Coffee marketer Organo Gold brews up controversy

Organo Gold, a multi-level marketer of coffee and personal care products that has been dogged for years by consumer complaints, erroneously claimed on its website that it was a pending member of the Direct Selling Association (DSA), a trade group that seeks to burnish the reputation of the $31.6 billion industry.

Members of the DSA include a "who's who" of direct-sales companies, such as Amway, Mary Kay Cosmetics and Herbalife (HLF). Companies are given pending status in the DSA while the organization vets them to make sure that they operate their businesses in an ethical matter, a process that takes about a year. Organo Gold's membership lapsed around August 2013, according to the DSA.

"Less than 50 percent of the companies that make application for membership actually become members," said Amy Robinson, a DSA spokeswoman, in an email. "Many drop out when they realize they are unable or unwilling to meet the membership requirements."

After being contacted by CBS MoneyWatch, the DSA asked Organo Gold to remove any mention of the company being a pending member of its organization. The company on Monday deleted the DSA reference. (For a cached version of the webpage, click here.)

"Organo Gold is in the process of applying to numerous DSAs" in other parts of the world, the company said in a statement. "Organo Gold adheres to the code of conduct set out by the DSA, as well as the rules, laws and regulations of all areas in which we conduct business."

Founded in 2008, Organo Gold has generated a fair amount of controversy in its brief existence. Federal Trade Commission records show that the agency has received at least 55 complaints about Organo Gold, according to a Freedom of Information Act request. The complaints allege that the company makes inflated claims about the potential income people can earn as independent distributors of the British Columbia-based company's wares and that it misrepresents the effectiveness of its products.

Organo Gold is a so-called multi-level marketer, in which independent representatives can earn income both by selling the company's products, which they must purchase, and recruiting others to work as distributors. Although that business model has long been used by other network marketing firms, some critics have described Organo as a "pyramid scheme," a charge the company denies. Unlike legitimate multi-level players, operators of pyramid schemes make most of their profits by recruiting other sellers.

"It seems to be a pyramid scheme that presents the possibility of earning thousands of dollars with an initial outlay of $149, " according to an FTC complaint filed last year in Pennsylvania (names of the complainants were redacted by the agency).

Other complaints allege that consumers were charged for products they didn't purchase or experienced difficulties in getting refunds from Organo Gold. The Better Business Bureau lists 39 complaints against Organo Gold over the past three years. The BBB gives Organo Gold a C+ rating, which is based on how many disputes it has and how quickly they are resolved. (Grades are given on a scale of a high of A+ to a low of F.)

"BBB has received a pattern of complaints from consumers regarding customer service issues," the organization says. "Consumers allege the business is difficult to contact, and there is a delay in response times to e-mails and phone calls, specifically when canceling products or memberships."

Frank Dorman, a spokesman with the FTC, said in an interview that it is against agency policy to comment on potential investigations.

For its part, Organo Gold denies any wrongdoing and says it is unaware of the FTC complaints. "We act quickly and thoroughly to any complaints which are brought to our attention by either a consumer, BBB or regulatory agency," the company said in a statement.

Starting with three employees, Organo Gold became what it says is one of the fastest-growing network marketing companies in the world, with operations in 32 countries and sales that trade publication Direct Selling News estimates at $170 million per year. The company's products are infused with Ganoderma lucidum, which is derived from the reishi mushroom, grown in Asia and known as the "supernatural mushroom," according to Organo's website.

In addition to selling coffee, tea and hot chocolate, the company also sells an assortment of personal care items, such as soap, along with "nutraceuticals" derived from Ganoderma.

According to NYU's Langone Medical Center in New York City, some herbalists classify reishi as an "adaptogen," a substance believed to help the body resist different kinds of stress. But "there is no meaningful evidence" that proves these benefits are real, according to the medical center.

Organo Gold appears to choose its words carefully in describing Ganoderma's purported health benefits, noting on its website that it has been "consumed for millennia in Asia because of its perceived value." The FDA issued a warning letter to Organo Gold cofounder Bernardo Chua for making misleading claims about Ganoderma when he ran another company.

Some Organo Gold dealers, though, aren't so reticent.

"Ganoderma has been known for centuries for alkalizing and oxygenating the body to establish the foundation for a lifetime of good health, removing the basis for osteoporosis, arthritis, adult-onset diabetes, heart disease and many other degenerative conditions including cancer," writes Alexandra McCallister, a Montreal-based dealer, in a post last year on her website. "No disease can survive in a super-oxygenated environment. When your body has sufficient oxygen, it thrives."

McCallister goes on to claim that Ganodemera is able to help with a litany of issues ranging from sexual dysfunction to digestive problems. She didn't respond to an email requesting comment for this story. Organo Gold distanced itself from the claims she made.

"Yes, we are concerned and have strict policies about these matters," the company said. "We also have a compliance department that diligently monitors health claims and when these issues are discovered, we take swift action to ensure the violation is resolved quickly."

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    Jonathan Berr is an award-winning journalist and podcaster based in New Jersey whose main focus is on business and economic issues.