Stock Plunge on Internal Consumption: Whose Fault?


It is shame that, in one day, in May 2012, leading direct selling companies would see their stock and capitalization value shrink by billions of dollars. And, all over a rather simple and reasonable investor question like, “what percentage of product is consumed personally by MLM distributors as opposed to resold to non-participants?”

Unfortunately, with some sound groundwork over the last 15 years, it is a question that need not have been asked….or at least, one that would not have provoked a tsunami of financial world discussion and billion dollar downturns in the stock market.

Although speculative “short sellers” played an undeniable role, this situation is radically different than the challenge posed by criminally convicted Barry Minkow, who negatively impacted stocks by attacking companies with false and misleading information.

In fact, the question about the destination of MLM products is a perfectly legitimate question in the absence of an uneducated marketplace; the stock market’s reaction to such a question is perhaps more reflective of the vacuum of leadership on the personal use/internal consumption issue that should have been undertaken by the industry 15 years ago, when the issue surfaced with an errant comment, criticizing personal use, by the U.S. Court of Appeals for the Ninth Circuit in the 1996 Omnitrition case.

At that time, it was suggested that a timid industry response would see escalation of the personal use issue to federal and state court decisions, class actions, adverse U.S. and foreign press, adoption of adverse rules by foreign regulators, etc. In a series of articles over the next 15 years, the direct selling industry was urged to “get bold” and seek remedial federal legislation or administrative rule making to legitimize personal use/internal consumption.

Visit for more information on the direct selling industry.

LOADING PDF: If there are any problems, click here to download the file.

Written by:

Published In:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Babener & Associates | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »


Welcome to MLM Legal - a valuable resource to the Multi-Level Marketing and Direct Sales Industry. ... View Profile »

Follow Babener & Associates:

Reporters on Deadline

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.