Tracy Coenen on CNBC, talking about business opportunity scams and multi-level marketing (MLM) schemes. Consumers beware!
Over the weekend, cracked.com posted an insightful article about the realities of multi-level marketing. Simply put, MLM is the same thing as pyramid scheme. It’s not a business. Almost everyone loses money. The behaviors are cult-like. And you will NOT be successful with MLM, so don’t bother trying to recruit your friends and family.
Author Kathy Benjamin calls pyramid schemes the world’s fastest growing industry, and she is right. You see the evidence all over Facebook. Several of you friends are inviting you to their party, or they’re posting staged before and after pictures and leaving cryptic messages that say “ask me how!” They often will not mention the name of the product they’re pushing, because they know they’ll lose you as a potential victim if you Google the product before they can fill your head with lies about how good the product is.
Social media has been exploding over the last year with claims that essential oils have cured all sorts of diseases and illnesses. Obviously, this is a total scam. Even worse, essential oils are being pushed through multi-level marketing (also a scam) with companies such as doTERRA and Young Living.
What is the real story about essential oils and multi-level marketing? As our friend Lazy Man has said: No, Your MLM Health Product Doesn’t “Work.” (This most definitely includes Medifast, Herbalife, Xyngular, Isagenix, Usana, and any other MLM with a “health product.”)
Multi-level marketing companies are quick to tout the success of their “million dollar earners.” Sounds impressive, doesn’t it? Who doesn’t want to make a million dollars?
Except that phrase “million dollar earner” hides the truth:
- What they don’t clearly mention is that this is cumulative earnings over a number of years, typically between 5 and 20 years.
- They also fail to mention that this is gross income, prior to any business expenses. The business expenses in multi-level marketing can get very high, and will include product purchases (in order to stay active and/or meet requirements for certain commission levels), travel, office expenses, training costs, business insurance, supplies, prizes for customers and downlines, venue rental for events, food for events, etc. The expenses can easily equal 40% to 60% of gross income.
This woman says that Primerica Financial Services representatives lie and misrepresent the business opportunity to others in order to get them to join and stay an active part of the plan (even if they’re not making any money).
Hi. My name is Anne and I was a Primerica representative (full time) for about 7 months (from May ’07 to December ’07). I ended up in a multi-level marketing job in Primerica as a young adult.
I like what the company stands for and stuff (as far as helping families with their products), but it’s such a difficult position to be in. A lot of your success is based upon how many people you know. I knew the products backwards and forwards, became a decent sales person, was able to conquer most objections, but because I didn’t have a big warm market to start out with, I sucked.
When I first joined into the company, I was promised that everything was easy and I’d be making as much if not more than I was at my full time steady desk job… so I quit my regular job because at the time when the opportunity was presented to me, it was a “regular” paying job just with very flexible hours.
Bill Ackman and Pershing Square produced an educational video about multi-level marketing companies and how and why they are pyramid schemes. Yes, I often hear:
- “Pyramid schemes are illegal!”
- “If XYZ Company was a pyramid scheme, the government would shut them down!”
Yes, pyramid schemes are illegal. No, our government generally doesn’t shut down pyramid schemes masquerading as multi-level marketing.
It has been quite a while since I have written about professional con artist Jennifer McKinney, known by some as MckMama from her blogging days. Previously, we have discussed her bankruptcy fraud (debts NOT discharged and forever payable by her thanks to her dishonesty about her income and assets), her repeated lies about paying off her debts, and her shilling for Xyngular (a multi-level marketing program which peddles crappy and possibly dangerous diet supplements).
Despite bragging repeatedly that she makes $30,000 per month with Xyngular, Jennifer Howe Sauls McKinney now has entered a FOURTH foreclosure on a home. Previously she lost three homes to foreclosure :
- 316 W. 2nd Street, Chaska, MN – Purchased 8/30/04 for $210,000; Notice of Foreclosure 12/2/08
- 6016 Beachwood Road, Mound, MN – Purchased 6/30/07 for $465,000; Notice of Foreclosure 2/5/09
- 14464 98th Street, Becker, MN – Purchased 8/28/09 for $485,000; Taken by bank 4/19/11
In the past, MckMama has bragged about how they stopped paying the mortgage and instead “saved” the money to buy another house. No doubt she is doing the same thing this time around.
In a video released this week, Pershing Square (the hedge fund that exposed the Herbalife fraud) contrasts Herbalife’s public statements about the “business opportunity” with the statements made behind closed doors.
Herbalife claims to offer “the best business opportunity on the face of the earth.” But the reality is that it is an opportunity in which you are almost guaranteed to fail, with 96% of distributors making less than half of what is earned by employees making minimum wage (per the video). Despite Herbalife executives and high level distributors publicly repeating how lots of money can be made, the numbers really look like this (according to the video):
Multi-level marketing companies that advertise shakes and potions designed to help you lose weight and get healthier are generally all guilty of the same offense: Distributors making false health claims. The products are generally terrible for losing weight and maintaining the weight loss. And the health benefits are nothing more than one could get from eating well and taking a simple multivitamin.
Nonetheless, people involved in MLMs routinely claim these potions cure things like ADHD, arthritis, high cholesterol, lupus, asthma, migraines, cancer, fibromyalgia, and more. The most disturbing part of this is when the distributors encourage people to stop taking medications that are critical to their health. This advice is simply dangerous.
Today Bill Ackman released a video demonstrating that Herbalife distributors are violating U.S. law by making false and deceptive claims about the Herbalife products. How do they get away with this? The company likely would contend that there is nothing illegal about distributors giving personal testimonials about the results they received from the products. Good luck with that defense.
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.