Donald Trump is being lambasted for his Trump University, a business that New York Attorney General Eric Schneiderman is calling “phony” and “heartless.” The company marketed itself as a school that would teach students how to make money in real estate, even though it wasn’t accredited in any way. Instruction included online classes and weekend seminars. “You can't possibly learn everything about real estate in three days," Schneiderman said. "You got to spend $10,000, $20,000 on what were called the Trump Elite program. ... It was a pitch up to try to dupe these people into spending more money."
The truth is that many celebrities are embroiled in similarly dubious schemes meant to separate the gullible from their cash. Famous people have been paid to endorse products since the concept of celebrity began — some Roman gladiators did endorsements, and royal families touted pottery companies in the 1700s. These days, however, more celebrities are going beyond just dong commercials to taking a share in the companies they tout and using their social media pull to expand the reach of bogus products. Here are a few examples of celebrities and the sketchy businesses they tout, start, support or otherwise buy into.
Tyra Banks Many companies exist solely to recruit new members and soak them for access to more opportunities. These are often called "multilevel marketing firms" or MLMs. Supermodel Tyra Banks started a company that fits the definition to a T. She started Tyra Beauty to recruit a crew of "Beautytainers" to sell beauty products. These salespeople pay incrementally increasing fees for packages to get a wider array of beauty supplies. The sellers keep 25 percent of what they vend, but can make a lot more from bonuses for recruiting more salespeople. (VICE's takedown of Tyra Beauty, and Tyra herself, is here for those who want to know more.) The company, like most MLMs, is more firmly fixed on expanding the business than selling products. Here's the Federal Trade Commission's (FTC) site warning consumers about this business model.
(By the way, Trump has also been involved with another MLM scheme run by ACN Inc., which once upon a time stood for American Communications Network, first selling video phones before moving into more traditional pyramid scheme behavior. “The company recruits people to sell digital residential-phone service, wireless-phone service and satellite-TV service,” one Wall Street Journal article says. Trump claims he doesn't know the company or those who run it, and made his money only as a paid endorser.)
The soccer star is a perfect pitchman for Herbalife, the vitamin and health supplement company. The company works through independent distributors, what people call "direct sales." No stores need to be stocked; the sales come from the front line sales people, and Herbalife focuses its marketing on low-income Latinos in the United States and beyond. That makes Ronaldo the ideal barker for the product, along with other soccer heroes and, as the company eyes India, cricket stars. The catch here is the amount of product the salespeople have to buy in order to get started and the costs they incur if they can't sell them all. Herbalife salespeople get hefty bonuses for signing more Herbalife salespeople, the classic MLM structure. On top of all of that are other ways of making product sales into more of a pay-to-play club of followers — forming "nutrition clubs," taking “university classes" and attending Herbalife conferences. The FTC has been negotiating the fine they want to levy on the company for being a pyramid scheme, and some are predicting a record-setting amount of $200 million. Others say Herbalife sticks to FTC rules from the 1970s that keep the scheme within the letter of the law. The future of MLM might rest on the decision in that case, which is expected this year. In related news, here's an FDA primer on dietary supplements, and how they could be bad for you.
For-profit online colleges get a lot of grief for selling their degrees. One of the biggest of these is the University of Phoenix, which has been subject to a number of government fines and lawsuits for deceptive enrollment practices and fraudulent solicitations for student loans. University of Phoenix students owe more than $35 billion in student loan debt, the most of any U.S. college. Students can get in over their heads by not understanding the amount of money their classes are accruing. So it's a shame that Suze Orman, financial guru, taught an online personal finance course at Phoenix and supports the school, including making this video. "All of you are about to make a serious investment in yourself," she says, pleading for students to keep costs under control. The video, which is filled with common sense, flies in the face of the school's business model that aggressively facilitates student debt. Many schools rely on students to go into debt to pay for classes, but not every school has the Federal Trade Commission investigating deceptive marketing tactics and abysmally low (i.e. single digit) graduation rates. In related news, a recent report stated that because of dropouts, most people who take online classes make less money than when they started.
Selling stuff that gives men bigger hard-ons is an old business. Many an unfortunate shark and rhino have been slain for their body parts' supposed sexual benefits. These days sex-enhancement pills ads are ubiquitous, making celebrity endorsements even more important to distinguish a product. Dallas Cowboys' coach Jimmy Johnson first appeared in ExtenZe ads in 2010, starting a relationship that endures. "Does Extenze really work?" Johnson says. "It works for me!" The company sells pills that are not proven to do anything to make your dick bigger, paid $6 million in a false advertising lawsuit and recalled entire batches in 2011 after the FDA found counterfeit packages and undeclared ingredients. The stuff inside included sibutramine, a weight-loss drug proven to increase heart-attack and stroke risk.
Selling sugar water is an old game, perfected by Coca Cola and other soft drink vendors. But to market it as a health drink is pretty shady. In 2007 rapper 50 Cent partnered with the owner of VitaminWater to sell his own brand, Formula 50. The artist is in ridiculously good shape, and he seemed like a logical pitchman for a health drink, which he tied into an exercise plan as well. He even received a 10 percent stake in its parent company, so when Coke came in and bought out the company, 50 Cent made millions. A judge summed up the whole dubiousness of the product during a lawsuit against the company, noting that “at oral arguments, defendants (Coca-Cola) suggested that no consumer could reasonably be misled into thinking vitamin water was a healthy beverage.” Kind of sums it up, right?
Imagine iTunes. Now imagine it doesn't work. Welcome to BurnLounge, which turned music lovers into digital music store owners by charging them for access to its catalog, which they could then sell to other people online. Sellers earned pennies for each album or individual song sold, and vendors had to sign up through an existing seller. Justin Timberlake jumped on board this train in 2006. “You won’t have to convince anyone of the magnitude of owning your own internet corner record store when one of the largest artists in the world has one,” BurnLounge executive Kevin Keranen said at the time. The FTC sued in 2007, pointing out that the promises of profit made to store owners were untrue. "BurnLounge recruited participants by selling them so-called 'product packages,' ranging from $29.95 to $429.95 per year," the FTC said. "More expensive packages purportedly provided participants with an increased ability to earn rewards through the BurnLounge compensation program." The company lost on appeal in 2014. The FTC then mailed 52,099 checks for nearly $1.9 million to consumers who lost money. Other lawsuits from tens of thousands of disgruntled "store owners" followed. The site has been mothballed for years.
Organic Liaisons' diet plan, developed and hard-sold by actor Kirstie Alley, centers on "organic and natural diet supplements that replenish your body with essential vitamins, minerals and nutrients.” Losing weight starts with lightening your wallet— one month’s supply sold for $62.50, membership to the program is $10 per month and the Startup Kit of supplements ran $139. In 2014, Jenny Craig bought Organic Liaisons and kept Alley as its main spokesperson. The diet company, known for its prepackaged foods, needed a veneer of organics to keep up with modern trends. Their promotional material says Alley "has emerged as one of the great actresses of her generation." (They must have really loved Guess Who's Talking 2.) In 2015 investors sued Alley and other company officials for transferring $500,000 to a trust run by Alley, leaving investors out in the cold. It's worth noting that since Jenny Craig bought Organic Liaisons, only one product form the original line remains for sale. Just a quick thought, but maybe exercise and portion control are the best ways to lose weight, rather than potions?
It takes a certain kind of mindset to want to take something that reduces the amount of the protein myostatin in your body. Google the term and you can see animals that, without enough of it, grow misshapen lumps of muscle under their skin. The mindset you need to think this is a good idea to try to replicate is that of a bodybuilder. Myostatin restricts muscle growth, and so the chemical is the enemy of anyone who wants to be huge. Enter MYO-T12, sold by Atlas Therapeutics Corporation, as a myostatin inhibitor. The secret ingredient: fertilized egg yolk powder. A guy named Carlon Colker invented it. He's one of the boosters, salesman and defenders of ephedra-based weight loss pills, which (among other things) had been implicated as a cause of the 2003 heatstroke death of Baltimore Orioles pitcher Steve Bechler. Gretzky fell into his orbit in 2011 when he signed on to tout MYO-T12. "I am hopeful that the product will help a lot of guys who are trying to find a natural and safe way to feel young and to stay active and fit despite their age … including me," he said. The Great One once told Consumer Reports (through an assistant) that he takes it every morning. CR also reported that his one year deal to tout the stuff came with a $150,000 price tag and company stock. Myostatin inhibitors are specifically banned by the World Anti-Doping Agency, and doctors have warned that blocking myostatin makes muscle fibers more vulnerable to injury. Even more interesting is the medical research that suggests that huge muscles might not actually be stronger and more recent trials by drug companies (seeking ways to treat people with diseases) that showed that myostatin decreases didn't result in muscle increase. Hulk Hogan
In between his roles as a professional wrestler and a slayer of Gawker, Hulk Hogan had a stint as a pitchman for the MLM company ViSalus, which sells shakes, supplements and other weight management products across North America. Like of MLMs, the company gets customers to recruit other customers, but instead of making money, the salespeople lose. What makes this one even more interesting is the shenanigans surrounding the company officials, who in 2015 hired private eyes to retaliate against distributors who switched to another MLM company. The PIs and ViSalus' director of security, Carlo Pacileo, pleaded guilty to conspiracy. Three former distributors are also suing, calling ViSalus a pyramid scheme. Sales are declining and in January the company announced layoffs. But Hulk was long gone before any of this happened:
Here's Hogan during better days, touting the products with a 90-day challenge and a public appearance at a rally.
OK, he didn't endorse a product, but he did make a speech to direct-sellers in a show of support for an industry riddled with crooks and charlatans. “You strengthen our country and our economy not just by striving for your own success but by offering the opportunity to others,” the president said in 1996 to members of the Direct Selling Association. That group encompasses more than just MLMs, but it's still a load to hear such a ringing endorsement of an exploitative business model.
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