Monavie, a Harbinger of Amway’s End Times

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.

Wanted for Fraud in California, YTB Is just a Typical MLM

The multi-level marketing (MLM) company, Your Travel (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.

Direct Selling Association (DSA), Seeks to Legalize what the California AG Prosecutes as Fraud

The multi-level marketing scheme, Your Travel, which is now being sued by the California Attorney General as a "gigantic pyramid scheme," won membership in the Direct Selling Association in 2007. DSA is the lobbying and trade group for multi-level marketing. It advertises its membership list like a Good Housekeeping Seal of Approval for MLMs.

In a Sept., 2007 press release when YTB was given membership, the DSA wrote:
"The members of the Direct Selling Association pride themselves in their commitment to the highest standards in business ethics," said DSA's President Neil Offen. "By applying for membership in the association and going through a rigorous approval process, these companies are saying they take their ethical obligations to their field salesforce and to the ultimate customer seriously and are willing to make a public pledge to that effect."

So, did the DSA not see what the California Attorney General views as a "ripoff, scam and pyramid scheme"? Or does the DSA have a different view of what fraud is?

In fact, the DSA is the nation's main defender of business practices that the California law defines as fraud.

-- The largest MLM ever prosecuted and successfully shut down as a pyramid scheme by the Federal Trade Commission, Equinox International, was also a DSA member.

-- One of the experts who testified on behalf of Equinox, defending the company against the FTC charges that it was a pyramid scheme, had been a member of the Direct Selling Association Education Foundation.

-- The infamous MLM scam, Trek Alliance, was a DSA member.

-- In the landmark legal case against the MLM, Omnitrition, which is regularly referenced for determining when an MLM operates as a pyramid fraud, the DSA defended Omnitrition with an "friend of the court" brief.

DSA is in an all-out campaign to legalize business models and practices which the California statute and laws in other states and countries define as fraudulent pyramid schemes. For DSA members, this is not just about lobbying for favors. It is a fight for their very existence. Only the tobacco industry has as much at stake in lobbying to change laws or prevent laws from being enforced as multi-level marketing.

  • If the FTC applied the same criteria to DSA members that it has in previous prosecutions such as Equinox, the MLM industry would topple like a house of cards.
  • If California enforced its Penal Code 327 against other DSA members as it is now doing against DSA member YTB, few would survive.
  • If England applied the same standards to other DSA members that it is now applying to Amway, few could operate in that country. Amway, DSA's largest member, is being prosecuted in England as a pyramid fraud, based on criteria that mirror California's definition of MLM fraud.

DSA has written its own version of a state law that legalizes the very practices that YTB is being prosecuted for in the state of California. It has managed to get its own law passed in nearly a dozen states. This is achieved with professional lobbying, campaign contributions, and the presentation of a "wolf in sheep's clothing" statute. The DSA bill, which actually guts law enforcement against MLM scams, is called an "anti-pyramid scheme law." Other states have resisted the DSA ruse.

According to the wording of the DSA-lobbied bill, schemes that gain all their revenue from distributors, without any retailing - and each distributor's profit depends on the enrollment of more and more distributors - would be exempt from the definition of a pyramid scheme. If this law were adopted in California, YTB would be legal there.

-- In 2003, DSA sought to get a federal law passed that is the mirror of its state statute. Known as HR 1220, this bill would pre-empt state law, override federal court decisions and negate FTC policies. It would re-define fraudulent MLMs as "legal." The federal bill has so far never gotten out of committee.

-- One of the DSA bill's co-sponsors was Congresswoman, Sue Myrick (9th Congressional District, NC) who had been a featured speaker at Amway meetings. Her first candidacy for Congress was largely underwritten by Amway Kingpin, Dexter Yager.

-- DSA members, and especially Amway, have poured millions into the current President's administration. In 2001, they were rewarded. The DSA and MLM now enjoy the most MLM-friendly FTC in history. The first chairman appointed by President Bush worked for a lawfirm that represented Amway. Since then, he has worked as a lobbyist for a DSA member. For the last seven years, the FTC has been largely blind and silent toward "pyramid selling schemes."

-- In 2008, the DSA succeeded in getting this MLM-friendly FTC to exempt MLM companies from a proposed new FTC rule that would have required MLMs to disclose more financial information to recruits and give recruits more time to decide whether to invest. The change that the DSA gained in the proposed FTC rule means that YTB will not be covered because it is an MLM.

To back up its lobbying, DSA now makes the case that 99% consumer losses in MLMs are not evidence of fraud, unfairness or deception. Rather, it argues, most MLM participants only join to buy products, not to earn money. So, those that do lose money, don't mind their losses.

Related Links:
-- YTB’s Commission Payout Data are in the Report on MLM Income, along with 10 other MLMs, all DSA members. Consumer loss rates are 99% in all of them.

-- At its national convention YTB unveils the world's largest replica of the Statue of Liberty (130 feet high and weighing 50,000 lbs.) It is to be a “tribute to freedom (to travel) (See the Youtube video)

-- See an Analysis of DSA’s “Wolf in Sheep’s Clothing” law that would legalize endless chain schemes as long as money is laundered through a product or service.

-- Discussion of the DSA’s new claim that very few people ever join MLMs to earn money. Rather they only want to buy MLM products at a discount or maybe to earn just a little extra money for Christmas. (No explanation for why 50-80% quit the schemes within a year, stop buying the products, and never buy the products ever again or how they get Christmas money when 99% never earn a profit!


MLM: Systematically Flawed

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, 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.