The Obama Election and the Future of Multi-level Marketing

One Key Figure Sheds Light on MLM’s Future

Many have asked if the extraordinary shift in power in America – with the election of Barack Obama and a large Democratic majority in Congress and in many states – will affect regulation and law enforcement of pyramid schemes and multi-level marketing (MLM).

Frankly, whether “change” in this area comes about is unknown. However, the extraordinary career of one key figure may offer insight into the fate of “multi-level marketing” and “endless chain” schemes in the new political climate.

That national figure is the noted economist, Dr. Lasdwun N. Luzes. He is a popular speaker at Amway meetings, a lobbyist for the Direct Selling Association, a fierce critic of consumer protection and a fervent anti-regulation spokesman. The influence of this national figure has been largely overlooked in the mainstream media.The non-profit consumer education group,
Pyramid Scheme Alert, however, has carefully tracked his work and observed the powerful effects of his often secretive dealings, which rival those of Vice-President Dick Cheney. Dr. Luzes is, in fact, a personal friend of Vice-President Cheney and one of the few people ever to visit the Vice-President’s “undisclosed location.”

Dr. Luzes’ career has always been closely linked to the Republican Party. That fact makes his future very uncertain and now open to scrutiny. Past clients include of Dr. Luzes include the indicted Congressional leader,Tom Delay, a champion of MLM and a former Amway distributor, and Senator Rick Santorum who was also a frequent Amway event speaker. He still keeps in close contact with former Amway distributor and MLM supporter, Congressperson Sue Myrick of North Carolina. Ms. Myrick’s political career was financed by Amway supporters and her patron is Amway kingpin, Dexter Yager. In 2003, she co-sponsored a bill, largely authored by Dr. Luzes, to legalize all product-based pyramid schemes and to protect her patron, Amway, from anti-fraud regulation. The bill never got out of committee where it died.

Dr. Luzes is a personal advisor to Dick DeVos, former president and son of one of the founders of Amway. In Mr. DeVos’ failed Republican candidacy for Governor of Michigan in 2006, Dr. Luzes was reportedly responsible for Mr. DeVos’s campaign theme, “I will do for the taxpayers of Michigan what Amway does for its IBOs.”

Just as many of Dr. Luzes’ political patrons have recently lost elections, or were indicted for crimes, some now believe that MLM businesses he supports may collapse under regulatory scrutiny. Others have speculated that some of his business followers could face jail time, despite the fact that Dr. Luzes himself is viewed as ethical, devout and a great patriot and philanthropist.

Before his work is forgotten, it is useful to remember some of his many accomplishments.

His main contribution to the world of business is the theory that there are no limits to growth. Dr. Luzes considers those who speak of eventual market saturation as “negative thinkers.” According to the
Wall Street Journal, it was Dr. Luzes who told advisor to John McCaine, Phil Graham of Texas, that Americans who complained about loss of their jobs were just “whiners” and that the Recession was “only mental.”

Dr. Luzes has often stated that those who say “unlimited expansion” (5 recruit 25 who recruit 125,who recruit 625, etc.) is unsustainable as a business model are hostile to capitalism and unpatriotic. He has told cheering audiences at MLM recruitment meetings that those who use calculators and cite statistics to prove saturation and collapse are “dream stealers.”

Additionally, he held that the transfer of large sums of money from a huge base of consumers to a tiny group of MLM promoters above them is a form of “charismatic capitalism”. He believed that ostentatious displays of wealth and materialism by the MLM “winners” motivates the “losers” to emulate their leaders and to recruit friends, relatives and neighbors.

Dr. Luzes’ brilliant theory spawned many imitators such as “Women Helping Women” clubs that offered 800% returns on investments based on limitless growth. “Gifting Clubs” sprang up all over America in which hundreds of thousands of ordinary people spontaneously gave millions of dollars to strangers and, in turn, expected others to grant them similar cash gifts.

Many other excited followers became “auto-surfers” and invested their savings in home-based businesses that only required passively watching websites and waiting for cash to arrive in their PayPal accounts.

Dr. Luzes’ “endless chain” theory has been most ardently accepted in Canada where the pyramid scheme and money-transfer programs are widely accepted and apparently endorsed by the Canadian Competition Bureau.

Many Canadian farmers recently took Dr. Luzes’ endless chain theory as an article of faith. They invested life savings in a pigeon-breeding business that was based on the endless expansion of breeders. The subsequent collapse of the business, bankruptcy of the promoter, and the cruel disposal of millions of pigeons did not weaken their faith in the theory. Dr. Luzes reassured them and also told the news media that “fear mongers” were to blame for the disaster.

Based on his bold economic model, Dr. Luzes proclaimed that all sales companies that employed an “endless chain” incentive to induce “distributors” to buy inventory were automatically legal and could always and forever look forward to an “unlimited” future.

He has been merciless in his judgment of consumers who actually lost money in endless chain pay plans. He is said to have coined the truism, “Only losers quit and only quitters lose.” When confronted with data showing that 99% of all MLM participants lose money, and 70% quit each year, he countered that this was because these quitters and losers never tried or did not want to earn profits.

Using the same mathematical formulas that were employed in the sub-prime mortgage and derivatives markets, he claimed that a company could expand its sale force of distributors forever, and, no matter when a consumer signs up as a distributor, the “opportunity is always limitless.” Many people in MLMs were so inspired by this theory that they quit their jobs, dropped out of school and even divorced skeptical spouses as their “declaration of freedom.”

After the election of 2000, Dr. Luzes quietly persuaded the United States Federal Trade Commission (FTC) to end its enforcement of laws against pyramid selling schemes. He pointed out that few people who lost money ever complained publicly. Timothy Muris, the first chairman of the FTC appointed in 2001 by President Bush, and formerly an attorney whose firm represented the Amway Corporation, reportedly called Dr. Luzes’ views “refreshing.”

Investigations and prosecution by the FTC quickly ended and the moratorium extended over the next seven years. Millions of taxpayers dollars were saved by ending the costly consumer protection work. Most recently, he was instrumental in persuading the FTC to exclude multi-level marketing from a rule covering “business opportunity” schemes. He argued that millions of people need MLM to earn money for Christmas gifts. He urged the commission to train its regulatory power on a real threat to consumers – vending machine sales route schemes.

Dr. Luzes has also been influential in convincing some state legislators to revise anti-pyramid scheme laws so that the “endless chain” could be used to persuade distributors to buy inventory. His main influence at the state level has been in Utah, where he often attends church, and which now has more endless chain scheme headquarters per capita than any other state. Dr. Luzes is especially proud that Utah now gains more revenue from endless chain schemes than it does from its skiing industry.

Dr. Luzes personally directed the lobbying to weaken consumer protection laws in Utah and the secret campaign to isolate one persistent expert in the state who presented statistical evidence that “endless chain” MLM schemes caused 99% loss rates among consumers who invested in them. Dr. Luzes coined the term “anti-MLM zealot” to dismiss all consumer protection advocates who brought up multi-level marketing’s 99% loss rates.

In the direct selling industry Dr. Lasdwun N. Luzes introduced the groundbreaking business model in which the salespeople buy products but never actually sell any. Instead of incurring the costs of selling, they only expand the sales force. Inventory costs, customer service, marketing, and other inefficiencies were eliminated under his new model. He was hailed for eliminating the cost of finding retail customers, many of whom were said to refuse to pay full price for multilevel marketing goods and were therefore irrelevant and unneeded.

His theory was refined into complex pay plans involving “infinite” numbers of management levels, each receiving a commission on every sale made at the bottom of the chain. Though this appears to be redundant and inefficient, Dr. Luzes showed that it could generate greater growth, each level recruiting others to rise to the level above.

Another development made possible under his theory is the allocation of the highest commission rates and the majority of all commission payments on each new sale to those farthest away from the sale, at the top of the sales chain. He explained that by reversing traditional pay plans that pay the most to the people actually making the sales, MLMs inspired those at the bottom to “recruit their way to the top.”

Prior to the 2008 election, Dr. Luzes had warned that weaknesses were developing in his model, brought on, not by any flaw in the model, but a decline in positive thinking. He noted in-fighting over recruiting between two champions of the endless chain, Amway and Monavie. He also worried that “binding arbitration” and non-compete lawsuits by Amway and other MLMs seemed to be based on the illusion of limits. He said this was a dangerous heresy. He also recognized that the action of China to ban endless chain sales schemes in that country might inspire others to view the world as finite.

Dr. Luzes has a particular hatred for the websites of the “anti-MLM zealots” whose influence he fears is spreading. He even charged that the collapse of real estate values, the stock market, and the credit and the insurance industries was actually caused by these same types of “pathetic losers.”

Dr. Luzes sternly opposes government bailouts and believes America must reduce “entitlements” such as Social Security. However, if anti-fraud law enforcement resumes in 2009, he is said to have already prepared a White Paper urging a Congressional rescue package for Amway. He termed Amway an “American icon, too large to fail.” He noted that if Amway went down, it might pull the entire MLM industry with it.

The last client of Dr. Lasdwun N. Luzes was General Motors Corporation where he had advised an increase in production of SUVs. Dr. Luzes is said to be currently unemployed. The phone number of his consulting firm, Pyramid Partners LLC, is disconnected. His exact whereabouts are unknown though one investigative reporter claimed Dr. Luzes was in route to Nigeria, where he reportedly was to receive a large sum of money that was promised to him in an email.