Direct selling company probed

Press, 23 August 1983, Page 8

Direct selling company probed

The Health Department and the Trade and Industry Department are investigating the activities and products of a direct selling company called Total Image, Ltd. The Consumers’ Institute has commented on the company and on its products, which consist of dietary preparations. The institute’s director, Mr R. J. Smithies, said, “We are concerned about some of the extravagant claims made for the efficacy of these products, and also about the structure of the company and its chain of distributors.”

He said that people interested in becoming distributors had been asked to make a capital investment, of $947.40. The company behind the scheme had a registered capital of $lOOO.

Another area of concern to the institute was the method of recruitment of distributors, with increasing percentages being paid to participants in a three-level chain.

“This emphasis on the recruitment of new distributors is disturbing because of the similarity with chain letters and pyramid-selling schemes,” said Mr Smithies. This concern was height-

ened by the belief that a shareholder in the New Zealand company was involved in the pyramid-selling company, Golden Chemical Products, which in 1971 grossed more than $4 million from the public. Golden Products crashed with substantial debts in 1975 after the Government passed legislation banning pyramid selling. Golden Products were mainly shampoos and similar household products.

Mr Smithies said that some claims made for Total Image’s products by a distributor were “outrageous” and the institute had discussed with Mr Phil Lanham, Total Image’s New Zealand director of operations, a “highly exaggerated claim” that guaranteed a 18.1 kg weight loss in a month.

Mr Smithies said that Mr Lanham had said that the company would take immediate action against distributors making such misleading statements.

Mr Smithies warned people tempted to invest in Total Image, or any similar scheme, to be “extremely hard-headed” before committing their money. He said that people

should consider the following points: © How well known and what sort of financial backing has the company? © Who are the directors and with what businesses have they previously been associated?

® Is there considerable emphasis placed on recruiting other people to the scheme?

© Be sceptical of claims that large sums of money can be made in a short period. © Will you be given a defined sales territory Or is it open to all distributors to sell where they wish? If it is, then do not invest your money. Mr Smithies said that nobody should invest in Total Image until they had discussed the deal with a bank manager, accountant, or lawyer. This advice echoes that given a few days ago by the Examiner of Commercial Practices, Mr P. E. Donovan.

Mr Donovan said that there appeared to be a prima facie case of a pyra-mid-selling scheme’s being run.

Pyramid-selling schemes are defined in section 48A of the Commerce Act, 1975. The act says that it is a

scheme that provides for the sale or distribution of goods or services or both for reward and which, to many participants in the scheme, constitutes primarily an opportunity to sell an investment opportunity rather than an opportunity to sell an investment opportunity rather than an opportunity to sell goods or services; and which is or is likely to be nfair to many of the participants in the scheme in that (i) the financial rewards of many of those participants are dependent on the recruitment of additional participants . . . ; and (ii) The number of additional participants in the scheme that must be recruited to produce reasonable financial rewards to participants in the scheme is not attainable or is not likely to be attainable by many of the participants in the scheme.

Officials of the Trade and Industry Department’s Commerce Division met principals of the Total Image company in Wellington yesterday. Mr David Shroff, a director of the division, said later that the company had given certain facts sought by the division and had asked that

the division set out in writing what activities would fall outside the Commerce Act. Mr Shroff said that it would take one or two days for that to be done. Mr Shroff said that he was not in a position to say whether the department would bring proceedings against Total Image. The company had assured the division that it wanted to act within the law.

Dr John Stoke, acting as spokesman for the Health Department, said from Wellington yesterday that the department had asked its Auckland office to send a sample tin of the company’s diet formula to the head office of the department in Wellington. Dr Stoke said that the product would be examined to see that the product conformed with the Food and Drug Regulations. The Auckland office had bought a tin and it was sent by courier to Wellington yesterday. The regulations stipulate minimum conditions for labelling of contianers of food products and, in the case of foods designed for special needs, such as lowcalorie diets, require the provision of adequate in-

formation on the label to substantiate any claim for special suitability or nutritional quality. Dr Stoke said that he knew of, but had not studied closely, a report of the Royal College of Physicians of London, which was quoted in the “Dominion” newspaper in Wellington yesterday. The “Dominion” said that the report, published last February, issued a strong warning about “the proteinsparing modified fasting” system. Diets using that system in the United States had led to “a number of deaths with the use of these potentially hazardous commercial mixtures, some of which are deficient in amino acids as well as having insufficient minerals and vitamins,” said the report.

The report noted that in 1976, the deaths had occurred of 60 obese patients consuming liquid protein diets.

“Controlled studies with these types of diets show the rapid development of potentially fatal cardiac arrhymias during the period of semi-starvation,” the report said, according to the “Dominion.”