillbecommittedtoinmylifeandinmySBHBusiness.”“…IwillpursuetheSBHOpportunitywiththefullintentionofSUCCESS.Iamapproachingmybusinesswithatruebusinessmindset.Irecognizethatmyfirst3‐6monthsarealearningexperienceandthatthisOpportunityisbasedona3to5yearplan.Iwillworkatleast10hoursperweekonmySBHBusinessforaminimum1yearandthenevaluatemybusinessaccordingly.”
Figure31showsthecommitmentform,whichincludesapledgetobea“productoftheSBHproducts,”exposeotherstotheSBHbusiness,instructrecruitstogothroughtheFastStartSystemtraining,andpersonallyattendalleventsandtrainings.
Figure31.TheOneYearCommitmentForm(Excerptfrom1YearCommitmentForm)
101.Overall,therecipeforsuccessisclearlyandconsistentlyarticulatedthroughSBHAffiliatetraining:payintothesystemandrecruitotherswhowillpay.Thesepaymentsincludetheinitialenrollmentpack,ongoingmonthlypurchases,andevent‐relatedexpenses.Recruitmentandduplicationareessential.Theprimarycontributionsofthe
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Affiliatearesaidtobeeffort,belief,andadherencetoSBHtrainingforatleastoneyear.AsMr.Nolandstates(2019‐04‐15SBHLiveGroupPresentationwithCEOJayNoland):
“Theonlypeopleit’snotrealtoarethosethatdon’tbelieve.Youdon’tgotwhatyouwantbecauseyoudon’tbelieveit.Allyougottodotonightistodecidetobelieve,andit’ssimple.Youdecidetobelieveyoujustfigureouthowyou’regoingtogetin.”
AsimilarsentimentisexpressedintheFastStartSystem(2019‐01‐24SBH_FastStartSystem_v20190115):
“wehaveinplacethesystems,tools,directions,andoverallinformationtogiveyouthebestpossiblechanceataccomplishingSUCCESS.Now,it’suptoyoutomakeithappen.Youcandoit.ItjusttakesEffort,Focus,andDedication.Ifyouarewillingtoapplyyourself,youcanaccomplishwhateveryouwantwithSBH.”
Despitetheseassurances,thevastmajorityofparticipantsareexpectedtolosemoneywithSBH,bydesign.ThefollowingSectioncontrastsSBHincomerepresentationswiththerealityforSBHparticipants.
VII.IncomeRepresentationsandAffiliateData
102.IncomerepresentationsareembeddedinSectionsIV,V,andVI,includingspecificincomeprojectionsforretailprofitandforrecruitmentthroughthePowerofTen.InthisSection,IprovideadditionalSBHincomerepresentations–generalandspecific–anddiscussSBHdisclaimerlanguage.IthencontrastrepresentationswithavailableSBHAffiliatedataanddiscussthecontinuanceofrepresentationsinthemostrecentSBHmaterials.
VII.1IncomeRepresentations
103.SBHandMr.Nolandmakefrequentuseofgeneralandspecificearningsclaims.SomeoftheseclaimsrelatetoMr.Noland’spersonalwealthandhisdesireandabilitytohelpothersachieve“financialfreedom.”Thefollowingquotesreflectthissentiment:
“I’vebeenfinanciallyfree,completelytimeandmoneyfreesinceIwas36.I’venothadtoworkajobsinceIwas31.Now,Itakethatback,sinceIwas27.SoIsawitwhenIwas27,Ididn’tgobackandworkajob.ButIhadtokeepdoingit,butIdidithardforfouryears,workingtogetthisthingcalledresidualincomegoing,working.”“97%ofthepopulationareworkingweekin,weekout,paychecktopaycheck,struggling.97%.Thisiscrazytonight.Ihaven’thadtowork.”“AsI’mtalkingtoyourightnow,I’mmakingmoney.IfIlaydownandgotosleep,I’mmakingmoney.EverynightIsleep,Igotmoneycomingin.Alotoftimes,itwasmorethanwhenIwasawake.”“Yousay,‘Jay,justpleasetellmehowyoucreatedafinancialfreedomlifetowhereyoursonbeforehewasbornwasalreadyretired?Andhiskidsareretired,andhiskid’skidsareretired?’I’mnowworkingonmyfourthgeneration.Howmanyofyouallwanttorolllikethat?Thisissimple.Youallgottojustlistentome,becauseinthisroomtonight
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there’sgoingtobesomebodythatwalkedhereforthefirsttime,18monthsfromnowwillneverhavetoworkagain.”[Hestatesthatheisgoingtoshowthemexactlywhattodo.]“Youwanttoknowwhy?Here’swhy.Thisisthewholecatchtonight.Everytimeyoumakesomemoney,Imakesomemoney.YouallherewhatIsaid?Everybodyinthisroom,believeitornot,I’vegotavestedinterestinyou.SoifeverytimeyoumakesomemoneyImakesomemoney,howmuchmoneydoIwantyoutomake?SoI’mjustgoingtotrainyou.Igotallkindsofsystems,showyouexactlywhattodo.Now,ifyouignoreit,somebodyelsewillpayattention.I’mcastinganettonighttosaywho’sgotthegreatestcommonsensemeterinthisroom.Right?Isthereanybodyinthisroomsaying,‘Look,I’mjustchoosingtobedumb?’Anybody?Howmanyofyouallarereadytobefree?Yougottomakeadecision.”(2019‐04‐15SBHLiveGroupPresentationwithCEOJayNoland)
104.Mr.Nolandarguesthathispersonalfinancialfreedomstemsfromhisabilitytotapintoresidualincome,andthatSBHisthevehicletoprovidethistypeofincometo“themasses”(2019‐08‐01SBHHeatCall).Inthesamecall,Nolandclaims:“SBHhasaplanthatrewardsyouforimmediateeffortandsetsyouupforperpetualincome.”Inapre‐recordedvideo(2017‐10‐31LetsTalkCoffeewJayNoland(PrivateVideoReleased)),Mr.Nolandclaimsthatthetrainingwillshowtheviewerhowto“makeprofessionalmoney,andthemoneyI’mtalkingaboutisresidualincome.”Mr.Nolandexplainsthepowerofresidualincomeinthelivepresentation(2019‐04‐15SBHLiveGroupPresentationwithCEOJayNoland):
“Ifyouwanttogetfree,you’regoingtohavetomakemoneywhenyou’renotworking.”“Residualincome,you’vegottogetthatinyourhead.Youcannotgetfreeunlessyoumakeresidualincome.Letmeexplainit.That’swheremoneycomesinoverandoveragain,forworkyou’vealreadydone.Howmanyofyouallwouldliketogetpaidthatway?Soyougoandyouworkhard,howmanyofyouallworkhard?Alright,now,onceyougotoajobyouworkhard,theypayyouforthosehours,doyouevergetpaidonthosehoursanymore?No,youexchangethosehoursfordollars,done.Wealthypeoplesayifyoudothatyou’recrazy.”“Whointhisroomwouldliketobefree?Right,havefinancialfreedom,dowhatyouwantwhenyouwant,whereveryouwant,whowouldliketodoitlikethat?You’vegottohavemoneycomingin.”
Thebenefitsofresidualincome–includingtheabilitytopayoffdebtsandearnmoneyinyoursleep–areshowninFigure32,asdepictedintheSBHCommonSenseBusinessvideo.
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Figure32.SBHandtheBenefitsofResidualIncome(Imagesfrom2019‐02‐08SBHCommonSenseBusiness)
105.TheprimarysourceofresidualincomeatSBHissaidtobetheTierCommissions:“Whatcanthatequal?Walkawayresidualincometowhereyouneverhavetoworkagain”(2017‐10‐31LetsTalkCoffeewJayNoland(PrivateVideoReleased)).Othercommissiontypesarealsosaidtogenerateunlimitedincomepotential,includingtheGenerationInfinityBonus.Mr.Nolandarguesthatthisbonuscouldpayouton50,100orevenhundredsoftiers,thoughthemathematicsofexponentialgrowthinafinitepopulationmakethisimpossible:
“Again,thatcanbewalk‐awayincome,becausethattakesyoupastyoursixthtierdownthroughinfinityinsomecases.You’llseepeoplegettingpaidontheir50thand100thtierbecauseofthatinfinitybonus.”(2017‐10‐31LetsTalkCoffeewJayNoland(PrivateVideoReleased))“Thiscanequalwalk‐awayincomebecauseitcangothroughinfinity….couldgodowntwo,threehundredtiersandyoucouldbegettingonetofourpercentgenerationbonusonallofthat.That’spowerful.”(2017‐11‐07SBHCommissionPlan)
106.AsdescribedinpriorSections,therecruitistoldthatresidualincomeandfinancialfreedomareaself‐determinedchoice,asdemonstratedbythequotesbelowandreflectedinFigures33and34:
“ThekeyistoatleastGetStartedsomewhere.We’vegotplansforeachofthese3typesofpeople.Simplypickyourpathandplug intooursystem.AtSBH,we literallyshowpeopleexactlywhattodo.Thereisnoguessing.
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Letthepersonknowwhoinvitedyoutothismixerifyouarea#1(WanttoSupplementYourIncome),#2(WanttoReplaceYourIncome–NoMoreJob),or#3ReadyforFinancialFreedom(TakeMassiveActionToAchieveSuccess).”(2019‐01‐289_SBHGroupPresentationScriptCTM)
Figure33.TypesofPeople(Imagefrom2018‐04‐09SBHCEO'sCompanyVisionMessage)
Figure34.TypesofPeople(Imagefrom2018‐05‐05SBHBusinessOverviewB‐2)
107.Mr.Nolandexplainsthat,ascommissionsgrow,anAffiliatewillhavetheopportunitytoleavetheirjob;hetalkstothemabouthowto“quitpolitely”(2019‐04‐15SBHLiveGroupPresentationwithCEOJayNoland).Inthecommissionplanexplanationvideo(2017‐11‐07SBHCommissionPlan),Mr.Nolandsimilarlydiscussestheabilitytoleaveafull‐timejob:
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“Ifyou’reworkingajob,IwantyououtofthatjobASAPand,ifyoulistentomeandyoulistentoourtopleadershipcouncil,andourtopleadersthataredevelopingwithSBH,you’regoingtobeabletogetoutofthatjobinaboutsixmonthsifyoupaycloseattention.Nowthere’snopromises,butwe’vegottheplantogetyououtofthatjobinsixmonths.Nowhowmanypeopledoyouknowthatwouldlovetogoinandrespectfullyfiretheirboss?”
108.Mr.NolandclaimsthatAffiliateswhocontinuetobuild,usingthePowerofTen,willgeneratewealththatcanfinanceluxurypurchasesandcanbehandeddowntodescendants.HebeginswiththeprojectedTierCommissionincomeassociatedwithrecruitmentof11,110downlineAffiliateswhoeachpurchase$500permonthinSBHproducts(seeSectionVfordetailsonthisprojection):
“$173,500amonth…isitpossible?Yes.DoesJayhaveanybodyinhisnetworkdoingit?Yes.Yes.”“Butitdon’tstop,becauseyourfronttieraregoing‘IfIseeyoubecameamillionaire,theylookingatyou,you’regoinginbuyingLamboscash.WalkintoaFerraridealershipandtheysay‘Howyouwanttofinancethat?’Yousay‘What’syourwiringinstructions?’”“Seewhenitstartscominginlikethatyoudon’tfinancestuff.Youpayit.”“Whenthatthingduplicatesonemoretier,I’malmostafraidtosayitinthisroom.”“Ifthatthinggoesonemoretier,you’renownotjustamillionaire,you’reamillionaireamonth.”“$1,173,500amonthinthatsimpletheoreticalexample,andyou’refreerthanfree.Nowyou’regenerationallyfree.Nowimagineyourkids.Sayyouhavetwokids,eachoneofthemgettwo,three,fourmillioneachtogettheirlifegoingright.”
Mr.NolandexplainsthatyoucanevensellorwillyourIDnumber:“sowhenyou’regone,itdon’tstopcominginbecausepeoplekeeponorderingcoffeeeverysinglemonth.”
109.Inadditionto“walk‐away”residualincomeandgenerationalfreedom,achievedthroughcommissionsandbonuses,Mr.Nolandclaimsthatretailprofit,onitsown,canleadtolife‐changingincome.Theseretailclaimsareprovidedwithoutverifiedevidenceofpastsuccessandwithoutacknowledgingtheroleofmarketconditions,substituteproductpricing,orotherrelevantfactors.
“Youaregoingtomake,onaverage,$45profitpercustomer,inmyexperience,becausethey’re[customersare]goingtotakeabout3boxesofcoffeepermonth.”“Soifwecanhelptheaveragepersonjustgettencustomers,we’rekeeping85%ofthepopulationthatfilesbankruptcyoutofbankruptcy.”“Nowdoesthathappen?I’vewatchedithappenoverandoversince2005.Peoplereallyreplacingtheirincomejustsellingtheproduct.”(2017‐10‐31LetsTalkCoffeewJayNoland(PrivateVideoReleased))Affiliatescan“doubleyourmoney,somepeoplemakeathousandpercent”whenre‐sellingproducttocustomers.(2019‐04‐15SBHLiveGroupPresentationwithCEOJayNoland)
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110.TrainingandrecruitmentmaterialsdirectlyaddressthelikelihoodofearningtheprojectedincomelevelsinSBH.Inthe2018Kickoffvideo(2018‐12‐20SBHKickoff2018HighlightReel),amessageappearsonthescreen:
“Indirectsalesasawhole,only13%ofmemberseverearnanycommission.”AnothermessagethenpositionsSBHasanopportunitythatismorelikelytoyieldprofit:
“InthelasttwoweeksofJanuary2018,48%ofSBHmembersearnedacommission.Howmuchwillyouearnin2018?”
Inthesamevideo,AffiliatesdescribethereasonsthattheyareparticipatinginSBHandspeakdirectlytothelikelihoodofachievinglife‐changingcompensation.
“mostimportantly,thereisanopportunityhereformetogetfinanciallyfree”(KimC.)“Ifyouwanttimeandfinancialfreedom,ifyouhavedreams,goalsandaspirationsthatyoudon’tknowhowyou’regoingtoachievethem,cometoSuccessbyHealth.”(BillyP.)“MypeopleandIwillknowwhattodo,howtodoit,andwhywearedoingittomakethosemillionshappenforSuccessbyHealth.”(JoDeeB.)
111.Mr.Nolandarguesthatitis“commonsense”thatprojectedincomelevelsareattainablewithSBH(2019‐02‐08SBHCommonSenseBusiness):
“Now,howmanypeoplecanwehelpbecomemillionaires?Iwasboldenoughtosayit.Thatcanhappenhere.Well,ifthat’stoobigforyou,howmanypeoplecanwehelpgetoutofdebtandactuallypaytheirbillsontime?”“Theprobabilityofthathappeningraisesskyhighwhenyoulookatourfourkeypoints”[taste,price,health,andcompensation]“Now,Idon’tknowwhereyoucangotogetpaidoffofsomethingthatsomebodyisalreadydoing,allthetimethatthey’recompletelyaddictedto.”
Heexpressessimilarsentimentsinothervideos,oftenconnectingthecertaintyofincomewithglobalcoffeedemand:
“it’sallbeingdriven,foundationally,bycoffee,fourbillioncoffeedrinkersintheworld.Areyougoingtogetsomeofthismoney?Becausesomebodyis.”(2017‐11‐07SBHCommissionPlan)“Iwantyoutothinkaboutyourprobabilitiesofearningtrueresidualincomeifyou’vegotthatmuchofconsumptiongoingon,everysingleday.”(2018‐06‐04SBHMoneyTalk‐FinancialFreedomwithSBH)“PeopleAsk:CanIdoit?Doesitwork?Willitworkforme?YES”(2018‐05‐05SBHBusinessOverviewB‐2)
112.BeyondthepersonaldevelopmentfromSBHtrainingsandthefinancialbenefitsfromtheCommissionPlan,SBHandMr.NolandalsopromotethepossibilityofluxurytripsandthebenefitsofforminganewcommunitywithSBHAffiliatesandleaders.SBHleaders,includingMr.Noland,suggestthattripqualificationisachoice,opentoeveryone,andhedrawsaconnectionbetweenvacationqualificationandresidualincome:
“WhatIlovemostaboutthem[Affiliates]beinghere,isthey’reallmakingmoneyeventhoughtheyareouthereenjoyingthisincrediblelifestylehereinMaui,Hawaii.”
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“Youknow,inlife,youknowyou’vegottomakedecisions.Areyougoingtositontheground,orareyougoingtojump?”
AffiliatesinthevideoaffirmthatthechoicetojoinSBHbringsgreatrewards:“SuccessbyHealthhastotallychangedmylife.”“Everysinglethingthatwedoisachoice.”“Don’tbeonetoevermissanothertrip.”
113.DisclaimersaresometimesincludedinSBHmaterials,eitheraswrittenstatementsinvideosordocumentsorasverbalstatementsinaudio/visualrecordings.Forexample,Figures11‐16and19‐20(inSectionV)eachincludeadisclaimerinverysmallfontatthebottomofeachslide:
“INCOMEDISCLAIMER:Anyearningsinformationstatementsregardingincome,ortestimonialsandexamples,areusedintheSBHCommissionPlansolelytoexplainhowtheCommissionPlanworksandarenotrepresentativeorguaranteesofanyearningsorincome.Individualincomeresultsmayvarysignificantly.NoImpliedEarnings.”
ThisdisclaimerisclearlycontradictedbyMr.Noland’sownstatements,whereheclaimsthatprojectedincomelevelsareassuredsolongastheAffiliateputsforthsufficienteffortandfollowstheSBHinstructions(2017‐11‐07SBHCommissionPlan):
“Wecannotmakeanyguaranteesofincome.I’monlygivingyouasimpletheoreticalexampleofhowourcommissionplanpays,that’sit.It’sjustthecommissionplan,simpletheoreticalexample.Ifyoudon’tdoit,youwon’tmakeanymoney.Butletmetellyousomething,youdon’thavetoguesswhatPV,BV,CVorQVoranything.Yougooutthereanddothesales,we’vegotsetpercentageshere,setpercentagesthateverybodycangoandlookatandcancalculate,andifyouputthisvolumethroughhere,thiscomputersystemdoesn’tcarewhatyourraceis,itdoesn’tcarewhatyourreligionis,itdoesn’tcarewhatyourgenderis,it’sdesignedtohavenoemotionandjustpayyousomemoney.Nowisthatequalopportunityornot?Icallittheeconomyequalizer.”“Butwhat’sgoingtohappenisthisorganizationisgoingtostartdeveloping,andthere’sgoingtobepeoplethatbecomeleadersandthere’sgoingtopeoplethatjustwanttodrinkcoffeeandtheyjustwanttosupplementtheirincome.Andthere’sgoingtobesomepeoplethatwanttogetoutoftheirjob.Sothere’sgoingtobeallthesedifferenttypesofpeoplehere.”“We’llseeyouatthetop.”
114.Similarly,Mr.Nolandexplainsthe“walkaway”incomeprojectionsandthenaddsdisclaimerlanguage:
“Thatisanextremeexample.Nowthere’snoguaranteeofincome,andit’sreallytouchytoeventalkaboutthatpotentialbutit’sjustthewayitis.Thenumberspay.Thecomputerdoesn’tcareaboutyourbackground.”“Isn’titgreatthatyoucanhaveanequalopportunitywalkawayresidualincomepotentialbusinesshere?”“Thisisextreme.Hardlyanybodywillaccomplishthosetypeofnumbers,butisn’titawesometoknowthatthatpotentialisthere?”(2018‐06‐04SBHMoneyTalk‐FinancialFreedomwithSBH)
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“Thinkaboutthis,$23,500amonthinthissimpletheoreticalexample.Whyisittheoretical?Causeyoujustain’tdoneityet.Butaretherepeoplethatdoit?Yes.I’vegotpeopleinmynetworkglobally,theymakethatlooksilly.Theymakethatlooksilly.”“At$23,500amonthwhetheryouworkornot,99%ofthepopulationwillbefinanciallyfree.”(2019‐04‐15SBHLiveGroupPresentationwithCEOJayNoland)
115.Beyondearnings,Mr.NolanddiscussesthetaxbenefitsassociatedwithbeinganSBHAffiliate:
“Ifyouarenotin,youdon’thaveaccesstofreedom,morethanlikely.Soatleasttakethat$49,getallthetaxbenefits.Youallknowaboutthat?Doyouknowwhenyougetthat49,youhaveahome‐basedbusiness.AndthereareIRS,formerIRSattorneysandCPAsthatsaysifyouhaveahome‐basedbusiness,youwilladd5to15thousanddollars.Don’trecord,don’trecord.Fiveto15thousanddollarstoyourbottomline.Sowhatyou’reusedtobringinghomenow,sowhatyou’reusedtobringinghomeyou’regoingtoaddonaveragetheysayfiveto15thousandmoreifyou’restillworkingajob.”
116.Mr.NolandframestheSBHfinancialrewardsasaformofgenerosity,asAffiliatesaretoldthattheywillbehelpingtheirdownlinemembersachievefinancialandtimefreedomastheyseekthosesamerewardsforthemselves(2018‐06‐04SBHMoneyTalk‐FinancialFreedomwithSBH):
“Thinkaboutthepeopleyouhelpedthroughthisplan.”“Thinkaboutyourfirsttier.Ifyou’remakingoveramillionamonthinthisexample,they’reallmillionaires.”“Younowhavetenpeoplethatyouintroducedwhoareallmillionaires.What’syourimpactontheworld?”“You’vegot100peoplethatarenowfinancialfreedompeopleonthatsecondtier.”“Whatjobcanyouworkthatcangiveyouthatkindofopportunity?”“We’rebringthepowertothepeoplethroughourcommissionplanandthroughourproducts.”“Areyougoingtogetfree?”“Comejoinusonthisjourneytofreedom.We’llseeyouatthetop.”
117.SBHmisrepresentstheincomeopportunitytorecruits,anditalsotrainsAffiliatestomisrepresenttheSBHopportunitytoothers.OnesuchexampleistheSBHProspectingSystem,whereAffiliatesaregivenadviceonquestionstoaskandexamplestoshowaprospect.Figure35showsanexampleofquestionsthattheAffiliateistrainedtoaskwhenclosingameetingwithapotentialrecruit.Thesequestionsimplythatanyincomelevelispossible,andthatthisincometargetisdirectlyconnectedtothenumberofhoursandmonthsthatthepersoncommitstotheSBHbusinessopportunity.Thetwospecificexamples,basedonretailandrecruitment,bothencouragetheAffiliatetomisrepresentpotentialincome.
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Figure35.ProspectingSystemQuestionsandIncomeExamples(2019‐01‐0213_SBHWeeklyGettingStartedTraining)
118.OtherscriptsprovideevidencethatAffiliatesaretrainedtorecruitnewparticipantswithdeceptiveincomeclaims.Figures36‐39provideexcerptsfrommultipletrainingscripts.Somescripts(Figures36‐38)telltheAffiliatetosaythatitispossibleto“replaceyourcurrentincome”orachieve“financialfreedom”withSBH.Another(Figure39)instructstheAffiliatetotellaspecificstoryaboutthereasonstheybeganworkingwithSBH(notimeforlovedones,notenoughmoney)anddirectsthemtosaythatSBHwillprovidetheabilitytopayoffdebtandhavemoretimeforhealthandfamily.ThisscripteventeachestheAffiliatetoexplainthe“walkaway”incomeavailablethroughTierCommissionsandthepossibilityofbecominga“coffeemillionaire,”mentioningthattheyshouldlaughaftersaying“coffeemillionaire.”
119.ThroughoutthisSection,generalandspecificmisrepresentationsweremadewithrespecttoincomeandlifestylebenefitsfromSBHparticipation.AsshowninSectionV(supra),theseincomeprojectionsrequireongoingrecruitmentthatwillundoubtedlyleavetheoverwhelmingmajorityofSBHAffiliatesinalossposition.SBHanditsrepresentativesmakenoattempttoarticulatetherangeofpossibleoutcomes,northelikelihoodofthoseoutcomes.Thelanguageitselfdoeslittletomitigatetheriskofthosemisrepresentations.Inmyopinion,nodisclaimercouldadequatelycounteractthefraudulentnatureoftheSBH
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compensationstructurenorthemisleadingnatureoftheincomeclaims,butMr.Nolandseemstoproactivelyunderminethedisclaimer.
Figure36.Script‐Coffee(2019‐01‐288a_SBHGroupPresentationInviteScriptCoffee)
Figure37.Script‐Pain(2019‐01‐288b_SBHGroupPresentationInviteScriptPainInflammation)
Figure38.CallScript‐Coffee(2019‐01‐2810a_3WayCallScriptCoffee)
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Figure39.GroupPresentationScript(2019‐01‐289_SBHGroupPresentationScriptCTM)
120.Insum,ifanewrecruitenterswithcommitmentandawillingnesstobetrained,recruitothers,andtrainthemforduplication,theincomepotentialatSBHisdescribedas“massive.”Ontheotherhand,expendituresaredescribedastrivial,bothinrelationtoinvestmentsthatwouldberequiredinotherformsofwealth‐creationandinrelationtothe
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incomethatwillbegenerated.Mr.Nolandstates:“Youdon’thavetoorderanythingtogetpaid”and“youdon’thavetoplaceanorderatallwithustogetcommissions”(2017‐10‐31LetsTalkCoffeewJayNoland(PrivateVideoReleased)).Atothertimes,hedescribesthe“entrybarrier”asa(literally)laughable$49.Evenwhendiscussingthe$2,000entrypriceassociatedwithaSuperAcceleratorPack,hedescribesitasaminorinvestmentthatcanbefundedwithcredit.Recruitsmaybedeceivedintobelievingthatprofitpotentialislargeandlikely,andtheyareactivelytrainedtorepeatthoseclaimsandexpectationstoothers.
VII.2AffiliateDataandSBHUpdates
121.InpriorSections,IdiscussedtheexpectedlossrateswhenAffiliatesfollowtheincentivesintheSBHCommissionPlan(SectionV)andthecorrespondinginstructionsincompanytrainingmaterials(SectionVI).InSectionVII.1,IfurtherexploredthewaysinwhichindividualsmightbedeceivedintoenteringSBH,throughflagrantmisrepresentationsofpotentialincome.Inlightofthesefindings,InowdiscussavailableoperationaldataforSBHanditsAffiliates.
122.FTCstaffprovideddata(netforce_byid_12192019)ofSBHtransactionsfrommultiplepaymentprocessorsandabank,includingStripe,PayPal,andKeyBank.16FTCstaffappliedauniqueidentificationnumberforeachparticipant,orgroupofparticipantswhereitappeared,forexample,thatmorethanonepersonwastransactingfromthesameaddressorwiththesamecreditcard.Ofthe7,100uniqueIDsinthedata,69.2%(or4,913)wereidentifiedasAffiliates.AnindividualwasidentifiedasanAffiliateiftheyhadapersonaltransactionthatreferredto“enrollment,”“membership,”or“founder,”oriftheindividualspentmorethan$499inasingletransactionorspentprecisely$49(thecostofamembership).ThefournameddefendantswereexcludedfromthisAffiliategroup.Inaggregate,Affiliatesaccountedforover94%ofSBHpurchases(indollars)betweenJuly2017andJune2019.
123.Table5reportsthesummaryoutcomesforSBHAffiliates,wherenetprofitforeachAffiliatewascalculatedbysubtractingpaymentsmadetoSBH(e.g.,forSBHproductsandtraining)fromanypaymentsreceivedfromSBHoverthistimeperiod.Basedonthistransactiondata,theoverwhelmingmajority–over98%–ofAffiliatesareinalossposition,aspaymentstoSBHexceededrevenuesreceivedfromthefirm.Figure40providesahistogramofAffiliatenetprofit/loss.Forthosewithnegativenetprofit,theaveragelosswasapproximately$1,000.ThelargestnumberofAffiliateshadlosseslessthan$500,but,indollarterms,thegreatestamountofmoneywaslostbyAffiliateswithlossesexceeding$3,000,withanaveragelossofnearly$10,000perpersonandacollective 16 ThedatareferencedisbasedonpaymentsthatwentintoandoutofthemaincorporateaccountforSuccessbyMedia(SBM). Subjecttoverification,thedatasetcontainsapproximately89%ofpaymentstothataccount($6,115,928outof$6,858,221)fortheperiod7/1/2017‐6/30/2019.Italsoincludesapproximately79%ofpaymentsfromthataccount($5,294,751outof$6,685,971);thoughthatincreasestoapproximately90%ifcheckcardandpointofsalepurchasesmadebythecompanyaccountareomitted.Thesecheckcardandpointofsalepurchasesaremostlikelyassociatedwithvendorsandare,therefore,notlikelytoreflectpaymentstoAffiliates.AlloftheseamountsexcludeinternaltransferscomingintoandoutofSBHaccountswithinthesamebank($606,235comingfromthecorporateaccountand$372,500fromotheraccounts).
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lossofapproximately$3.5million.17Formost(67%)inthis“highloss”group,lossesresultedfromacombinationoftrainingandproductinvestments.Overall,whileonly8.3%ofAffiliatespaidfortraining,thosewhodidpurchasetraininghadanaveragenetlossof$6,884andspent,onaverage,$2,955ontrainingand$5,885onSBHproducts(ascomparedtoanaverageof$936inproductexpendituresacrossallAffiliates).
Table5.SummaryOutcomesbasedonSBHTransactionDatafor7/1/2017‐6/30/2019(netforce_byid_12192019)CumulativeNetProfit NetLoss NetGainNumberofAffiliates 4,833Affiliates 80AffiliatesPercentofAffiliates 98.4% 1.6%TotalProfit/LossforGroup $(4,962,615.34) $184,659.80
Figure40.AffiliateProfitbasedonSBHTransactionDatafor7/1/2017‐6/30/2019(netforce_byid_12192019)
17 ForsomeAffiliates,finalcumulativenetprofitisnotknownastheirparticipationwithSBHcontinuedpastJune2019.IfthepatternsinthisdatapersistpastJune2019,Affiliatelossesmayincreasebeyondthoseobservedinthistimeframe.
35370 89 78 138
571
3,534
41 16 4 3 2 1 130
500
1000
1500
2000
2500
3000
3500
4000
Num
ber o
f Affiliates
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124.Thenetprofitnumberspresentedmayunderestimaterevenue–totheextentthatthereisanyofflineretailprofit–butalsomayunderestimateAffiliateexpenses.AdditionalexpensesmayincludeforegoneincomeandthepurchaseofSBH‐brandedapparel,businesscardsandothersalestoolsfromsiteslikeSBHSwag.com18(aspromotedin2018‐05‐05SBHBusinessOverviewB‐2),aswellastravelandlodgingexpensesassociatedwithtrainingevents,meetingsorconventions.TheAffiliatemightalsoincurexpensesassociatedwithhostinghouseparties(e.g.,foodandmaterials,asdescribedin2019‐01‐287_SBHGroupPresentationTips)orinanattempttosellSBHproductsthroughkiosksortradeshows(assuggestedin2018‐05‐05SBHBusinessOverviewB‐2).Forthisreason,thesenetprofitoutcomesmaybeconservativeestimatesofAffiliatelosses.
125.TheSBHWalletSystemmayalsohaveamodestimpactonAffiliateoutcomes.TheSBHWalletSystemisanoptional,internalsystemthatwasintroducedin2018andpromotedasavehicletoeasilyreinvestearningsbackintotheSBHbusinessopportunity.Asdescribedin2018‐03‐12SBH‐Commissions‐Wallet‐Overview:
“Ifyouplantouseearnedcommissionstowardfuturepurchases,simplykeepsomeorallofyourearningsinyourwallet.Ifyou’dliketoclaimsomeorallofyourearningsandhavethemdisbursedtoyou,therestofthisoverviewshowsyouthesteps.”
Thesestepsincludeestablishingabank/ACHaccount,requestingandconfirmingawithdrawal,andpayinga$2.50processingfeeforeachwalletwithdrawal.Figure41showstheimageincludedintheWalletOverviewdocument,whichaccompaniesdiscussionofreinvestmentintotheSBHbusinessopportunity.AsofDecember31,2018,SBHreported$153,434.16inWalletSystemfunds(2019‐04‐29SuccessByMediaHoldings‐SECFormCOfferingStatement).GiventhatSBHurgesAffiliatesto“reinvest”thesefunds,IwouldexpectthatAffiliatesultimatelywouldwithdrawlessthanthefull$153,434.16.Evenifallwalletfundsweretakenaswithdrawals,theoverarchingprofileofoutcomeswouldbelargelyunchangedgiventheleveloffundscapturedbythissystem.
Figure41.WalletImageofReinvestment(2018‐03‐12SBH‐Commissions‐Wallet‐Overview)
18 RelevantifthosepurchasesarenotalreadycapturedintheSBHtransactiondata.
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126.Asdescribedabove,Mr.Nolandattributesgoodoutcomestoeffortandadherencetothesystem,suggestingthatpooroutcomesfortheoverwhelmingmajorityareattributabletoalackofdesire,time,effortandcommitmentonthepartoftheAffiliatehim/herself.Inreality,thedistributionofAffiliategainsandlossescorrespondstotheexpecteddistributionofprofitinanMLMincentiveandtrainingstructurethatemphasizesrecruitmentandinternalpurchasesoverultimateusersales.Inshort,thevastmajorityareinalosspositionwherethoselossesarelargelyattributabletotheSBHstructureandoperationalpractices,ratherthantoAffiliateeffortorskill.Infact,theAffiliateswhoadheretothesystem,makingsignificantinvestmentsinproduct,trainingandtime,oftenlosethemost.
127.Theprecedingsummarydemonstratesapatternofmisleadingrepresentations.Incomeprojectionsandotherpromotionalmessagesincludelifestyleclaimsandspecificincomenumberswithoutprovidingsufficientdisclaimerlanguageorinformationonthelikelyearningsforthemajorityofparticipants.TheserepresentationsarelikelytogenerateincomeexpectationsfarinexcessoftherealizedoutcomesforthevastmajorityofSBHAffiliates.Frequentpromotionoflow‐probabilityrewardsislikelytoinflatetheperceivedlikelihoodofearningthosesamerewards.19
128.A2019videoshowsthatincomeclaimsandmisrepresentationspersistinmorerecentSBHmaterials.IntheSBHPower2andVOZTravelTrainingvideo,Mr.Nolandrepeatsthepracticeofprovidingincomedisclaimerlanguage(seeFigure42)andthendirectlycontradictingthatdisclaimer.Hestates:“Youwillnotmakemoney,there’snoguaranteesorimpliedearningswhatsoeverunlessyougoproduce.”Headds(at6:35):“Sowetalkaboutanythingwiththeoreticalexamples,wesaythey’retheoreticalbecauseyouhaven’tdoneityet.Ifyoudoit,yougetpaid.Ifyoudon’tdoanything,youdon’tgetpaid.”AsFigure42shows,SBHalsostatesthat“incomeearnedwillbethedirectresultofyourpersonaleffortsandabilitytoproduce.”
19Frequentmentionof“winners”takesadvantageofaphenomenonknownas“availabilitybias,”wheredecision‐makersassessthelikelihoodofaneventbasedontheeaseofrecallingthateventintheirmemory.Whentheprospecthearsorseesinformationaboutawinner,itisexpectedtoincreasetheirperceptionofthelikelihoodof“winning”inthisenvironmentbecauseitiseasytorecallmemoriesofthoseimagesormessages.Toadequatelycounteractthiseffect,onewouldtheoreticallyneedtodevotesimilarattentiontoeachloser,meaningthatfarmoreoverallattentionwouldbedevotedtothe“losing”storiesgiventhattheyrepresentthemajorityofparticipants.Forexample,ifonly1in100distributorsachievedthefirstBAMBonus,99similarmessageswouldbeneededdiscussingthosewhodidnotqualifyforthisbonus.Inthiscase,becausetherecruitorcurrentAffiliateishearingonlyaboutthelikely“winners”inSBH,he/shelikelyhasaninflatedexpectationofpersonallyearningthosesamerewardsorincomelevels.Foranacademicdiscussionofavailabilitybias,seetheclassictextbyKahneman,SlovicandTversky(Kahneman,D.,Slovic,P.,&Tversky,A.(Eds.).(1982).JudgmentUnderUncertainty:HeuristicsandBiases.NewYork:CambridgeUniversityPress).Foranillustrationofthisbiaswithrespecttolotterytickets,seeDanGilbert’sTEDTalk–Whywemakebaddecisions(https://www.ted.com/talks/dan_gilbert_researches_happiness?language=en).
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Figure42.IncomeDisclaimerLanguage(imagefromSBHPower2andVOZTravelTraining)
129.Mr.Nolandthengoesontoexplainthespeedofgrowth,evenwithinthe2‐by‐2structurepromotedbythePower2Bonus(seeSectionVformorediscussionofthisbonus).AsshowninFigures43and44,hearguesthatitispossible,andeveneasy,tobuildlargeteamsquickly,generatingspecificfinancialrewards:
“Canyouimaginehavingateamgrowthatfast?I’vehadithappeninamatterofweeks.I’vehadover8,000peoplecomeintomyteamin12weeksorless,insomecases.Soitjustkeepsgoingon,lookatit.Itjustkeepsdoubling,everybodygettingtwo.Soyou’vegottotellpeoplewhenyoubringthemintothebusiness,iftheysaytheywanttobeabusinessbuilder,theywanttoreplacetheirincome,theywanttogetfinancialfreedom,say‘thenyou’vegottobecountedonforatleasttwoamonth,preferablytwoaweek,twobusinesspacks.’”“Sayyouweregoingslow,youwerecrawlingonyoureyelashesslowandyougottwopeople,ittookyouawholemonthtogettwo.Andallyoudidandyourtwodideverymonthwasyousoldtwopacksamonthandyourtworecruitedtwo,youdidn’trecruitanybodyelse,andthosetworecruitedtwo.Lookatwhatcanhappeninthisexample.”“Ifeverybodyjustclosesastarterpack…youclosejustonestarterpack.But,4,095peoplediditonyourleftteamand4,095peoplediditonyourrightteamandeverybodyclosedonepack….upto$53,235thatmonth.Everybodyputtinginapack…that’swithonepack,nottwo….That’swhywehavetoputacapin.”
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Figure43.Growthfrom“2WhoGet2”(imagefromSBHPower2andVOZTravelTraining)
Figure44.Growthfrom“2WhoGet2”(imagefromSBHPower2andVOZTravelTraining)
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130.Mr.Nolandagainarguesthathehasusedthisapproachtocreatehisownpersonalwealth,andthathewillteachotherstodothesame:
“That’swhyIcandowhatIwantwhenIwant,howeverIwant.Youdon’thavetoguess.I’mshowingyoualltheway.Youjusthavetosimplypluginandstarttalkingtopeoplelikecrazywithpassionandconviction.”“Whyintheworldwouldyouwanttogooutthereandbeatyourheadupagainsttheworldandworkyourtailoffandneverberewardedforyoureffortsandyoucancomeinhereandsellyouonestarterpackandgetyoutwootherpeopletoselltheonestarterpackandyou’reatfinancialfreedom.With$26,617amonthinthissimpletheoreticalexample,youareatfinancialfreedom.”“Howcanyoumaximize?”“Gooutthereandjuststartduplicatingthosepacksandyou’llseeithappenforyou.”
Theseresultsaresaidtobecontingentonthetimingofentry.AsshowninFigure45,Mr.Nolandarguesthattheteamwillgrowquickly,sojoinrightawayorbeleftbehindtosuffertheconsequencesofsignificantlylowerrewards.
Figure45.TheImportanceofTiming(imagefromSBHPower2andVOZTravelTraining)
131.Thevideoalsodiscussestheintroduction(atsomeunspecifiedtimeinthefuture)oftravel‐relatedproductsandenrollmentpacks.AsMr.Nolanddiscussesthebenefitsofthisnewlineofproducts,hediscussesthebenefitsofgrowinglargedownlineteamsbasedonthePowerofTen.Hedescribesbuildingateamof1,000asrequiring“casualeffort”and
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buildinga“simpleteamof10,000”asalogicalnextstep.Hespeakstothelikelihoodofachievingthoselevelsofrecruitment:
“Isthatdoable?That’sthequestion.Canthemarketholdthat?With8.1trillion[intravelsales],canthemarketholdthisvolume?Absolutely.Whatdoesittaketogetinvolved?$49.”
Figure46showstheprojectedincomeofover$1.5millionforbuildingateamof10,000,whoeachhave10customersthatpurchasediscountedtravelpackages.ThisvideodemonstratesthecontinueduseofdeceptiveearningsclaimswithinSBH,aswellastheemphasisonongoingAffiliaterecruitment.
Figure46.TheImportanceofTiming(imagefromSBHPower2andVOZTravelTraining
132.Overall,theinformationIreviewedsuggeststhatrecruitsareverylikelytohaveinaccurate,inflatedexpectationsofprofitgiventhemanyfactorsdiscussedinthisSection.WhiletheSBHTermsofUsepoliciesclaimtoprohibittheuseofincomeclaimsormisleadingrepresentations,theCEOandSBHmaterialscontinuetomisleadconsumers(andtodirectconsumerstomisleadothers)bysuggestingthatsignificantprofitislikely–whileinternaldatashows98%ofAffiliatesareinalossposition–andthatsuchprofitisdeterminedbytheindividual’sgoals,workethic,skillsandadherencetotheSBHsystem.
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VIII.Safeguards
133.HavingfoundthatSBH’sprogramgrantsrewardsthatareunrelatedtoactualsalestoultimateusers,encouragesandincentivizesparticipantstoseekthoserewards,andmisrepresentslikelyincomefromthebusinessopportunity,Inextconsiderwhetherthecompanyhas“safeguard”policiesandproceduresthataresufficienttoensurethatadequateretailsalestoultimateusersexistandinventoryloading20isprevented.AsnotedinOmnitrition(1996):“Where,ashere,adistributionprogramappearstomeettheKoscotdefinitionofapyramidscheme,theremustbeevidencethattheprogram'ssafeguardsareenforcedandactuallyservetodeterinventoryloadingandencourageretailsales.”Suchsafeguardsarenecessary,asastructurewithinsufficientretailsaleswillinevitablygenerateapyramidschemethatreliesonongoingrecruitmenttofundcommissionpayments,matchingthegeneraleconomiccharacterizationofaschemedescribedinparagraphs10‐11.Asestablishedinparagraphs12‐13,theKoscottestalsohingesontheexistenceofsignificantsalestoultimateusers.InAmway(1975),theFTCfoundthatAmwaywasnotoperatingapyramidschemebecauseithadadoptedandenforcedcertainprocedurestopreventinventoryloadingandtoensurethatactualretailsalesexisted.AsnotedinOmnitrition(1996),thesafeguard“policiesadoptedbyAmwaywereasfollows:(1)participantswererequiredtobuybackfromanypersontheyrecruitedanysaleable,unsoldinventoryupontherecruit'sleavingAmway,(2)everyparticipantwasrequiredtosellatwholesaleorretailatleast70%oftheproductsboughtinagivenmonthinordertoreceiveabonusforthatmonth,and(3)inordertoreceiveabonusinamonth,eachparticipantwasrequiredtosubmitproofofretailsalesmadetotendifferentconsumers.”Thesesafeguardsmustbestated,enforced,andeffective.
134.IntheAmwaycase,thecompany’sretailsaleswereintheformofre‐salesbydistributors,withproductsoldfromthedistributor’spersonalinventory.InSBH’smodel,retailsalescancomefromtheAffiliate’sinventory,soldperson‐to‐person,orproductcanbesolddirectlythroughtheAffiliate’swebsite.Giventhedifferenceinbusinessmodels,aneffectiveAmway‐typesafeguardforSBHmaylookslightlydifferentthanthespecificrulesinAmway.However,theobjectivewouldbethesame—toencouragesalestoultimateuserswhopurchaseforthepurposeofpersonalconsumption.IdonotbelievethattheSBHsafeguardswouldbeeffectivetodeterinventoryloadingandsufficientlyencourageretailsalestoultimateusers.
135.Aspartofthesign‐upprocess,newAffiliatescheckaboxindicatingthattheyagreetothehyperlinkedSBHTermsofUse.WithintheTermsofUsedocument,therearemultiplestatements(showninFigures47and48)thatappeartodrawaconnectionbetweengenuinedemandforSBHproductsandAffiliatecompensation,butthosestatementsarehiddenwithinthedenselywordeddocumentsanddirectlycontradictthecompany’sownincentivestructureandtrainingdescribedabove.Specifically,theTermsofUsestatethatnocompensationisbasedontherecruitmentofnewAffiliates(policy12.a),yetSBHearningsclaimsarebasedalmostexclusivelyonAffiliatepurchases(notsalestocustomers)andadvancementisdrivenbythenumberofrecruitedAffiliatesandthevolumeofAffiliate 20 KeepandVanderNat(2014)defineinventoryloadingas“purchasesofinventoryjusttomeetvolumetargetsthatgrantmultilevelrewards.”Seefootnote7forfullcitation.
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purchases.InSBH’sownexplanationofresidualincomeinFigure39(supra),itstatesthat“yougetpaideverytimeyouorderfromthecompanyandyougetcommissionseverytimeyourefersomeonewhoreferssomeonedownthrough6tiers.”Inparticular,theAcceleratorBonusisadirectpaymentforrecruitment,whenthatrecruitpurchasesanenrollmentpack.
136.SBH’sTermsofUsedocumentcommunicatessomerulesregardingincomeclaims.Asstatedinpolicy9and24(TermsofUse–SuccessByHealth):
“TruthfulandAccurate:TheAFFILIATEcertifiesthatneithertheCompanynorhisorherReferrerhasmadeanyclaimsofguaranteedearningsorrepresentationsofanticipatedearningsthatmightresultfromhisorherefforts.TheAFFILIATEunderstandsthatheorshemaynotmakeanyverbalorwrittenstatementsregardingclaimsofincomeorpotentialearningsthatmightresultfromhisorhereffortsortheeffortsofothers,unlessspecificallydisclosedinaAFFILIATEcommissionsummaryprovidedfromtimetotimebytheCompany.”(9)“AFFILIATEagreesthatnow,andinthefuture,nottomakeanyincomeormedicalclaimswhatsoever.”(9)“AnAFFILIATEmaynotmakeanyfalse,unreasonable,misleading,orintentionallymisrepresentingincomeprojectionstoprospectiveorcurrentAFFILIATES.”(24)
Despitethislanguage,areviewofpromotionalandtrainingmaterials,asdiscussedabove,revealsapervasiveandpersistentpatternofmisleadingincomeandlifestyleclaims.Thecompany’sownmaterialsandMr.Nolandconsistentlyuseincomeandlifestyleclaimsinrecruitmentandtraining.Disclaimerlanguageisattachedtoasubsetofmaterials,butthisdisclaimerisinsufficienttocounteractthemisleadingnatureoftheincomeclaims.Itisimportanttonotethatthisisnotaproblemattributabletoinsufficientmonitoringandenforcement,asthematerialsreviewedanddiscussedbelowareproducedbythecompanyitself.Misrepresentationsaremadewithinvideos,speechesandaudiotrainingsbythoseatthetopofthecompany–primarilyMr.Noland.AsdiscussedinSectionIV,somerepresentationsaregeneralwhileothersarespecificstatementsregardingincomeorlifestylerewards.ThisSectionincludesasampleofrepresentationsofmanyforms.Whilethisisnotanexhaustiveset,themessagesandimagesaboverevealthatmisrepresentationsarefullyembeddedintheSBHmarketingprogram,seeminglytreatedasthenormalmodeofoperation.Additionally,althoughAffiliatesagreenottopurchaseproductssolelyforthepurposeofcompensationoradvancement,thatispreciselywhattheyarerequiredandinstructedtodo.Asdescribedabove,Mr.Nolandexplicitlytrainsrecruitstomakeaninitialpurchase,maintainmonthlyminimumpurchases,recruittenpeople,andtrainthemtoduplicatetheseactions.TheCommissionPlananditsassociatedexplanatoryvideoclearlydirectAffiliatestofollowthesebuyandrecruitbehaviors.
137.TheSBHrefundpolicy(policy14)statesthatallproductsandpurchasesarenon‐refundable,andthepolicyoutlinesthenegativeconsequencesofseekingarefundfromSBH.Thispolicyishighlyunusualandrepresentstheantithesisofasafeguard.Further,unliketheAmway(1975)example,SBHhasnominimumretailsalesrequirement,no70percentrule(requiringAffiliatestocertifythat70%oftheirpurchasesweremadetoactualconsumersoftheproducts)orotherspecificinventoryloadingrule,anddoesnotallow
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refunds.ItisusefultonotethatMLMfirms,eventhosewhohavebeenprosecutedforpyramidschemeactivity,typicallypay–ataminimum–lipservicetosafeguardpoliciesincludingaminimumretailrequirement,70percentrule,andrefundpolicy.SBHdoesnotevenpretendtohavesuchsafeguards.SBHpolicies,astheycurrentlyexist,donotlimitthepotentialforpyramidschemeactivityandassociatedharmtoparticipants.
Figure47.ExcerptsfromSBHTermsofUseDocument–IncomeClaims,Training,Compensation,andOrders(TermsofUse‐SuccessByHealth)
9.TruthfulandAccurate:TheAFFILIATEcertifiesthatneithertheCompanynorhisorherReferrerhasmadeanyclaimsofguaranteedearningsorrepresentationsofanticipatedearningsthatmightresultfromhisorherefforts.TheAFFILIATEunderstandsthatheorshemaynotmakeanyverbalorwrittenstatementsregardingclaimsofincomeorpotentialearningsthatmightresultfromhisorhereffortsortheeffortsofothers,unlessspecificallydisclosedinaAFFILIATEcommissionsummaryprovidedfromtimetotimebytheCompany.AFFILIATEalsocertifiesthatneithertheCompanynorhisorherReferrerhasmadeanyMedicalClaimsregardinganycure,treatment,diagnoses,orpreventionofanydiseaseorillnessinrelationtoanySuccessByHealthproducts.AFFILIATEagreesthatnow,andinthefuture,nottomakeanyincomeormedicalclaimswhatsoever.AFFILIATEunderstandsthatcommissionsaresolelyearnedonthesaleofcompanyproducts.12.RightsandResponsibilities:AFFILIATEhastheabilitytoreferotherstopurchasethecompany’sproductsandservices.AFFILATEhastherighttoearncommissionsbasedontheCompany’sAFFILIATECommissionstructure.AffiliateisresponsibletoobtaintrainingthroughtheCompany’sAFFILIATEBackOfficeoronlineportals(CompanyPrivateGroups,etc).TheAFFILIATE’sReferrerisnotresponsibletotrainorsupportthem.Assuch,AFFILIATESarenotresponsibletotrainorsupportanyonetheyrefertotheprogram.AnytrainingsupportaReferrerofferstosomeonetheyreferisabonus.AlltrainingsupportthatAFFILIATESwillneedissuppliedthroughtheCompany’sAFFILIATEBackOfficeplatformunderthetrainingsectionorthroughdesignatedonlineportals(CompanyPrivateGroups,etc).EachAFFILIATE’ssoleresponsibilityinReferrership,istosimplyreferotherstotheCompany’sProductsandAffiliateProgram.Fromthere,itisuptoeachAFFILIATEtoobtaintrainingfromthecompany’sBackOfficeordesignatedonlinetrainingportals(CompanyPrivateGroups,etc).a.AFFILIATESarecompensatedforthesaleofProductssoldtoCustomersandthroughtheirsalestoCustomersthroughtheirAFFILIATEorganization.NoAFFILIATEwilleverbecompensatedforreferringotheraffiliates.Withoutquestion,thesaleofproductstoendconsumersisthebasisoftheCompany’sAffiliateCommissionprogramandmustbeemphasizedwhilereferringotherAffiliates.13.PersonalOrders:AFFILIATESmayonlyorderproductfortheirpersonalusethroughtheirownpersonalwebsitelinkorpersonalcompanybackoffice.AFFILIATESarestrictlyprohibitedfromorderingproductsthroughanyotherAFFILIATE’swebsitelink.Inotherwords,itisstrictlyprohibitedforanyAFFILIATEtotryandmanipulatetheCompany’sCommissionPlanbysettingupastructuretoorderproductsfortheirpersonalusethroughotherAFFILIATE’swebsitelinksforthepurposeofearningmorecommissionsoradvancinginrank.AnyAFFILATEfoundviolatingthisconditionwillhavetheirSuccessByHealth/SuccessByMediaMembershipterminatedimmediately.
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Figure48.ExcerptsfromSBHTermsofUseDocument–Refunds,Disclaimers,andAuto‐Orders(TermsofUse‐SuccessByHealth)
138.Intermsofincomerepresentationsandassociatedpolicies,IhavepreviouslydiscussedSBH’suseofdisclaimers(seeparagraphs113and114).AnotherexamplecomesfromtheSBHwebsite(https://successbyhealth.com/disclaimer/?u=successbyhealth),wherethedisclaimerlanguageisasfollows:
“Also,ifthereareeveranyincomeearningsmentionedatanytimetheyarenottobeconstruedasanyguaranteeofincomeorpotentialincometoanyvisitorofourwebsite.Asinanycareerfield,incomelevelachievementsaredependentupontheindividual’sbusinessskills,personalskills,personalambition,time,commitment,activityanddemographicfactors.”
Thelanguageabove,whichattemptstoblameAffiliatesfortheirlosses,doesnotoffsettheseriousmisrepresentationsmadeincompanypromotionandtraining.
139.Tosummarize,thereisnoevidencethatSBHhasenforcedandeffectivesafeguardsthatwouldensuresufficientsalestoultimateusersandpreventinventoryloadingand
14.Refunds:SBHAFFILIATEMembershipfees,productpurchases,eventticketpurchases,andcoursesarecompletelyNon‐Refundable.NOEXCEPTIONS.
IfanAFFILIATEfilesanychargebackwiththeirCreditCardcompany,thiswillbegroundsforlegalactionagainsttheAFFILIATE.EachtimeanAFFILIATEviolatestheNoRefundPolicyandfilesachargebackordisputesapurchasetheymadefromtheCompany,theliquidateddamageswillbethree(3)timestheamountofeachofAFFILIATE’sdisputedpayments(s)toCompany,butnotlessthan$1,000US(onethousanddollars).
24.Disclaimers:TheAFFILIATEwillmakenoclaimsoftherapeuticorcurativepropertiesregardingtheCompanyproductsorIncomeClaimsinvolvingtheCompany’sAFFILIATECommissionPlanthatareNOTcontainedinofficialCompanyliteraturethatisproducedanddistributedbytheCompany.TheCompany’sproductsarenotintendedtodiagnose,treat,cure,prevent,ormitigateanydiseaseandshouldneverbeofferedassuch.AnAFFILIATEshallnotsuggestanydiagnosis,prognosis,evaluation,treatment,description,managementorremedyofillness,ailmentordisease.AnAFFILIATEmaynotmakeanyfalse,unreasonable,misleading,orintentionallymisrepresentingincomeprojectionstoprospectiveorcurrentAFFILIATES.FDADISCLAIMER:*AnystatementsaboutourCompany’sproductshavenotbeenevaluatedbytheFoodandDrugAdministration.*Consultyourphysicianbeforebeginninguseofanysupplementalproducts,nutritionalproducts,orbeginninganyexerciseprogram.
30.RecurringPaymentTerms(Auto‐Order/Subscriptions)–OPTIONAL
ThereisNOrequirementtosetupanAuto‐OrderwithSuccessByHealth(SBH).YourchoicetosetupanAuto‐Orderiscompletelyoptional.
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otherformsofcompensationplanmanipulation.TheabsenceofenforcedandeffectivesafeguardscompoundsanexistingproblemwithintheCommissionPlan,thatcompensationisalmostexclusivelybasedonpurchasevolume,regardlessofwhetherpurchasesleadtosalestoultimateusersornot.Affiliatesaretrained,encouraged,andincentivizedtomakepay‐to‐playpurchasesandrecruitotherswhowilldothesame.ExistingSBHsafeguardpoliciesarevirtuallynon‐existentandtherefundpolicyrepresentsan“anti‐safeguard.”Itisclearthatexistingsafeguardpoliciessuchasthesupposedbanon“incomeclaims,”havenotbeenenforced.Infact,theyhavebeenopenlyviolatedbythecompany’sfounder,Mr.Noland.Thatsaid,itwouldbedifficultforanysafeguardstocounteracttheexistingtraining,promotion,andincentivesystems.Again,thisfindingdoesnotprecludetheexistenceofgenuineretailsalesinSBHbutsuggeststhattheintendedmodeofoperationtreatsretailasincidental,whereretailoccursasabyproductofAffiliaterecruitment.
IX.OverallConclusions
140.Insum,afterreviewingtheSBHincentivestructure,promotionandtrainingmaterials,representations,andpolicies,IconcludethatSBHanditspromotersaremarketingapyramidschemeandaremisrepresentingtoconsumerstheamountofmoneyconsumersarelikelytomakebyjoiningSBH.
141.ThatSBHisapyramidschemeisevidentinseveralways.Affiliatecompensationisdrivenalmostexclusivelybyrecruitmentofnewparticipantsandinternalproductpurchases.Trainingandpromotionmaterialsemphasizethepay–recruit–duplicatesystem.Company“safeguards”areinsufficienttoensureaminimumlevelofretailactivityandsafeguardpoliciesanddisclaimersaresystematicallycontradictedbySBHincentives,requirements,andtraining.AlladvertisedrewardscanbeachievedwithAffiliaterecruitmentandinternalpurchases,withoutasingledollarinverifiedsalestoanultimateuser.TheanticipatedresultofSBH’sprogramisanendlessrecruitmentchain.SBH’sincomerepresentationsarefalseasthesuggested(evenpromised)incomelevelscannotbeachievedbythevastmajorityofparticipants.Atanymomentthattheschemeisanalyzed,theoverwhelmingmajorityareexpectedtobeinalossposition.AvailableSBHtransactiondataconfirmsthattheoverwhelmingmajority(over98%)ofAffiliateshaveanetloss.ConsumersaremisledintojoiningtheSBHopportunityand,forthosewhoparticipate,consumerharmwillbewidespreadandinevitable.
142.Basedonareviewofthematerialsdescribedinparagraph8,itismyjudgmentthatSBHisoperatingasapyramidscheme,bothunderthegeneraleconomiccharacterizationofpyramidscheme(describedinparagraphs10and11)andtheKoscottest(describedinparagraphs12and13).Affiliatecompensationisoverwhelminglytriggeredbyrecruitmentandrecruitment‐associatedpurchases,notsalestoultimateusers.InternalpurchasesareexpectedtobeinducedbytheincentivestructureandAffiliatetrainingwithintheSBHmarketingprogram,ratherthangenuineconsumerdemandfortheSBHproducts.Asdiscussedinparagraph13,thisfindingisvalideveniftherearesomeexternal(i.e.,non‐Affiliate)salesand/orsomeshareofinternalultimateuserconsumption,solongasdistributorrewardsarepredominantlytiedtorewardsthatareunrelatedtogenuinemarketdemand(i.e.,productsalestoultimateusers).Furthermore,evenwhenamultilevel
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AppendixA.CurriculumVitae
STACIEA.BOSLEY
KahlertChairofEconomics [email protected] HamlineUniversity 651‐523‐2436 SaintPaul,Minnesota
EDUCATION Ph.D.inAppliedEconomics–UniversityofMinnesota(2001)BBAinFinance–UniversityofWisconsin‐Madison(1994)
ACADEMICEXPERIENCE
HamlineUniversity:KahlertChairofEconomics(2018‐present)HamlineUniversity:AssociateProfessor,Economics(2017‐present)UniversityofMinnesota:VisitingScholarinAppliedEconomics(2017‐2018)HamlineUniversity:AssistantProfessor,Economics(2011‐2017)HamlineUniversity:VisitingAssistantProfessorandAdjunctInstructor(2002‐2011)MacalesterCollege:VisitingAssistantProfessor(2003‐2005)UniversityofWisconsinRiverFalls:AdjunctInstructor(1999‐2000)
COURSESTAUGHT
MicroeconomicPrinciples,IntermediateMicroeconomics,Econometrics,Behavioral&ExperimentalEconomics,LaborEconomics,IntroductiontoBusinessAnalytics,FirstYearSeminars(“OurWal‐MartWorld,”“AreYou‘PredictablyIrrational’?”and“YourWorldthroughData”),MacroeconomicPrinciples,IntermediateMacroeconomics,ManagerialEconomics(undergraduateandMBA),andStatistics
HONORSANDAWARDS
HamlineSchoolofBusinessDean’sLeadershipAward(2017)HamlineSchoolofBusinessDean’sTeachingAward(2017)HamlineCenterforJusticeandLawGrant($2,500)–Project:JudgmentandDecision‐MakinginaPyramidSchemeExperiment:LessonsforActiveConsumerEducation(2017)NomineeforCASEU.S.ProfessoroftheYearAward(2015)HamlineUniversityFacultyAdvisoroftheYear(2013)Dean’sLeadershipAward(2013)InductedasFacultyMemberinOmicronDeltaKappa(2008)UniversityofMinnesotaDoctoralDissertationFellow(2000‐2001)USDANationalNeedsDoctoralFellow(1997‐2000)
PAPERS/PUBLICATIONS
DeLiema,M.,Bosley,S.&Shadel,D.(2019).Multi‐levelMarketingintheU.S.:Exposure,AdoptionandFinancialOutcomes,underreview.Bosley,S.,Greenman,S.,&SnyderS.(2019).VoluntaryDisclosureandEarningsExpectationsinMulti‐levelMarketing,EconomicInquiry,forthcoming.[peer‐reviewed]Bosley,S.(2019).TED‐EdLesson:Howtospotapyramidscheme(videoandassociatedonlineeducationmaterials).Availableathttps://ed.ted.com/lessons/how‐to‐spot‐a‐pyramid‐scheme‐stacie‐bosley,April2,2019.Bosley,S.,BellemareM.,Umwali,L.&YorkJ.(2019).Decision‐MakingandVulnerabilityinPyramidSchemeFraud,JournalofBehavioral&ExperimentalEconomics,80,1‐13.[peer‐reviewed]Bosley,S.&KnorrM.(2018).Pyramids,Ponzis,andFraudPrevention:LessonsfromaCaseStudy.JournalofFinancialCrime,25(1),81‐94.[editor‐reviewed]Bosley,S.(2017).ExpertWitnessDeclarationinAboltinv.JeunesseLLC,etal.,CaseNo.6:17‐cv‐1624‐Orl‐40KRS.
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Bosley,S.(September29,2017).FlawedAnti‐PyramidActReflectsConfusionOverPastandPresent.MorningConsult.Availableathttps://morningconsult.com/opinions/flawed‐anti‐pyramid‐act‐reflects‐confusion‐past‐present/.Bosley,S.(March27,2017).Whatsocialmediacanteachusaboutconsumerprotection.InvitedGuestBlog,TruthinAdvertising.Availableathttps://www.truthinadvertising.org/ncpw‐social‐media‐can‐teach‐us‐consumer‐protection/.Bosley,S.(2016).Student‐craftedexperiments“fromthegroundup.”InternationalReviewofEconomicEducation,22,1‐7.[peer‐reviewed]Bosley,S.(2015).ExpertWitnessDeclarationinFTCv.VemmaNutritionCompany,Case2:15‐cv‐01578‐JJT.Bosley,S.&McKeageK.(2015).MultilevelMarketingDiffusionandtheRiskofPyramidSchemeActivity:TheCaseofFortuneHi‐TechMarketinginMontana.JournalofPublicPolicy&Marketing,34(1),84‐102.[peer‐reviewed]Bosley,S.(2013).CommentsRegardingtheFederalTradeCommission’sRuleConcerningCooling‐OffPeriodforSalesMadeatHomesoratCertainOtherLocations,ProjectNumberP087109.Bosley,S.(2013).ParticipationinDirectSellingAcrossCountries:AnalysisandImplications.workingpaper.Davis,E.,&BosleyS.(2007).TheImpactofthe1990sEconomicBoomonLess‐EducatedWorkersinRuralAmerica:DidtheRisingTideLiftAllBoats?JournaloftheCommunityDevelopmentSociety,38(1),59‐73.[peer‐reviewed]Bosley,S.(2004).Dead‐EndJobsorSteppingStones?TheLong‐RunConsequencesofEarlyIndustryandOccupation.WorkingPaper04‐03.TheRetailFoodIndustryCenter,UniversityofMinnesota.Bosley,S.(2001).ComplexJobMobilityandLong‐RunOutcomesforthe‘EconomicallyAt‐Risk’.Ph.D.Dissertation,DepartmentofAppliedEconomics,UniversityofMinnesota.Honadle,B.W.,HonadleG.,BosleyS.&CurrieE.(2000).RedefiningLocalGovernmentRolesinPublicServices:AResearch‐InformedProcessModel.PublicManagement,2(4),457‐475.[peer‐reviewed]Ben‐Ner,A.,KongF.,andBosleyS.(1999).WorkplaceOrganizationandHumanResourcesPractices:TheRetailFoodIndustry.WorkingPaper00‐01.TheRetailFoodIndustryCenter,UniversityofMinnesota.
RECENTPRESENTATIONS
Bosley,S.,(2019).ExploringPyramidSchemeFraudandMulti‐levelMarketingwithEconomicExperiments.PresentedtotheFederalTradeCommissionMidwestCommonGroundConference,Minneapolis,MN.DeLiema,M.,Shadel,D.andBosley,S.(2019).Multi‐LevelMarketing:Research,RiskandRewards.PaperpresentedattheannualmeetingoftheWesternEconomicAssociation,SanFrancisco,CA.Bosley,S.,Greenman,S.andSnyder,S.(2019).VoluntaryDisclosureandEarningsExpectationsinMulti‐levelMarketing.PaperpresentedattheannualmeetingoftheWesternEconomicAssociation,SanFrancisco,CA.Bosley,S.,(2019).ExploringConsumerFinancialFraudwithEconomicExperiments.PresentedtotheAmericanAssociationofUniversityWomen,Minneapolis,MN.Bosley,S.,Greenman,S.andSnyder,S.(2019).VoluntaryDisclosureandEarningsExpectationsinMulti‐levelMarketing.PaperpresentedattheannualmeetingoftheEasternEconomicAssociation,NewYorkCity,NY.Bosley,S.,(2019).ExploringConsumerFinancialFraudwithEconomicExperiments.HamlineUniversityLeoLecture,SaintPaul,MN.Bosley,S.,Greenman,S.andSnyder,S.(2018).VoluntaryDisclosureandEarningsExpectationsinMulti‐levelMarketing.PaperpresentedattheFederalTradeCommissionConsumerProtectionEconomicsSymposium,WashingtonD.C.Bosley,S.(2017).Decision‐MakingandVulnerabilityinPyramidSchemeFraud.PaperpresentedattheannualmeetingoftheSouthernEconomicAssociation,Tampa,FL.
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Bosley,S.(2017).JudgmentandDecision‐MakinginaPyramidSchemeExperiment.PresentedattheAgriculturalandAppliedEconomicsResearchSeminarattheUniversityofMinnesota.Bosley,S.(2016).GlobalDirectSelling:DoValuesandAttitudesTrumpEconomicConditions.PaperpresentedattheannualmeetingoftheSouthernEconomicAssociation,WashingtonD.C.Bosley,S.&Knorr,M.(2016).HowisaPyramidSchemeliketheKuKluxKlan?PresentedattheSaintOlafEconomicsLectureSeries,Northfield,MN.Bosley,S.&Knorr,M.(2016).HowisaPyramidSchemeliketheKuKluxKlan?PresentedattheHamlineFacultyResearchColloquium,SaintPaul,MN.Bosley,S.(2016).BusinessOpportunityorScam:Whateverycollegestudentshouldknow.PresentationtotheHamlineStudentBody(connectedwithFirstYearSeminarprogram),SaintPaul,MN.Bosley,S.(2016).PyramidSchemeMembershipinNetworks:TheRoleofAffinity,EducationandEconomicConditions.PaperpresentedattheannualmeetingoftheEasternEconomicAssociation,WashingtonD.C.
COLLABORATIVERESEARCH(competitiveresearchprogramwithundergraduatestudents)
InoculatingaCampus:TestingtheEfficacyofPyramidSchemeEducationatHamlineInformingaPyramidSchemeExperiment:ExploringtheRoleofImpulsivityandCognitiveProcessinginJudgmentandDecision‐MakingJoiningaPyramidScheme:TheInfluenceofRiskPreferencesinDecisionMakingAffinityFraudinMultilevelMarketing:ThecaseofFortuneHi‐TechMarketingintheU.S.DirectSellingandEconomicGrowthBitcoin,BehavioralEconomics,andtheAustrianSchoolTheMinimumWageandCommunityCollegeEnrollmentintheU.S.WhyHereandNotThere?AlookatparticipationandgrowthindirectsellingacrosscountriesImplicationsofLightRailTransitinMinnesotaCollegeGreekParticipationandLong‐termOutcomesDivisionIIIIntercollegiateAthleticsandEnrollmentTheConservationReserveProgramandHuntingExpendituresinMinnesota
SELECTPRESS
InterviewedinEllieUndercover:SecretsoftheMulti‐levelMillionaires,BBC,https://www.bbc.co.uk/programmes/p076n2hg,April27,2019.InterviewedinTheDreampodcast,Episode6:HowaDreamBecomesaNightmare,https://www.stitcher.com/podcast/stitcher/the‐dream/e/56830345,October22,2018.Citedin“PyramidDream:Multi‐levelmarketingcompaniesevolvewiththe21stcentury,”BaltimoreMagazine,June2018byLaurenBell.Citedin“CollegeStudents:Don’tfallforthesescams,”TruthinAdvertising.org,August30,2018.Citedin“ExpertEconomistDeclaresJeunesseaPyramidScheme,”TruthinAdvertising.org,November2,2017.Citedin“Hardtopindown,scammersflourishinMinnesota,”StarTribune,September10,2017byKevinGiles.Citedin“WhydosomanywomenloveLuLaRoe?”PacificStandard,December15,2016byFrancieDiep.GuestonNewsandViewswithRoshiniRajkumar,WCCORadio,discussingholiday‐themedpyramidschemes,December2016.Citedin“TheDivineRiseofMultilevelMarketing,”ChristianityToday,November23,2015byKateShellnutt.Citedin“MLMsTapCollegeCampusesforRecruits,”TruthinAdvertising.org,August20,2015.GuestonAirTalkwithLarryMantel,SouthernCaliforniaPublicRadio“Tweensgetintothedirectsalesmarket,”June19,2014.
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SELECTSERVICEOTHEREXPERIENCE
“TheAvonLadyalwaysringstwice:directsales,MLM’s,pyramidschemesandthewisdomtoknowthedifference,”January15,2013.Citedin“Moneybetweenfriends:SiliconValley’sembraceofMultilevelMarketing,”PacificStandard,September19,2014byHelaineOlen.Citedin“HasyourcollegestudentbeenrecruitedbyaquestionableMLM?”TruthinAdvertising.org,August26,2014.Citedin“ZeekRewardsscamleavesN.C.townmillionspoorer,”USAToday,March30,2013byMitchWeiss.Citedin“Federal,stateregulatorsshutdownFortuneHi‐Tech,”USAToday,January28,2013byJayneO'Donnell.ChairofEconomics,Finance,Accounting&Quant.MethodsDepartment(2018‐present)MinnesotaEconomicsAssociationPresident(2018‐2019)SearchCommitteeMemberforEconomicsandBusinessAnalytics(2018)MinnesotaEconomicsAssociationInterimPresident(2017‐2018)FacultyAdvisoratMidwestUndergraduateDataAnalyticsCompetition(2017‐2019)MinnesotaEconomicAssociationBoardMember(2016‐2017)SchoolofBusiness‐BusinessAnalyticsAdvisoryBoard(2016‐present)SchoolofBusinessStrategicPlanDesignTeam(2015‐2016)SchoolofBusinessUndergraduateCurriculum&AssessmentCommittee(2011‐present)HamlineCommitteeonLearningOutcomesandAssessmentMember(2011‐present)HamlineUniversityInstitutionalReviewBoard(2010‐2017)SearchCommitteeMemberforDigitalMediaArts(2016)SearchCommitteeMemberforStrategicManagement(2015)HamlineUniversityStandingCommitteeonSustainabilityMember(2014‐2016)HamlineUniversityAssessmentDirector(2013‐2015)HamlinePlanRevisionTaskforceChair(2012‐2013)AssociatedFaculty‐HamlineCenterforJusticeandLaw(2016‐present)ExternalReviewerofLearningOutcomesAssessmentforSaintOlafCollege(2018)ExpertWitnessinnationalclassactioncaseagainstJeunesseGlobal(2017‐2018)ExpertWitnessinFTCv.VemmaNutritionCompany(2015‐2016)ArticleRefereeforthefollowingjournals:AnnalsofPublicandCooperativeEconomics,CommunicationsinNonlinearScienceandNumericalSimulation,InternationalJournalofPluralismandEconomicsEducation,InternationalReviewofEconomicsEducation,andJournalofGlobalMarketingConsultantandSystemsAnalystforAccenture(1994‐1997)
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AppendixB.MaterialsReviewed
Title TypeWebsiteContent/Materials Website2019.08.17https://successbyhealth.com/?u=successbyhealth WebsiteWebsite2019.08.17https://successbyhealth.com/our‐company/?u=successbyhealth Website
Website2019.08.17https://successbyhealth.com/red/?u=successbyhealth WebsiteWebsite2019.08.17https://successbyhealth.com/millionaireworkshop/?u=successbyhealth Website
Website2019.08.17https://successbyhealth.com/affiliate‐details/?u=successbyhealth Website
Website2019.08.17https://successbyhealth.com/disclaimer/?u=successbyhealth WebsiteWebsite2019.08.17https://successbyhealth.com/terms‐of‐use/?u=successbyhealth Website
Website2019.08.17https://successbyhealth.com/refund‐policy/?u=successbyhealth WebsiteWebsite2019.08.17https://successbyhealth.com/wp‐content/uploads/2019/08/SBH_BusinessOverview_v2019Q3v0804_LowRez.pdf Website,pdfAffiliatespage PDFBeverage_Successbyhealth PDFNeutraceuticals_Successbyhealth PDFOurCompany_Successbyhealth PDFProducts_Successbyhealth PDFPrograms_Successbyhealth PDFSBH500ClubPack_Successbyhealth PDFSBHAccelerator_Successbyhealth PDFSBHBusinessClubPack_Successbyhealth PDFSBHComboPack_Successbyhealth PDFSBHContact_Successbyhealth PDFSBHDisclaimer_Successbyhealth PDFSBHFacebook PDFSBHFoundation_Successbyhealth PDFSBHGFYX_Successbyhealth PDFSBHMillionaireWorkshops_Successbyhealth PDFSBHMYCOCafe_Successbyhealth PDFSBHNews_Successbyhealth PDFSBHPersonalDevelopment_Successbyhealth PDFSBHPrivacyPolicy_Successbyhealth PDFSBHREDWorkshops_Successbyhealth PDFSBHRefundPolicy_Successbyhealth PDFSBHShippingPolicy_Successbyhealth PDFSBHSupport_Successbyhealth PDFSBHSWAG_Successbyhealth PDFSBHWorkshops_Successbyhealth PDFSuccessbyhealth PDFTermsofUse‐SuccessByHealth PDF
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OverviewandCommissionPlanDocuments 2019‐05‐31SBH_BusinessOverview_v2019Q2v1D_HiRez(AffiliateBusinessTour) PDF2019‐08‐02SBH‐Commissions‐Plan‐2.0_2019v190801A‐1(SuccessByHealth|CommissionPlan2.0) PDF2019‐08‐04SBH_BusinessOverview_v2019Q3v0804_HiRez(AffiliateBusinessTour) PDF2018‐05‐05SBHBusinessOverviewB‐2(AffiliateBusinessTourPowerPointPresentation) PDF2019‐04‐04174518955175763‐001 Audio2019‐04‐04FoundersPackRelaunch PDF2019‐07‐02ExistingFoundersPackRelaunchApplication PDF2019‐07‐02FoundersPackRelaunchApplication PDF2018‐05‐05SBHBusinessOverviewB‐2 PDFxxxx‐xx‐xxSBHCommissionPlantoCBCAL PDFAffiliateMaterials 2018‐03‐12SBH‐Commissions‐Wallet‐Overview PDF2018‐10‐30SBH‐GlobalAmbassadorPackApplication PDF2019‐01‐0213_SBHWeeklyGettingStartedTraining PDF2019‐01‐213_MemoryJoggerSBH PDF2019‐01‐225_RetailCustomerListSBH PDF2019‐01‐24SBH_FastStartSystem_v20190115 PDF2019‐01‐281_1YearSBHCommitmentLetter PDF2019‐01‐282_PowerOfAnAutoOrderProgram PDF2019‐01‐284_SBHRetailSalesScript PDF2019‐01‐286a_SBHProspectingSystemCoffee PDF2019‐01‐287_SBHGroupPresentationTips PDF2019‐01‐288a_SBHGroupPresentationInviteScriptCoffee PDF2019‐01‐288b_SBHGroupPresentationInviteScriptPainInflammation PDF2019‐01‐289_SBHGroupPresentationScriptCTM PDF2019‐01‐2810a_3WayCallScriptCoffee PDF2019‐01‐2810b_3WayCallScriptNutrition PDF2019‐01‐2811_TGRConfidenceFormula PDF2019‐01‐2812_SBH6PhaseCommissionPlan PDF2019‐01‐2814_TGRDefinitePurposeFormula PDF2019‐01‐296b_SBHProspectingSystemNutrition PDF2019‐06‐24Refund_CancellationPolicy‐SuccessByHealth PDFAffiliateEmails 2019‐05‐28Only3DaysLeft_EndofSBHVolumeMonth PDF2019‐05‐31VolumeMonthe‐mail PDF2019‐07‐23ImportantPolicyUpdate(EffectiveImmediately) PDF2019‐07‐23SBHMemberupdate PDF2019‐07‐23SBHUpgradePacksAreNowAvailable! PDFSECFilings 2018‐01‐31SuccessByMedia‐SECFormCOfferingStatement(amended) PDF2018‐05‐03SuccessByMedia‐SECAnnualReport(CY2017)(amended) PDF2019‐04‐29SuccessByMediaHoldings‐SECFormCOfferingStatement PDFVideos
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2017‐10‐30SBHPlanB Video2017‐10‐31LetsTalkCoffeewJayNoland(PrivateVideoReleased) Video2017‐11‐07SBHCommisionPlan Video2017‐12‐02CoffeeTalk‐WhySBH Video2017‐12‐11ThePowerOfAJayNolandBootCamp! Video2018‐03‐02HEALTHYCOFFEEbySuccessByHealthAffiliate Video2018‐04‐09SBHCEO'sCompanyVisionMessage Video2018‐06‐04SBHMoneyTalk‐FinancialFreedomwithSBH Video2018‐06‐08SBHWealthWarriorsBootCampPromo Video2018‐08‐08SuccessByHealth‐4thofJulyBash Video2018‐08‐112018SBHWealthWarriorsBootCampHighlights! Video2018‐08‐20SBHProductPartyForYourBody! Video2018‐12‐05SBHCoffeeJamSessionwithSBHMasterFormulators Video2018‐12‐20SBHKickoff2018HighlightReel Video2019‐02‐05GFYXTestimonial‐LessThan24HoursofUse Video2019‐02‐08SBHCommonSenseBusiness Video2019‐03‐14RED‐STRAIGHTTALK‐NOJOKE Video2019‐04‐15SBHLiveGroupPresentationwithCEOJayNoland Video2019‐05‐04SBHH3Maui2018DreamVideo Video2019‐08‐01SBHHeatCall Video2019‐xx‐xxRED2019IsComing! Videoxxxx‐xx‐xxMillionDollarEnergyIsHere! Videoxxxx‐xx‐xxSBH2018KickoffTrainingInNashville!‐YouTube Videoxxxx‐xx‐xxSBHArubaArriba Videoxxxx‐xx‐xxSBHEnergy!Part2(TurnUpYourSpeakers) Videoxxxx‐xx‐xxSBHKids‐OrphanageSchool Videoxxxx‐xx‐xxSuccessByHealth‐2018&Beyond! Videoxxxx‐xx‐xxSuccessByHealthGanoderma Videoxxxx‐xx‐xxSuccessByHealth VideoSBHPower2andVOZTravelTraining VideoAdditionalDocuments 2002‐07‐02FTCFinalJudgmentandOrderforPIastoJDNoland PDF2018‐11‐12SuccessByMediavCurry(Nev.Dist.Ct.2018)‐Complaint PDFBaseCommerce‐mid‐8530‐DD2MerchantSettlements MSExcelfilenetforce_byid_09202019 MSExcelfilenetforce_byid_12192019 MSExcelfile
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AppendixC.MathematicalAnalysisofaPyramidScheme
ThefollowingmathematicalanalysisofacompensationschemeistakenfromtheDeclarationofPeterVanderNat,formerlyasenioreconomistwiththeFederalTradeCommission,filedinsupportofamotionforpreliminaryinjunctionandotherreliefinBurnLounge.IhavereviewedandagreedwithDr.VanderNat’smethodology.ThisSectiondiscussesthemathematicalimplicationsofarecruitmentsystemwheneachentrantrecruitsXnewmembersandXissomefixedpositiveinteger(e.g.,X=3).Itwillbedemonstratedthat,asrecruitmentcontinues,theorganizationgrowsatanexponentialrate(solongassuchrecruitmentcanbesustained)andthepercentageofparticipantsatthebase(i.e.,thelowestleveloftheorganizationalstructure)willconvergequicklytoadefinitevalue.Itisalsothecasethatthepercentageatthetwolowestlevelsofthestructurewillalsoquicklyconvergetoaknowndefinitevalue.Thesamecanbesaidforanychosennumberoflevels.Thisknowledgeallowsustopredictthelossrateatanyperiodintimeinthelifeofthescheme.Todemonstratethemathematicalpropertiesofsucharecruitmentsystemanditsresultingimplications,analysisbeginswithaninitialentrantwhoisplacedat“level0.”Thisinitialmemberrecruitsthreenewmembers,whoconstitute“level1.”Wheneachoftheselevel1participantsrecruitsthreenewmembers,therearenow1+3+9=30+31+32=13membersintheorganization.
Iteration
Level
NumberofParticipantsin
Level
TotalNumberofParticipants
0 Level0 1=30 1=30 1 Level1 3=31 4=30+31 2 Level2 9=32 13=30+31+32 3 Level3 27=33 40=30+31+32+33 … n Leveln 3n Tn=0+31+32+33+…+3n
IfTn=30+31+32+33…+3n‐1+3nisthetotalnumberofparticipantsintheschemeafterniterationswhenX=3(i.e.,eachparticipantrecruitsthreepeople),thiscanbegeneralizedto:
(1) Tn=X0+X1+X2+X3…+Xn‐1+XnforanypositiveintegerX.Thepercentageofparticipantsatleveln(i.e.,theshareofoverallparticipantswhoconstitutethenewestclassofentrants)isgivenby:
(2) Xn/Tn=Xn/(X0+X1+X2+X3…+Xn‐1+Xn). Dividingthenumeratoranddenominatorof(2)byXnresultsin:
(3) Xn/Tn=1/[(X0/Xn)+(X1/Xn)+(X2/Xn)+(X3/Xn)…+(Xn‐1/Xn)+(Xn/Xn)]andtherefore(4) Xn/Tn=1/[(1/Xn)+(1/Xn‐1)+(1/Xn‐2)+(1/Xn‐3)…+(1/X)+1].
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Equation(4)canberearrangedandexpressedas:(5) Xn/Tn=1/[1+(1/X)+(1/X2)+(1/X3)+…+(1/Xn‐1)…+(1/Xn)]=1/ ∑ 1/ ].
IfeachnewentrantcanrecruitXadditionalmembers,nincreaseswithoutbound(i.e.,theschemecontinuestogrowindefinitelyaseachparticipantisabletoduplicatetherecruitingsuccessofthepersonwhorecruitedhimorher).Sincethedenominatorof(5)isaconvergentgeometricseries,asngrowsthedenominatorhasadefinitelimitingvalue.Thegeneralformulaforageometricseries(c.f.Apostol,T.M.MathematicalAnalysis(1957),AddisonWesleyPubl.Company)identifiesthelimitingvalueas:
(6) ∑ , | | 1.Bysettingb=(1/X),Xn/Tn(i.e.,thepercentofparticipantsatleveln)convergestothevaluegivenby
(7) 1/( 1/ 1‐(1/X).
WhenX=3,(7)yieldsavalueof1‐1/3=2/3=Xn/Tn.Fromthisweknowthat,wheneachentrantrecruitsthreenewparticipants,thepercentageofparticipantsatthelowestlevel(leveln)convergesto66.7%.Thepercentageofmembersatthelowesttwolevels(nandn‐1)canbefoundasfollows:
(8) (Xn+Xn‐1)/Tn=[(Xn)(1+1/X)]/Tn=[(1+1/X)(Xn)]/(X0+X1+X2+X3…+Xn‐1+Xn).Dividingthenumeratoranddenominatorof(8)byXnandapplying(7)yields
(9) (Xn+Xn‐1)/Tn=[1+1/X]/[(X0/Xn)+(X1/Xn)+(X2/Xn)+(X3/Xn)…+(Xn‐1/Xn)+(Xn/Xn)]=[1+1/X]/[(1/Xn)+(1/Xn‐1)+(1/Xn‐2)+(1/Xn‐3)…+(1/X)+1]=[1+1/X][1‐1/X]=1–(1/X2).
ForX=3,thepercentofparticipantsatthetwolowestlevels(nandn‐1)is1‐(1/9)=88.9%.Extending(9)toincludethreelevelsyields:(10) (Xn+Xn‐1+Xn‐1)/Tn=[1+1/X+1/X2][1‐1/X].
WhenX=3,itfollowsfrom(10)thatthepercentofparticipantsinthelowestthreelevelswillbe[1+1/3+1/9][1‐1/3]=96.3%.Table2illustratestheresultsforn=1,2,…,20iterationsandshowsthattheconvergentvaluesareachievedaftersixiterations,whenjustover1,000individualshavejoinedthescheme.Suppose,forexample,thatduplicationisachievedforeightiterations(i.e.,thefounderrecruitsthree,eachlevel1participanteachrecruitsthree,andsoon,untileachofthe2,187level7recruitseachrecruitthree).Thisbringsatotalof9,841individualsintotheschemewhere6,561/9,841=67%ofthosepeopleareatthe“base,”thelowestleveloftheorganization;(6,561+2,187)/9,841=88.9%areinthelowest2levelsoftheorganization;and(6,561+2,187+729)/9,841=96.3%areinthelowest3levelsoftheorganization.
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TableC1:SchemeGrowthWhenX=10(i.e.,eachparticipantrecruits10newmembers)
Leveln
Participantsinleveln
Totalparticipantsleveln alllevelsabove
%ofparticipantsatbaseleveln
%ofparticipantsatbase 1levelsabovebottom2levels
%ofparticipantsatbase 2levelsabovebottom3levels
%ofparticipantsatbase 3levelsabovebottom4levels
%ofparticipantsatbase 4levelsabovebottom5levels
0 1 1 100% 1 10 11 90.91% 100.0% 2 100 111 90.09% 99.1% 100.0% 3 1,000 1,111 90.01% 99.0% 99.9% 100.0% 4 10,000 11,111 90.00% 99.0% 99.9% 100.0% 100.0%5 100,000 111,111 90.00% 99.0% 99.9% 100.0% 100.0%6 1,000,000 1,111,111 90.00% 99.0% 99.9% 100.0% 100.0%7 10,000,000 11,111,111 90.00% 99.0% 99.9% 100.0% 100.0%8 100,000,000 111,111,111 90.00% 99.0% 99.9% 100.0% 100.0%9 1,000,000,000 1,111,111,111 90.00% 99.0% 99.9% 100.0% 100.0%10 10,000,000,000 11,111,111,111 90.00% 99.0% 99.9% 100.0% 100.0%
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