Economics/Financial
Buyer Beware
03/04/2010 02:08 PM
Consumers often ask:
Even if multi-level marketing companies are pseudo-businesses, pyramid schemes and financial traps, couldn’t they run legally if they just disclosed how they are structured and operate, the actual financial loss rates, the quitting/turnover rates, the costs, the absence of retailing, the endless chain recruiting requirements and the risks in joining?
In other words, like the tobacco industry that sells a lethal and addictive product, couldn’t MLMs, which promote an “endless chain” income plan that dooms nearly all to failure, be lawful if they just printed the whole truth on the package?
Click here to see the proposed disclosures that a MLM would have to provide to each new consumer prospect if it were to tell the truth.
Full disclosure means ending 10 Big Lies that MLMs routinely perpetrate and then spelling out the facts. These 10 areas of deception and cover-up include: Read More...
In other words, like the tobacco industry that sells a lethal and addictive product, couldn’t MLMs, which promote an “endless chain” income plan that dooms nearly all to failure, be lawful if they just printed the whole truth on the package?
Click here to see the proposed disclosures that a MLM would have to provide to each new consumer prospect if it were to tell the truth.
Full disclosure means ending 10 Big Lies that MLMs routinely perpetrate and then spelling out the facts. These 10 areas of deception and cover-up include: Read More...
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The Fully Disclosed Fraud
02/24/2010 02:27 PM
Until recent years, to “prove” that an endless chain income or sales scheme was a fraud only required explaining that it was in fact an endless chain. In other words, endless chain schemes were understood to be “inherent” frauds. They are not good businesses gone bad or good people doing wrong. They are, by definition, frauds, custom-designed scams that must deceive and will always cheat the majority who join them. The fraud of endless chains may be reduced to a simple fact: They make a false promise, much like a “bait and switch” proposition does. That endless chain promise is that everyone, always, has the opportunity to make unlimited money from an ever-expanding base of new investors.
On Wall Street, the losers are the latest investors, like those that got in at the end of Bernard Madoff’s Ponzi scheme. On Main Street, the losers are the latest to join at the bottom of the multi-level marketing schemes’ “downlines.” That group churns and turns over year after year. New people join each year filled with hope, just like the people that had joined last year, before they “failed” and quit. Read More...
On Wall Street, the losers are the latest investors, like those that got in at the end of Bernard Madoff’s Ponzi scheme. On Main Street, the losers are the latest to join at the bottom of the multi-level marketing schemes’ “downlines.” That group churns and turns over year after year. New people join each year filled with hope, just like the people that had joined last year, before they “failed” and quit. Read More...
Donald Trump: MLM's Bankrupt Hero
11/30/2009 08:09 AM
Those who tell the truth about multi-level marketing (MLM) -- that it is a pseudo-business, a mere camouflage for a classic pyramid scheme -- face a wall of myths, deceptions and delusions. Charting the pyramid model and its flawed structure and characteristics, documenting the 99% failure rates, reporting the testimony of insiders in lawsuits and books who offer first hand accounts of the calculated lies about “income opportunity” – none of this breaks down that wall of deception. The media continues to buy MLM’s masquerade as a “fallback for consumers during the Recession.”
But then along comes a MLM spokesman, a hero of the business, who reveals the sham better than any analysis ever could. Enter Donald Trump. Bankrupt, scheming, abandoning those who loaned him money, ruining those who invested in his stock, while he smiles, postures for cameras, and pretends to be a financial expert and offers yet another bogus scheme for investors. This is the perfect caricature of the MLM industry.
The latest news on Trump is that his casino and resort empire – Trump Entertainment Resorts, which owns Atlantic City's Trump Taj Mahal Casino Resort, Trump Plaza Hotel and Casino, and Trump Marina Hotel Casino – are completely bankrupt and Trump has left the scene, leaving investors to their fate. This is a pattern for Donald Trump. It foretells the doomed fortunes of thousands of consumers who will follow him in his new multi-level marketing venture, Trump Network, a recycled old MLM scheme selling yet another health concoction.
In the newest development, Trump withdrew from his plan to “buy” the very company he bankrupted. The largest creditor, a bank, is now in line to take over the business from Trump.
Just before bankruptcy Trump abandoned his official position by resigning from the board of the company, giving an appearance of distance from ensuing catastrophe. The stock had already plummeted to pennies, wiping out the investments of shareholders. He then pompously announced that he would buy the company that he had bankrupted. But, now he has “withdrawn” from that deal and is reportedly “unavailable for comment.”
Trump’s “success” is the mirror image of that championed by MLM. Those few at the top who “win” in MLM do so from the losses of thousands of others. They “failed” by believing the bogus story about “income opportunity.” After they lose their money and “quit,” the winners claim no responsibility and move on to make the same bogus offer to other hopeful investors. Often, after causing financial losses to tens of thousands of followers, the “winners” open a new MLM with exactly the same fraudulent income proposition, now under a new name.
But then along comes a MLM spokesman, a hero of the business, who reveals the sham better than any analysis ever could. Enter Donald Trump. Bankrupt, scheming, abandoning those who loaned him money, ruining those who invested in his stock, while he smiles, postures for cameras, and pretends to be a financial expert and offers yet another bogus scheme for investors. This is the perfect caricature of the MLM industry.
The latest news on Trump is that his casino and resort empire – Trump Entertainment Resorts, which owns Atlantic City's Trump Taj Mahal Casino Resort, Trump Plaza Hotel and Casino, and Trump Marina Hotel Casino – are completely bankrupt and Trump has left the scene, leaving investors to their fate. This is a pattern for Donald Trump. It foretells the doomed fortunes of thousands of consumers who will follow him in his new multi-level marketing venture, Trump Network, a recycled old MLM scheme selling yet another health concoction.
In the newest development, Trump withdrew from his plan to “buy” the very company he bankrupted. The largest creditor, a bank, is now in line to take over the business from Trump.
Just before bankruptcy Trump abandoned his official position by resigning from the board of the company, giving an appearance of distance from ensuing catastrophe. The stock had already plummeted to pennies, wiping out the investments of shareholders. He then pompously announced that he would buy the company that he had bankrupted. But, now he has “withdrawn” from that deal and is reportedly “unavailable for comment.”
Trump’s “success” is the mirror image of that championed by MLM. Those few at the top who “win” in MLM do so from the losses of thousands of others. They “failed” by believing the bogus story about “income opportunity.” After they lose their money and “quit,” the winners claim no responsibility and move on to make the same bogus offer to other hopeful investors. Often, after causing financial losses to tens of thousands of followers, the “winners” open a new MLM with exactly the same fraudulent income proposition, now under a new name.
Yes, But What About this One?
10/26/2009 03:37 PM
Day after day after day, Pyramid Scheme Alert receives consumer inquiries about various multi-level marketing schemes, and the question is always the same: “What about this one?”
Sadly, few people get the big picture about multi-level marketing schemes. For the most part, MLMs are all the same scheme! From old established schemes like Amway to new startups like the Trump Network, these are the same flim flam in different clothing. One MLM may sell vitamins while another sells weight loss herbs. One sells legal services insurance and another fruit juice. But all of them, in reality, sell the exactly the same product: an endless chain income promise. MLMs are all in the “business opportunity” business, not “pills, potions and lotions.” And all of them sell the same “opportunity”, which is the chance to sell the “opportunity” to others who sell the same opportunity, forever and ever. Amen.
Read More...
Sadly, few people get the big picture about multi-level marketing schemes. For the most part, MLMs are all the same scheme! From old established schemes like Amway to new startups like the Trump Network, these are the same flim flam in different clothing. One MLM may sell vitamins while another sells weight loss herbs. One sells legal services insurance and another fruit juice. But all of them, in reality, sell the exactly the same product: an endless chain income promise. MLMs are all in the “business opportunity” business, not “pills, potions and lotions.” And all of them sell the same “opportunity”, which is the chance to sell the “opportunity” to others who sell the same opportunity, forever and ever. Amen.
Read More...
The Face of Multi-level Marketing
08/18/2009 05:11 PM
Multi-level Marketing (MLM) has been a significant force in America since 1980. And in most of that time, it never had an iconic human face — a Jack Welch, Bill Gates, Ray Krock, or a Lee Iacocca. Usually, when a MLM executive was seen on TV it was due to a lawsuit or a government prosecution.
But, now MLM does have its own live personality. A human face has been put on the “unique” business model. It is the face of Donald Trump. Trump has launched his own MLM scheme, Trump Network, which claims to sell health products. Before announcing his new company, Trump had been pitching for the MLM, ACN, but many MLMers took his endorsement of that scheme as an endorsement of the industry.
Now, the MLM world is electrified by Trump’s launching of his own MLM company. The MLM blogosphere pulses with pride. They point to Trump as proof of their system’s legitimacy. If Donald Trump says its legit, surely it must be! Right? Read More...
Now, the MLM world is electrified by Trump’s launching of his own MLM company. The MLM blogosphere pulses with pride. They point to Trump as proof of their system’s legitimacy. If Donald Trump says its legit, surely it must be! Right? Read More...
When Market Declines, Hire More Sales People?
06/14/2009 10:16 PM
Economic Recessions always produce new scams. They also expose existing ones.
For example, the current Recession exposed Bernard Madoff’s Wall Street Ponzi. Many of Madoff’s investors suddenly needed cash when their real estate and stock market investments sank. When they asked to withdraw their money Madoff could not do it because he had already transferred their funds to earlier investors or used it himself. He could no longer hide his fraud so he confessed. Investors lost $50 billion when his fund collapsed.
It was the Recession that exposed Madoff’s scam. Government regulators were not even investigating him and the media had not raised a serious question.
In the case of multi-level marketing (MLM), the Recession is both spawning new MLM scams, e.g., Donald Trump’s new scheme, and exposing the fraudulence of existing schemes.
The revelation of MLM fraud, which the Recession provides, is this:
As the markets shrink and fewer people buy goods, MLMs are ramping up recruitment of salespeople! Here is proof positive that MLMs make money off the recruits themselves, not from their “sales.” The Recession reduces the ability of MLM recruits to sell, but increases the ability of MLMs to recruit salespeople. More people are unemployed and desperate – perfect candidates for recruiting to invest in the MLM “income opportunity.” Of course, they will not be able to sell products, but the market for MLM recruits (who are destined to lose) has increased. Read More...
For example, the current Recession exposed Bernard Madoff’s Wall Street Ponzi. Many of Madoff’s investors suddenly needed cash when their real estate and stock market investments sank. When they asked to withdraw their money Madoff could not do it because he had already transferred their funds to earlier investors or used it himself. He could no longer hide his fraud so he confessed. Investors lost $50 billion when his fund collapsed.
It was the Recession that exposed Madoff’s scam. Government regulators were not even investigating him and the media had not raised a serious question.
In the case of multi-level marketing (MLM), the Recession is both spawning new MLM scams, e.g., Donald Trump’s new scheme, and exposing the fraudulence of existing schemes.
The revelation of MLM fraud, which the Recession provides, is this:
As the markets shrink and fewer people buy goods, MLMs are ramping up recruitment of salespeople! Here is proof positive that MLMs make money off the recruits themselves, not from their “sales.” The Recession reduces the ability of MLM recruits to sell, but increases the ability of MLMs to recruit salespeople. More people are unemployed and desperate – perfect candidates for recruiting to invest in the MLM “income opportunity.” Of course, they will not be able to sell products, but the market for MLM recruits (who are destined to lose) has increased. Read More...
MLM Travel Scheme, YTB, May Be Finished Off by Regulators
05/15/2009 09:25 AM
Some state regulators are doing what the Federal Trade Commission (FTC) will not do – protect the public from pyramid selling scams, also called “business opportunity frauds.”
The latest example is the scheme, Your Travel Biz.com, a classic pyramid in which consumers buy the right to become “travel agents” and then make money when they recruit other “agents.” California Attorney General, Jerry Brown, has struck a fatal blow against the scheme and provided a great benefit to hundreds of thousands of consumers. Read More...
The latest example is the scheme, Your Travel Biz.com, a classic pyramid in which consumers buy the right to become “travel agents” and then make money when they recruit other “agents.” California Attorney General, Jerry Brown, has struck a fatal blow against the scheme and provided a great benefit to hundreds of thousands of consumers. Read More...
Ponzis and Pyramids on the Rise
01/30/2009 03:08 PM
Two recent news articles provide insight into the recent proliferation of Ponzi and Pyramid Schemes.
I was interviewed by the Wall Street Journal about the sudden revelation of more Ponzis on Wall Street.
A reporter for the State Journal Register, the dally newspaper of the capital of Illinois, interviewed me and used Pyramid Scheme Alert's work as the centerpiece of his article on the same subject but included the spread of Pyramids schemes on Main Street.
These articles reflect a growing realization that:
* pyramids and ponzis have become imbedded in the economy;
* the Recession is spawning more scams, and attempts by investors to withdraw funds reveal previously hidden, existing ones;
* they affect nearly everyone;
* they are seldom prosecuted by the government regulators unless they collapse (after maximum damage has occurred);
* they are dressed up in the garbs of the respectable, legitimate, pious and patriotic;
* recognizing them is increasingly difficult for the average person;
* the "endless chain", which used to be understood as classic fraud, is now treated as a legitimate "marketing tool" or "compensation plan."
* The pyramid is now a business model.
Read More...
I was interviewed by the Wall Street Journal about the sudden revelation of more Ponzis on Wall Street.
A reporter for the State Journal Register, the dally newspaper of the capital of Illinois, interviewed me and used Pyramid Scheme Alert's work as the centerpiece of his article on the same subject but included the spread of Pyramids schemes on Main Street.
These articles reflect a growing realization that:
* pyramids and ponzis have become imbedded in the economy;
* the Recession is spawning more scams, and attempts by investors to withdraw funds reveal previously hidden, existing ones;
* they affect nearly everyone;
* they are seldom prosecuted by the government regulators unless they collapse (after maximum damage has occurred);
* they are dressed up in the garbs of the respectable, legitimate, pious and patriotic;
* recognizing them is increasingly difficult for the average person;
* the "endless chain", which used to be understood as classic fraud, is now treated as a legitimate "marketing tool" or "compensation plan."
* The pyramid is now a business model.
Read More...
Making Fraud Legal
10/30/2008 05:04 PM
The big bad word that is normally reserved for illegal pyramid schemes – COLLAPSE – is now referenced daily in discussions about our stock and credit markets. How could legitimate and regulated markets that are watched over by the Securities & Exchange Commission (SEC) “collapse”? Isn’t the whole idea of federal regulation to prevent such a disaster? Isn’t the SEC supposed to stop irresponsible or fraudulent activities that cause collapse?
If these markets really were on the brink of collapse before the federal bailout, does it mean that there are fundamental similarities between our securities markets on Wall Street that sell credit, stocks, bonds and insurance and the pyramid schemes running rampant in neighborhoods and churches that sell fruit juice, soap, and the “opportunity of a lifetime”?
There are more similarities than most people realize. Pyramid selling schemes are Main Street’s own version of “Wall Street Greed.” One major similarity is the effort of promoters in both fields to get fraudulent business practices legalized.
Read More...
If these markets really were on the brink of collapse before the federal bailout, does it mean that there are fundamental similarities between our securities markets on Wall Street that sell credit, stocks, bonds and insurance and the pyramid schemes running rampant in neighborhoods and churches that sell fruit juice, soap, and the “opportunity of a lifetime”?
There are more similarities than most people realize. Pyramid selling schemes are Main Street’s own version of “Wall Street Greed.” One major similarity is the effort of promoters in both fields to get fraudulent business practices legalized.
Read More...
Burned Again and Again and Again
10/23/2008 04:57 PM
There is a counter-intuitive rule in the world of scams. It is that the easiest person to fleece is someone who has recently been fleeced.
Wouldn’t the loss suffered previously cause the consumer to be more vigilant, plus experienced now? Sadly, for many, no. To the contrary, stronger motives and forces drive consumers, once burned, to fall again, often harder. Those forces – anger, disappointment, shame and confusion – instill in many consumers a burning desire to rectify their plight, to redeem themselves in their own eyes and perhaps to their friends and families. They must prove themselves right.
One other factor is at work. This one is even more disturbing. It is that many consumers, once burned, do not understand that they were in fact the victims of a scam, a calculated money trap. Rather, they believe – as they were told by the promoters – that they “personally” failed in a viable, even excellent income opportunity; hence, their shame and the need for redemption. Read More...
Wouldn’t the loss suffered previously cause the consumer to be more vigilant, plus experienced now? Sadly, for many, no. To the contrary, stronger motives and forces drive consumers, once burned, to fall again, often harder. Those forces – anger, disappointment, shame and confusion – instill in many consumers a burning desire to rectify their plight, to redeem themselves in their own eyes and perhaps to their friends and families. They must prove themselves right.
One other factor is at work. This one is even more disturbing. It is that many consumers, once burned, do not understand that they were in fact the victims of a scam, a calculated money trap. Rather, they believe – as they were told by the promoters – that they “personally” failed in a viable, even excellent income opportunity; hence, their shame and the need for redemption. Read More...
Financial Crisis: A Mirror Image of MLM
09/29/2008 09:36 PM
For those who are asking how our national economy fell into the current financial crisis or how the nation’s business leaders could not have seen it coming or how the federal government could have allowed it to happen, a study of multi-level marketing (MLM) – which attracts more than five million Americans each year with its “income opportunity” – can offer answers. MLM serves as a mirror image of the real estate/banking/Wall Street catastrophe. The basics are all the same. To understand Wall Street’s motives and tactics, therefore, we need only look into the MLM mirror. Read More...
Monavie, a Harbinger of Amway’s End Times
08/25/2008 11:51 AM
Amway is foundering and fighting for its life. New upstarts are challenging it, riding on the political and legal highway that Amway paved. Though Amway is huge, it also is hugely vulnerable, a house of cards.
The newly challenging MLMs use all the tricks that Amway taught them and they play off against Amway’s long rap sheet of lawsuits, bad publicity, regulatory fines and its long trail of “quitters and losers.” This gives the new schemes the chance to claim they are “better” or “different”, and really do offer an income opportunity.
The new schemes also enjoy the unregulated legal environment that Amway paid for. No worries about the FTC in America where Amway is based. After pouring millions into the coffers of the Republican Party, Amway got President Bush to appoint an Amway attorney as FTC chairman. The agency was put on a chain and immediately stopped enforcing the law against “pyramid selling schemes.” Amway was safe for a time, but it also opened the inferno’s gates for new MLMs to devour Amway’s base.
The newest upstart, called Monavie, achieved a billion in sales and a million followers in less than three years. Read More...
The newly challenging MLMs use all the tricks that Amway taught them and they play off against Amway’s long rap sheet of lawsuits, bad publicity, regulatory fines and its long trail of “quitters and losers.” This gives the new schemes the chance to claim they are “better” or “different”, and really do offer an income opportunity.
The new schemes also enjoy the unregulated legal environment that Amway paid for. No worries about the FTC in America where Amway is based. After pouring millions into the coffers of the Republican Party, Amway got President Bush to appoint an Amway attorney as FTC chairman. The agency was put on a chain and immediately stopped enforcing the law against “pyramid selling schemes.” Amway was safe for a time, but it also opened the inferno’s gates for new MLMs to devour Amway’s base.
The newest upstart, called Monavie, achieved a billion in sales and a million followers in less than three years. Read More...
Wanted for Fraud in California, YTB Is just a Typical MLM
08/11/2008 02:45 PM
The multi-level marketing (MLM) company, Your Travel Biz.com (YTB), is being prosecuted for fraud by the Attorney General of California. And now, a class action lawsuit has also been filed against YTB by some of its agents for operating a pyramid scheme.
Over 100,000 American households are in YTB as “travel agents.” Large numbers of others invest as shareholders. YTB is a member of the Direct Selling Association (DSA), the lobbying and trade group for multi-level marketing.
Is YTB all that different from other DSA/MLM members, like Herbalife, ACN and Pre-Paid Legal? YTB’s basic business model was approved last year by the DSA – after careful screening – when it was granted membership. So it obviously could not be fundamentally different. Read More...
Over 100,000 American households are in YTB as “travel agents.” Large numbers of others invest as shareholders. YTB is a member of the Direct Selling Association (DSA), the lobbying and trade group for multi-level marketing.
Is YTB all that different from other DSA/MLM members, like Herbalife, ACN and Pre-Paid Legal? YTB’s basic business model was approved last year by the DSA – after careful screening – when it was granted membership. So it obviously could not be fundamentally different. Read More...
MLM: Systematically Flawed
08/01/2008 10:16 AM
False Profits Blogger Frank Thomas (July 31, 2008 Comment in Economics/Financial category) states the unsayable and, for some, the unthinkable -- that "a good MLM" is an oxymoron and “the MLM business model is systematically flawed.”
Could this be true? If it were, it means that MLM is a colossal scam, on par with the “sub-prime” mortgage scandal, (which also operated “legally.”)
The data, on 11 large and representative MLMs, all members of the Direct Selling Association, show that 99% of all participants lose money. The percentage of losers among those who join each year (last ones in) is even greater! Literally, a throw of the dice at the tables in Las Vegas would be a better “investment” for a new MLM recruit, as has been statistically demonstrated by MLM whistle-blower, Dr. Jon Taylor. The annual consumer losses from the 11 MLM schemes in the study are conservatively estimated at $5 billion per year! That figure excludes the basic costs of the products that the consumers “purchased.”
The data and a close-up analysis of MLMs reveal that the losses are not random, as in Las Vegas. They are, as Mr. Thomas says, “systematic.” They are the calculated result of the pyramid scheme model.
Dave Thornton, MLM whistle-blower in Canada who operates CrimeBustersNow.com, was sued by the Canadian MLM, Treasure Traders, for daring to say in public that it was a pyramid scheme, not a legal and legitimate business. He won his case in court by showing the judge that his claim was reasonable, based on facts and on Canadian law. He did this by reducing the complexities of MLM pyramids to a simple question: Where does the promised profit to each participant come from?
Like all MLMs, Treasure Traders (now closed down, but never prosecuted in Canada; it was prosecuted in England), offered rewards or “income.” To get the rewards, the scheme required each participant to make an initial or monthly investment in “purchases”. Then, all participants were told that if they just recruited a few other “salespeople” they could potentially earn millions of dollars.
How could this be? What other sales company could offer all its salespeople millions in pay for making only a few sales personally?
If it is not from the salesperson’s own sales or productivity, then, what about from the new salespeople he/she recruits. Not there either, since the salesperson only recruited a few others. These few were also promised the potential of huge incomes if they bought the product themselves and made just a few “sales.” Where would their income come from?
Then the money must come always from many others, in multiple levels, who will hopefully be recruited. As anyone with a calculator knows, this model cannot deliver on its promise. If the money comes from new recruits, and many, many new recruits – in multiple “levels” – are required for the millions of dollars to flow up to each “salesperson”, then only a tiny few could ever have such a “downline.”
It makes no difference in this model whether all the people put in cash or buy goods. The scam in not in the product or lack of a product. The flaw – and the fraud – is that the promise of “profit” is based entirely on “endless chain” recruitment. This is the “systematic flaw” referenced by Mr. Thomas. No chain can be “endless” and, if many, many new recruits must be in place for each one to make a profit, then, no matter how long the scheme operates, it will ALWAYS result in nearly all who ever join being in losing positions at the bottom. The 99% loss rate is built-in from the start, and fully understood by those who set up the scam.
The promise of income in such a model is, therefore, unfair and deceptive. Only the ones at the very top will make money and these are the same ones that are making the promises to everyone else. Each time someone believes the promise and makes the “purchase”, those at the top make their money. And without a steady stream of new people “believing” (new people are always needed since financial losses cause most to stop believing within a year and quit the scheme forever) the money stream stops.
Could this be true? If it were, it means that MLM is a colossal scam, on par with the “sub-prime” mortgage scandal, (which also operated “legally.”)
The data, on 11 large and representative MLMs, all members of the Direct Selling Association, show that 99% of all participants lose money. The percentage of losers among those who join each year (last ones in) is even greater! Literally, a throw of the dice at the tables in Las Vegas would be a better “investment” for a new MLM recruit, as has been statistically demonstrated by MLM whistle-blower, Dr. Jon Taylor. The annual consumer losses from the 11 MLM schemes in the study are conservatively estimated at $5 billion per year! That figure excludes the basic costs of the products that the consumers “purchased.”
The data and a close-up analysis of MLMs reveal that the losses are not random, as in Las Vegas. They are, as Mr. Thomas says, “systematic.” They are the calculated result of the pyramid scheme model.
Dave Thornton, MLM whistle-blower in Canada who operates CrimeBustersNow.com, was sued by the Canadian MLM, Treasure Traders, for daring to say in public that it was a pyramid scheme, not a legal and legitimate business. He won his case in court by showing the judge that his claim was reasonable, based on facts and on Canadian law. He did this by reducing the complexities of MLM pyramids to a simple question: Where does the promised profit to each participant come from?
Like all MLMs, Treasure Traders (now closed down, but never prosecuted in Canada; it was prosecuted in England), offered rewards or “income.” To get the rewards, the scheme required each participant to make an initial or monthly investment in “purchases”. Then, all participants were told that if they just recruited a few other “salespeople” they could potentially earn millions of dollars.
How could this be? What other sales company could offer all its salespeople millions in pay for making only a few sales personally?
If it is not from the salesperson’s own sales or productivity, then, what about from the new salespeople he/she recruits. Not there either, since the salesperson only recruited a few others. These few were also promised the potential of huge incomes if they bought the product themselves and made just a few “sales.” Where would their income come from?
Then the money must come always from many others, in multiple levels, who will hopefully be recruited. As anyone with a calculator knows, this model cannot deliver on its promise. If the money comes from new recruits, and many, many new recruits – in multiple “levels” – are required for the millions of dollars to flow up to each “salesperson”, then only a tiny few could ever have such a “downline.”
It makes no difference in this model whether all the people put in cash or buy goods. The scam in not in the product or lack of a product. The flaw – and the fraud – is that the promise of “profit” is based entirely on “endless chain” recruitment. This is the “systematic flaw” referenced by Mr. Thomas. No chain can be “endless” and, if many, many new recruits must be in place for each one to make a profit, then, no matter how long the scheme operates, it will ALWAYS result in nearly all who ever join being in losing positions at the bottom. The 99% loss rate is built-in from the start, and fully understood by those who set up the scam.
The promise of income in such a model is, therefore, unfair and deceptive. Only the ones at the very top will make money and these are the same ones that are making the promises to everyone else. Each time someone believes the promise and makes the “purchase”, those at the top make their money. And without a steady stream of new people “believing” (new people are always needed since financial losses cause most to stop believing within a year and quit the scheme forever) the money stream stops.
The Myth of Multi-level Marketing
07/24/2008 02:55 PM
Welcome to the False Profits Blog.
When I wrote the book, False Profits, 10 years ago, I described MLM and pyramid schemes as “kissing cousins,” closely related, yet not necessarily one and the same. With 10 years of additional research, courtroom experience, communications with thousands of participants, and in-depth analysis of scores of MLMs, I now describe the situation quite differently.
Our report on the commission payouts of 11 major MLMs shows that more than 99% of all MLM participants lose money every year. Yes, 99%. That is not hyperbole. The data offered by the MLM companies themselves confirm this amazig fact.
MLM, therefore, cannot be called a “business opportunity.” The idea of MLM offering the average person a viable or an “extraordinary” income is a myth, which is to say, a lie.
Additionally, none of the MLMs studied – all of which were members of the Direct Selling Association – had significant numbers of retail customers. The sales people were, essentially, the only people buying the goods! Each of the salespeople signed contracts, paid fees, and, in order to qualify for the promised “rebates,” purchased a monthly quota of products. The salespeople, then, were investors and participants, not customers. Moreover, 60-80% of of them quit the schemes within 12 months, and they never bought the products ever again!
Without retail customers or “end-users”, MLM cannot be “direct selling.”
So what is MLM? And what sustains MLM? Obviously, it is not products -- it has no real customers and its salesopele quit buying within a year. And, certainly it is not the income to the salespeople, with 99% loss rates!
MLM is sustained by the “myth”, the disguise, and the hopes it generats among those it recruits.
We shall investigate this myth in much more detail in this blog. Your views are welcome.
When I wrote the book, False Profits, 10 years ago, I described MLM and pyramid schemes as “kissing cousins,” closely related, yet not necessarily one and the same. With 10 years of additional research, courtroom experience, communications with thousands of participants, and in-depth analysis of scores of MLMs, I now describe the situation quite differently.
Our report on the commission payouts of 11 major MLMs shows that more than 99% of all MLM participants lose money every year. Yes, 99%. That is not hyperbole. The data offered by the MLM companies themselves confirm this amazig fact.
MLM, therefore, cannot be called a “business opportunity.” The idea of MLM offering the average person a viable or an “extraordinary” income is a myth, which is to say, a lie.
Additionally, none of the MLMs studied – all of which were members of the Direct Selling Association – had significant numbers of retail customers. The sales people were, essentially, the only people buying the goods! Each of the salespeople signed contracts, paid fees, and, in order to qualify for the promised “rebates,” purchased a monthly quota of products. The salespeople, then, were investors and participants, not customers. Moreover, 60-80% of of them quit the schemes within 12 months, and they never bought the products ever again!
Without retail customers or “end-users”, MLM cannot be “direct selling.”
So what is MLM? And what sustains MLM? Obviously, it is not products -- it has no real customers and its salesopele quit buying within a year. And, certainly it is not the income to the salespeople, with 99% loss rates!
MLM is sustained by the “myth”, the disguise, and the hopes it generats among those it recruits.
We shall investigate this myth in much more detail in this blog. Your views are welcome.