by John R. Emshwiller Wall Street Journal, 1/19/96
In less than 10 months, Kevin Trudeau and his marketing organization have persuaded some 15,000 people to plunk down more than $1,000 apiece for a highly touted opportunity to sell products.
The 32-year-old recruiter's delighted business partner, Nutrition for Life International Inc., has already granted Mr. Trudeau so many stock options that he has a paper profit of more than $11 million. But in his meteoric career, Mr. Trudeau has acquired some other distinctions: criminal convictions for larceny and fraud. A previous hotshot recruiter who left some distributors unhappy also had a fraud conviction from an earlier venture.
Meanwhile, a senior California regulator has some questions about the firm's marketing practices - though company officials strongly defend those activities.
Soaring Earnings and Stock Price None of this has hindered Nutrition for Life. Under various names, the Houston concern has been around for more than a decade. It. sells about 300 products to its distributors, ranging from cookies to shark-cartilage capsules to the memory-improvement tapes that Mr. Trudeau is frequently seen selling on television infomercials. For the fiscal year ended Sept. 30, the company reported a ninefold jump in earnings to $2.2 million, or 65 cents a share, on sales of $32.3 million. Its stock has soared more than ninefold since July.
The number of independent sales distributors who are selling products for firms such as Nutrition for Life has risen 34% in the past five years to 6.3 million, says the Direct Selling Association, a trade group based in Washington.
Many firms in the field, including Nutrition for Life and Amway Corp., run multilevel-marketing programs. Besides earning a profit on sales they make themselves, participants get a cut of the sales of new distributors whom they recruit. As those recruits in turn recruit others, the original individual can derive income from multiple layers of salespeople.
While some distributors have prospered in multilevel marketing, law enforcement officials say the field also has had fraudulent operations. Their profits often stem from sign-up fees charged to new distributors rather than from sales.
Success in the field depends heavily on recruiting distributors to sell products. Nutrition for Life says that in the past fiscal year, its distributor ranks rose 50% to more than 57,000. Officials attribute much of that growth to Mr. Trudeau and his organization, Chicago-based Trudeau Marketing Group. These days, Mr. Trudeau is going on television and radio to recruit distributors.
Mr. Trudeau, who joined forces with Nutrition for Life last, spring, receives commissions on the sales of his recruits. Nutrition for Life also has granted him options to purchase 500,000 shares of stock at $12.50 a share; yesterday, it closed at $35, up $5, in Nasdaq Stock Market trading. The company's products and his marketing skills make for "a perfect marriage," Mr. Trudeau says.
In the past, some people have had reason to regret trusting Mr. Trudeau in money matters, according to prosecutors. In 1990, the recruiter pleaded guilty to larceny in a Cambridge, Mass., state court in connection with $80,000 in worthless checks he deposited at a bank. In 1991, he also pleaded guilty to credit-card fraud in Boston federal district court. Among his misdeeds in the federal case, prosecutors said, Mr. Trudeau misappropriated for his own use the credit-card numbers of customers of the memory-improvement courses that he offered at the time. Mr. Trudeau spent nearly two years in prison for his crimes.
Mr. Trudeau, who was in his 20s at the time, blames his "very poor judgment decisions" largely on his youth and the pressure and confusion of trying to build a business empire too quickly. The crimes, he insists, "were not premeditated... "I just shaved the line too close."
But in the sentencing memorandum for his state-court conviction, the Middlesex County district attorney called Mr. Trudeau's larceny "blatant and premeditated." Mr. Trudeau even posed as a doctor to increase his credibility with bank officials, said the court filing.
David Bertrand, Nutrition For Life's president and chief executive officer, says he isn't troubled by Mr. Trudeau's convictions. In Mr. Trudeau's dealings with the company, he "seems to operate ethically and honestly," the official adds.
There isn't any evidence that Mr. Trudeau has committed wrongdolng with Nutrition for Life. But a recent mailing to a prospective distributor on behalf of the Trudeau Marketing Group does contain at least one questionable statement. The cover letter proclaims that "success in the Trudeau Marketing Group is a given." Regulators routinely caution investors about promotions that guarantee the performance of a business. Mr. Trudeau says the mailing was put together without his approval. "We make no guarantees" as to success, he adds.
Herschel Elkins, head of the consumer law section at the California attorney general's office, says that would-be distributors should be wary of any multilevel-marketing program that pushes for a substantial initial purchase of products and minimum monthly purchases. After hearing a description of Nutrition for Life's program, he says it appears to fall under state rules requiring certain kinds of marketing organizations to register with the state - a step that the company hasn't taken.
Kirkpatrick Dilling, an attorney for Nutrition for Life, says the company strongly believes it's in compliance with all state laws. He says the company doesn't come under the California marketing law because it doesn't require distributors to make the $1,000 in initial purchase or minimum monthly purchases.
Several distributors interviewed praised the company and its products. "They truly care about their distributors," says Marty Scirratt in Arlington, Texas.
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