Robert FitzPatrick, president of Pyramid Scheme Alert has written a new book about multi-level marketing and how the FTC allows these pyramid schemes to exist. In PONZINOMICS, the FTC’s Protection of Multi-Level Marketing, he discusses the political interests involved in MLM and the lack of action by FTC officials.
What is “Ponzinomics”? FitzPatrick uses the term to describe the scourge of multi-level marketing, which is nothing more than a pyramid scheme, but has been presented as a viable business opportunity. The government in the United States has gone so far as to protect these criminal enterprises which prey on millions of people each year, using cult-like tactics in furtherance of their pyramid schemes.
The book talks about the lure of the (false) income opportunity and the use of testimonials and the flaunting of wealth to draw people in. FitzPatrick also discusses the tactics used to draw in new victims, as well as “blaming the victims” when the venture inevitably fails.
I’ll update you here when the book is available.
One of the common statements made by people in favor of multi-level marketing is that it is just like corporate America. We call MLM a pyramid scheme, and corporate America is a pyramid too! That’s simply not true.
While the SHAPE of the hierarchy of people looks like a pyramid in MLM and in corporate Amercia (one person at the head of the company, a few below, managing several below them, and so on)… that is where the similarities end. Continue reading
Defenders of multi-level marketing (MLM) will tell you that some companies “do it” right, while some companies “do it” wrong. One such example is John Hempton, a clown who thinks that Herbalife is the greatest thing since sliced bread. He says the following in an article about Nu-Skin:
Disclosure: I am predisposed to believe that multi-level-marketing schemes like Avon, Herbalife or Nu Skin are likely to be good cash generative businesses. I have done much looking at Herbalife and got very long. I do not think a negative interpretation of Herbalife is sustainable. Herbalife’s business is legal, sustainable and will generate vastly more cash in five years. Nu Skin does not lend itself to such definitive opinions. History is littered with MLMs that no longer exist – and a few like Avon, Nu Skin, Herbalife, Amway and Mary Kay which have lasted decades.
The fact that a multi-level marketing company like Mary Kay Cosmetics has been around for more than 50 years does not define whether it is a fraud or scam. Remember Enron (in business more than 15 years prior to the fraud being discovered) and Bernie Madoff (whose investment firm was in business for more than 40 years before his Ponzi scheme was revealed)? Length of time in operation has nothing to do with whether something is a scam or a fraud. Being traded on the New York Stock Exchange is not an indicator of legitimacy either. Continue reading
A collection of annual income disclosure statements published by multi-level marketing companies, continuously updated.
Some MLMs release income disclosures or earnings disclosures. These numbers are not required to be disclosed in the United States, but some of the companies do it anyway to appear transparent. The disclosures theoretically provide insight into how much distributors earn in commissions or overrides, but they are generally worthless. They are worthless because of what they do not disclose.
Multilevel marketing companies purposely omit important information that would allow potential distributors or investors to have real insight into these plans. In general, earnings disclosure statements often fail to provide the following information that is critical to understanding the plans and the results: Continue reading
In a past appearance on CNBC’s On the Money, Tracy Coenen talked about how consumers could protect themselves from business opportunity scams and multi-level marketing (MLM) schemes. MLMs parade themselves around as business opportunities, but they are nothing more than elaborate pyramid schemes that swindle millions of consumers each year.
A recent article at CBS MoneyWatch exposes multi-level marketing company LuLaRoe and the alleged fraud being perpetrated on its consultants. You may remember that I criticized LuLaRoe and its MLM model a few months ago based on the false narrative that lots of women are getting rich by selling the leggings. One of my main criticisms:
Business Insider promoted the idea that LuLaRoe is making women rich. While there ARE a handful of women who are making a ton of money from the company, only an incredibly tiny fraction of participants can make this type of money. Why? Simple math. If you’re making a 3% to 5% commission on your downline (as you’ll see below), it takes $700,000 of wholesale purchases by your downline to earn $35,000 in a month. (I realize that various bonuses change the math, but I’m using these numbers to simplify things.)
Other problems that I have with this “business model”: Continue reading
No group of people, no matter how poor, are immune to the predatory practices of multi-level marketing (MLM) companies. These companies are nothing but glorified pyramid schemes, causing financial losses for more than 99% who get involved.
A Chinese MLM called Tiens has set up shop in Uganda, despite the fact that the average income is $2 per day (so few people can afford overpriced snake oil). Tiens is using false income claims and lies about medical cures to recruit distributors.
Filmmaker Priya Biring did a 25 minute film on this MLM, entitled “Uganda’s Health Pyramid,” and produced by Al Jazeera News.
Priya says the following in the article that accompanies the video: Continue reading
This week we heard news of $20 million (hidden in a box spring) being seized by the federal agents in its ongoing investigation of TelexFree, a multi-level marketing company that the government says was a massive Ponzi scheme. You can read all about the TelexFree case on Patrick Pretty’s blog.
News reports about TeleFree refer to it as a Ponzi scheme (also called pyramid scheme). What isn’t mentioned anymore is the fact that it operated as a multi-level marketing company, just like Amway, Mary Kay, Herbalife, LuLaRoe, and hundreds of other companies you hear about on a daily basis. While it is NOW acnowledged that TelexFree was a Ponzi scheme, there was a time when it operated exactly as these other MLMs do.
The FBI says the following about TelexFree: Continue reading