Is Every MLM a Scam? MLM, Fraud, and Pyramid Schemes

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Our argument is going to be like a horse and water. You can bring the horse to water, but you can’t make him drink. We’ll bring the information to readers, but if they are brainwashed to think MLM is legitimate, We won’t be able to change their minds…

“Many pyramid schemes attempt to present themselves as legitimate MLM businesses. Some sources say that all MLMs are essentially pyramid schemes, even if they are legal. The U.S. Federal Trade Commission (FTC) states: “Steer clear of multilevel marketing plans that pay commissions for recruiting new distributors.”

Multi-level marketing – Wikipedia

https://en.wikipedia.org/wiki/Multi-level_marketing

MLM, Fraud, and Pyramid Schemes

It sounds dangerous to say that every MLM is a scam. However, I have looked at and written about dozens now, there hasn’t been one that has been CLOSE to being legitimate. Is every person in prison guilty of a crime? I can’t be certain for sure, but at some point the pattern is unmistakable.

Many of the MLMs I looked at were confidence games that relied on shady company “Doctors” relying on bad science to push their nutritional supplement. That pattern has lead to numerous MLMers erroneously claim that their product is a miracle or “helps the body heal itself.” No the MLM products do not do this. If you don’t believe that article because it was written by me, scientists have found it so impressive that they republished it here (with my permission).

But Are MLMs pyramid schemes? I keep going back to what the FTC says:

“Not all multilevel marketing plans are legitimate. If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan. If the money you make is based on the number of people you recruit and your sales to them, it’s not. It’s a pyramid scheme. Pyramid schemes are illegal, and the vast majority of participants lose money.”

When I look at the people making the top money in MLM, it is because they have massive organizations of recruits and the money is based on their sales to them. In fact, this is the pitch of just about every MLM I’ve looked at. It is very common for them to show that if you recruit/enroll 3, who recruit/enroll 3, who recruit/enroll 3, etc. you’ll have an organization of hundreds or thousands of people.

I can’t see any way of interpreting the FTC’s words other than these very high ranking people at MLMs are running illegal pyramid schemes. The MLM company itself attempts to shield themselves legally from distributor’s actions, but it would be like Napster claiming that they didn’t foster illegal activity when users shared music. In fact, it is worse for MLM companies as Napster wasn’t paying people for illegal activity and taking a cut of the profits for themselves.

No one has ever been able to explain to me how MLMs could possibly be legitimate.

Their best efforts point to companies that are still running after a number of years. They make the claim, “If it was illegal it would be shut down.”

There are thousands of MLM companies and the FTC’s budget is very limited. They have a lot of things to do outside of MLM and one single MLM could tie up millions of dollars of that budget in a court battle.

A lack of effective law enforcement does not make something legal. If I become really good at stealing old ladies’ purses in a town that has no policemen, it doesn’t mean it is legal because I haven’t been caught.

No one wants to bring up the fact that Bernie Madoff ran a $50 Billion scheme or how Enron was a $100 billion dollar company. These MLM companies are peons in comparison to those schemes that ran unchecked for years and years. It isn’t surprising that they’d be able to fly under the radar.

If a company is legitimate and has a legitimate product, it doesn’t make business sense to associate themselves with MLMs/pyramid schemes. They could simply pay a good commission that would make people want to join without the recruitment/pyramid scheme aspect. Such a simple change would save a legitimate company from taking on a risk that could be a death blow to their business.

Since it doesn’t make since for a legitimate business to take on this unnecessary risk, it stands to reason that companies that purposely choose to take on this risk do it because they it is necessary for them… and that they aren’t legitimate business.

Why It Is Hard or Impossible to Find a Legitimate MLM?

I’ve thought long and hard about why this would be. Why doesn’t anyone any come up with a good MLM? It isn’t really that hard to do. I’ve written How an MLM Can Show It Isn’t an Illegal Pyramid Scheme. I’m happy to consult with an MLM to make them legit.

I believe that MLMs don’t want the advice on how to become legit. I think I know why, legit MLMs can’t complete with the illegitimate ones and be profitable.

To understand why, you have to know that as Harper’s Magazine says:

“[Mary Kay’s consultants] couldn’t have it all because Mary Kay’s business model (like that of any multilevel-marketing enterprise) is designed primarily to profit from, rather than enrich, its workforce.”

It is reinforced by this article showing that MonaVie’s business model is MLM not juice. The product is juice, but no one buys $40 bottles of juice. The business model is getting people interested in a business opportunity which happens to have an admission fee of buying $40 bottles of juice.

MLMs compete fiercely for other MLM distributors. They poach distributors from all the time. Almost every MLM makes distributors sign an agreement to not work for another MLM. It doesn’t matter if the product they are selling is unrelated. That’s because the people are the product.

Many of the Zrii distributors went to the company that can’t be named. It looks like many will now be moving to Yevo. Many of the top MonaVie people came from Amway. There is no loyalty to the product, but it is to the people building the scheme.

This is where MLMs “race to the bottom.”

There has been very little regulation in the industry (the FTC doesn’t have the funding to do much), so companies and distributors can get away with all sorts of illegal claims. I’ve written about MonaVie juice and being pushed as cancer medication. The Huffington Post has covered it as well.

In fact, the move of these companies to pyramid schemes has been cited by Tupperware and Avon for leaving “Direct Selling.” I get a chuckle when these companies are held up as successful MLMs. They’ve wisely distanced themselves so they’ll stand a chance of surviving if law enforcement gets its act together.

If you are going to try to run a legitimate MLM organization, how can you draw people to your business and compete in an environment of illegal pyramid schemes? You can’t. If everyone is allowed to put a pile of aces up their sleeves in a poker tournament and you play an honest game, you aren’t going to be in the tournament very long.

Imagine if there were no drug testing in the NFL. It would be extraordinarily difficult for a clean linebacker to compete for a job against a group that are extensive steroids.

This is where I believe MLMs are. Every new MLM has to come up with a selling point to lure distributors. This selling point has increasingly become more and more misleading. It went from selling food containers (Tupperware), to make-up (Mary Kay), to juice/shakes/pills. The later MLMs add the (bad) science and (illegal) health claims to make the scheme more compelling. Who knows how much worse the deception will go in competition for distributors?

So that’s my answer for the commenters like the one above who says “I get the impression that people think you are against all direct selling/network marketing companies.”

We are against them, but only because there is obvious fraud and the lack of active regulatory body has created an environment where deception is rewarded and legitimacy is severely punished.

You Are NOT Building a REAL Business With MLM.

You don’t own the business.  You don’t own the website.  You don’t own anything other than “product” that you usually are required to buy from the company (for way more than it is actually worth).

One of the biggest fallacies with an MLM program is that you are actually building a business.  Unlike Affiliate Marketing,  where you are creating a website, a brand and a following (which is a business), in MLM you are undergoing a constant “hustle” cycle that requires you to always suck in that next person to your downline, shamelessly promoting the products and services to your family and friends, or even worse, have to buy the product yourself in order to remain part of the MLM…which can get very expensive.

You are assigned names like “sponsor”, “distributor”, “presidential level” (and many others) which serve as nothing more than a facade as to what you actually are when you are involved in MLM.  A block in the pyramid.

Think about it. A pyramid will always stand high and the top block will always be supported if there is always MORE blocks underneath the upper level.  That is why the CEO of the companies tend to make 10’s of millions and the average person within the program will never be able to support the actual fees of getting involved in it.

And if you are like most, when you end up hanging up your MLM boots, you are left with drawers and boxes of “extra” product that you never used.  This more than validates that you were part of the program not for the quality of the product, rather the potential opportunity if you got other people involved in the product.  A backwards way of trying to do business and fundamentally, with MLM you are not creating a business.

MLM is NOT Affiliate Marketing, Period.

This is an apple vs. oranges comparison.  MLM is nothing like Affiliate Marketing.  Affiliate Marketing gives you the freedom to promote whatever products/services that you want, within any niche, in fact, it can quite often be the segway for you creating and selling you own products/services.

MLM locks you to ONE program.  You by no means have the best interest of your audience in mind because you are always required to sell the same, overpriced, and often times unproven product to people.

Affiliate marketing is the act of promoting products to customers.  It it is not the act of promoting an opportunity to others with “products” hidden inside of the scheme somewhere.

It is very easy to determine whether or not you are an affiliate or an MLM’er.   If you are promoting products to others, then you are an affiliate.  If you are recruiting people into your program in your downline, you are involved in MLM.

Don’t confuse the two because at the core of it, one is an ethical way to promote products in exchange for a commission (affiliate marketing) whereas the other is an unethical way to promote a product  in exchange for “recruitment” fees for getting others involved in the very same scheme (MLM).

Some of the Most Epic MLM’s Are Still Alive and Well…for NOW.

There are many MLM”s out there, in fact, 1,000’s of them.  There is a reason they will continue to be popular, because “some” people make money with them (mostly the company and a very small handful of people).

Here are some of the most popular MLM programs:

  • Herbalife (under huge pressure by authorities)
  • NuSkin (under huge pressure by authorities)
  • Pampered Chef
  • Mary Kay
  • Avon
  • Young Living Essential Oils
  • Beachbody
  • Origami Owl
  • Stella and Dot
  • Isagenix
  • Nerium International
  • Rodan & Fields
  • Karat Bars
  • 7 Minute Workout

And then there are the many MLM’s that have succumb to the very fact that they were unethical from the get go.  Departures (because of legal issues) are an all too common thing within the MLM world, which sucks as the marketer because when a company goes, so does your entire business.

Recent Multi-level Marketing Schemes Shut Down By Law Enforcement

  • Vemma (read post)
  • Mona Vie
  • Wake Up Now
  • ZeekRewards (read post)
  • BurnLounge
  • Fortune High-Tech Marketing (FHTM)
  • Global Information Alliance
  • TrekAlliance
  • TelexFree

5 Signs that MLM “Opportunity” Might Be a Scam

Before you sign up for an MLM program, consider these 5 signs that you might be dealing with something that is more like a scam than a true home business opportunity:

1. Focus is More on Recruiting than Selling

One of the first things to watch out for is a focus on recruiting rather than selling. If you are being recruited in order to recruit more people of your own, rather than actually focus on selling the product, that might be a red flag. Consider whether or not there is a lot of focus on getting you to recruit more “team members,” instead of focus on acquiring customers. If the recruits are the customers, that could be a red flag.

2. Poor Training

What sort of training and support do you receive? How are your questions answered? If you are asking tough questions, and they are deflected with homilies on positive thinking, you could be looking at a MLM scam. Also, consider the training situation. Are you provided with actual business techniques and support? If the training consists of how to convince recruits, or tips on selling to friends and family, your “home business opportunity” might actually be a work at home scam.

3. Pressure to Pay for More

Are you being pressured to pay for more product? You might be asked to join a “fast track” or become “elite” by purchasing a great deal of inventory all at once. Or, you might be pressured into buying an expensive business package in order to get the business support you need. If you are asked to pay for extra training (beyond attending an annual conference or convention) on a regular basis, or if you are asked to pay for basic office supplies, you might be in trouble.

Be especially wary of those that ask you to put your costs on a credit card, or encourage you to take a home equity loan or line of credit to pay for this “business investment.”

4. Sales Tactics Brought to Bear on You

Do you feel as though you are the subject of a high-pressure sale when you talk to the MLM representative? You might be told that you have to make a decision right now in order to get a good deal on the initial kit, or to buy in at a “special” price, it could be a scam. Most legitimate companies allow you to talk it over with your family, or sleep on your decision.

5. Seems Too Good To Be True

As with everything in life and in purchases, you need it to pass the too good to be true “smell test.” Are the claims about the product outrageous and hard to really prove? Is there are a lot enthusiasm about the “amazing” program, without much to back it up? Watch out for anything that seems too good to be true. Chances are that it’s actually a scam.

Our Conclusion, You Are Not a Bad Person if You Are Involved in MLM

One thing we have learned over the years is that people seeking any form of opportunity have different reasons for doing so.  Money is obviously a major motivating factor and that is why it seems OK to promote MLM’s a lot of the time.  If your neighbours and friends are doing it, then it must be OK.  Unfortunately, there is nobody there to tell you otherwise and it takes something like this post to give you perspective.

If you are involved in an MLM, you are not a bad person.  If you have been involved in many, you are not a bad person.  We are defined often times in life by what we achieve and what “material” stuff we have, that is why a lot of us have an internal motivation to make money, make it fast, and make it just like the people at the top of these pyramids (whos success stories they are alway sold on).

You are a good person, with motives we respect. we also know that there are opportunities out there for you that can carry you far beyond any MLM program could ever, affiliate marketing being one of them.  We encourage you to think outside of the box and think outside of the bubble if you have been wrapped up in one or more MLM’s and are having a tough time getting it off the ground.

There comes a time where the hustle is not worth it and the realization that 95% of people fail with multi-level marketing schemes simply because their motivation is based on recruitment of others (which is a constant and tireless hustle) versus offering a quality product to people that are already interested in that very product (like affiliate marketing).

We would be happy to entertain all comments, questions, and experiences here within my comment thread.  We know a lot of you will have some awesome insights to share along with some opinions.  We would love to hear them!

 

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