A new essay recently posted on the False Profits Blog addresses a question many of you  have raised.

Why are multi-level marketing pyramids and financial ponzis able to ensnare so many people today? What is the power behind this Main Street epidemic?

This question goes beyond the lack of law enforcement, the failure of the FTC and SEC, or the difficulty of grasping “exponential expansion.”

The False Profit Blog ventures an answer: It is that pyramid schemes, operating as multi-level marketing, are a new form of fraud that public awareness and law enforcement have not caught up to. This new form of fraud is called “marketing fraud.”

Marketing fraud evolved from the earlier  stages of “product frauds” and “financial frauds.”  Its uses bogus or overpriced products and deceptive money transactions like older models of fraud do, but that is not the heart of this new fraud. The power of this fraud is in marketing. It employs the most powerful tools of business today — branding, positioning, community and identity — to swindle.

Like all powerful marketing, frauduklent marketing promises to fulfill basic and crucial needs, much more valuable  than just money or the hyped up benefits of products. The needs that these pyramid marketing scams claim to fulfill address people’s deepest longings and their greatest fears. The sophistication of the marketing program, complete with Washington DC lobbyists, trade association, “education” foundation, gifts to charity, celebrity endorsements, sports sponsorships, national conventions, and church affiliations – prevent many in the media and government from grasping the extraordinary deception or to accept the devastating financial consequences they inflict on millions of people. Even many of the victims cannot believe they were defrauded by an organization of such benevolent outward appearance. Many choose instead to take on personal blame for their misfortune rather than face this reality. Powerful marketing, whether in the employ of legitimate business or pyramid frauds, has the ability to transcend verifiable reality and hard cold facts with its own fictional narrative.

The blunt instrument used by marketing frauds to carry out their theft is the “endless chain” or “closed market” a.k.a. pyramid scheme.  This is a classic swindle but is now carried out within a  marketing program so powerful it leads the victims not only to fall into the financial trap but to to support the perpetrators against exposure and to enroll their  closest friends and relatives into the scam as well.

I will appreciate your comments and thoughts on the Blog.

Sincerely,

Robert L. FitzPatrick, Pres.
Pyramid Scheme Alert

For example, the company touts average income of $802.62 per North American distributor per month. But that’s very misleading. The income is very top-heaving, meaning a select handful at the top of the pyramid make a lot, and almost everyone else makes nothing. Further, this is gross income, not net. Associates have to pay all their business expenses out of this, leaving them with much less at the end.

And the truth is that Usana has an ugly history of manipulating the “earning” figures to make it look like distributors are earning more than they really are.  Take a look at the reality. The bottom 64% of associates make nothing. The bottom 92% of associates make $6 per week or less (still with that 64% making nothing).

Indeed, Usana is just like all other multi-level marketing companies: Almost everyone who participates loses money. It doesn’t take a lot of guesswork to figure this out. Usana’s own numbers prove this reality.

Following the first report, several updates were issued. It was determined that Usana executives and board members had been lying about their credentials. FDI demonstrated how little product Usana reps are actually selling. And FDI criticized Usana for knowing about illegal sales of its products in China (where multi-level marketing was illegal), and actively participating in the process.

Usana filed a lawsuit against Barry Minkow in late 2007, but eventually the lawsuit Usana filed against Minkow was settled. First the court made Usana pay Barry Minkow’s legal fees. It was clear that Minkow was winning the court battle. Then Usana came to its senses and dropped its lawsuit after agreeing to pay Minkow an undisclosed sum of money.

Little has been heard about Usana since, but it’s time to revisit the issue of sales in China. Right before the release of FDI’s report on Usana sales in China, the company acknowledged what a lucrative market China is:

For us, China is a wait and see, with the laws the way they are and currently they are throwing more laws and getting stricter.  We see that as a very difficult environment to be successful.  We are waiting to see if some of the other companies crack the code and come up with a way to be successful there.  We have not seen a lot of success from our competitors.  We do not want to jump into that situation that has not been successful for others.  So we are going to have things going slowly in the sidelines, keeping an eye on it and watch it till we believe it is a potentially successful market for us and then we will pursue with great speed.

Minkow released his report on illegal selling of Usana products in China, and Usana was unusually quiet about the issue. No press releases. No discussion of it on conference calls. The issue died rather quietly.

But new information suggests Usana is well aware of the illegal selling of its products in China. An internal compliance training document shows that Usana knows all about illegal sales:

IV. What is the biggest market that buys our products that we are not eligible to operate in?

i. Once again I couldn’t give you an exact answer on this. Since I work with our Asian markets, I know that a large sum of product ends up in China, but I’m sure product somehow gets shipped to other unauthorized markets as well…

Of course the company can distance itself from these sales by simply calling the participants “rogue associates”:

VI. Question #6: Which market experienced the greatest sales growth from 2007-2008, and by how much?
i. Answer: East Asia (Hong Kong mainly and a little Taiwan), increased by almost $13 million.
ii. Things to look out for – rogue associates in Mainland China, trying to order US product.

Is Usana doing anything to cut down on these illegal sales? It’s hard to know, but they certainly haven’t addressed the issue publicly. Why would Usana choose to not enforce the rules with its associates? Probably because the market in China is so huge and there is a lot of money to be made. The company doesn’t have to take any serious actions if regulators aren’t pushing the issue. They can sit back and collect their money, knowing that someday illegal sales in China might come back to bite them, but knowing that in the meantime they’ve made enough money from it to make whatever small punishment (if any) they receive worthwhile.

Why has Barry Minkow gone after multi-level marketing companies and why does he continue to go after MLMs? Because people are literally losing billions of dollars each year to these schemes which promise riches and deliver financial devastation to almost everyone who participates. People sign up with the intention of making money (maybe even just a little bit) and end up spending far more than they ever earn.

Are you one of those who thinks Barry Minkow is just a hack… a no good felon who is up to no good? His track record speaks for itself. He has been responsible for uncovering almost $2 billion of fraud for law enforcement and stopping fraudsters in their tracks.

Following the release of FitzPatrick’s first report last year, Medifast management came out with bizarre statements. The most recent version of their statement was included in a 10-Q filed with the Securities and Exchange Commission on November 9, 2009:

An Independent Committee of the Board of Directors of Medifast was constituted to review the public allegations of a third party “Convicted Felon” on his website.  The Independent Committee of the Board of Directors of Medifast Inc. recommended that the Company make a formal complaint to the Securities and Exchange Commission and the Attorney General of Maryland as it pertains to the convicted felon Minkow and his ”for profit” company’s false and misleading claims against Medifast. There are currently no pending matters of a material nature related to any government investigation of the case involving Mr. Minkow, his company, its affiliates or associates. Any actions related to any government investigation pertaining to this complaint have been deemed confidential at this time.

The problem is that the allegations weren’t made by convicted felon Barry Minkow. The allegations were made by multi-level marketing expert Robert Fitzpatrick, who has researched hundreds of MLMs.  Minkow didn’t make any “false and misleading claims.” FitzPatrick made claims based on Medifast’s own published numbers, none of which the company has refuted in any forum.

The madness doesn’t stop there, however. In reaction to FitzPatrick’s most recent report, Medifast issued a press release entitled “Medifast, Inc. Comments on False and Misleading Allegations.” It states in part:

The independent Directors’ Committee, after investigation of facts and information concluded the allegations were false, misleading, and/or without merit. The same is true for the re-issue of the report posted January 8, 2010 – the allegations are false, misleading, and/or without merit.

Yet the company has not seen fit to point out what might be false or misleading about FitzPatrick’s report. They have the data at their fingertips that could supposedly refute any allegations made, yet the company declines to provide any specifics.

Why not? Because FitzPatrick printed the truth based on Medifast’s own numbers. Apparently it isn’t bad enough that the company doesn’t tell the whole story about the business to either stockholders or health coaches. Now they’re maligning an independent expert who merely used the company’s own data to show what an awful “opportunity” TSFL offers health coaches, and how heavily the company relies on the recruiting of coaches to grow revenue.

Barry Minkow has issued an invitation to Medifast executives. He’s inviting them to point out exactly what is false or misleading about FitzPatrick’s report, and to provide the documentation that proves their points.  Certainly if there really are material points that FitzPatrick has made which are false or misleading, the company would like to immediately identify them? And Minkow has even offered to retract his statements about FitzPatrick’s report and apologize to the company in return for them backing up their allegations about the report.

Those recruiting for MLMs are quick to tell you about how much you can make if you sell their product (often glossing over the fact that you’ll have to recruit new people into the scheme in order to have any chance of making a living), but they will never tell you that it’s next to impossible. They forget all the reasons why people in these MLMs are selling so few products and making so little money from selling.

Fitzpatrick clues us in:

The income opportunity, based on the plan’s structure, rules, bonuses and commission schedule, primarily depends upon endless chain recruiting of more “coaches”, not on retail sales of its products. The cost of selling, competitive factors, and the paltry 15-20% commission offered on retail sales make that option a myth and facade to obscure the recruitment pyramid. The income scheme is a classic “endless chain.” The report also raised the question of the plan’s legality, its jeopardy under California’s statute against “endless chain” plans, and the risk of its being challenged by other regulators or by consumers in court as a fraud.

And here’s my problem with MLMs in general, in the words of Fitzpatrick:

The pay plan pays far more – per sale – to those who recruit other coaches than to those who actually sell products to consumers, and the greatest share of all commissions is transferred to those in the top positions of the pyramid.

That’s right… recruiting pays more than selling. The upline is making way more money off the sale of products than those actually doing the selling.

And here are some hard numbers:

• Top 1%  (1.28) of coaches receive 28% of all commissions
• Top 4% (4.25) of coaches receive 43% of all commission
• Top 10% (10.56) of coaches receive 67% of all commissions
• Bottom 50% (51.11) of coaches receive 6% of all commissions

Check that out. The bottom half of coaches only receive 6% of all the commissions the company pays. The above statistics are typical for MLMs…. unless you can get into that top tier of the pyramid (and almost no one does), you aren’t going to make any money.

FitzPatrick writes:

The foundation of Medifast’s stock surge is the recent rise in its revenue, which is driven by the “endless chain” income opportunity that it markets to consumers. Medifast’s income scheme is a solicitation to consumers to become distributors that buy and sell the company’s meal replacement products and to recruit others to do the same. Medifast seamlessly integrates its “income opportunity” product with its meal replacement products. It makes earning money a key part of its three-part “system” for weight control and good health – the only company in that field to do this – and it offers consumers the company’s own recruitment scheme as the means to meet financial goals.

He also reports the following:

• About two-thirds of every commission dollar generated by sales or purchases of the bottom 80% are transferred to the top 20%
• 67% of all commissions paid out on total revenue were transferred to the top 10% of active coaches
• Take Shape for Life’s new disclosure continues to conceal critical data factors. In particular it does not reveal how much of the income of the top 1% is derived from retail sales they themselves made and how much is merely “overrides” on the purchases and sales of the “downline.”
• The mean average commission income for the bottom one-half of the “active” sales channel (Fast Track Coaches and Health Coaches) – $24 a week – indicates a monthly retail sales level of about 2 meal replacement customers per coach.
• Medifast does not disclose the overall average retail sales per coach, just as it does not reveal how many coaches are actually enrolled, including those that make no sales but do purchase goods and pay fees.

This report is an update to a mid-2009 report issued by FitzPatrick. The full text of the current report is found here. And here is my analysis of Medifast and Take Shape For Life from last year.

The argument in favor of the UFirst MMA that seems most likely to get any traction is: “You just don’t understand the product!” I’ve been asked a zillion times whether I’ve actually used the product, and have been told I don’t really know how it works. Nothing could be further from the truth.

I don’t have to flush $3500 down the toilet to know that the UFF Money Merge Account is worthless. I know enough about numbers to analyze the program and see that it doesn’t offer consumers any savings. They’d be better off doing one simple thing: Pay the minimum on all debts each month, and use any extra cash they have left toward the debt with the highest interest rate.

UFF would have you believe that some complex “factorial math” is necessary and is what creates the savings for the consumer. But that’s a lie.  Sure, there may be hundreds of different ways to pay your 10 debts each month, but only ONE way matters. Paying the minimum on all debts and using all extra cash to pay down the debt with the highest interest rate. You don’t have to be smart to do this. It really couldn’t be any simpler.

MMA proponents have often challenged me to compare the do-it-yourself (DIY) method I promote (which is free!) and the UFF program (which is $3,500) to see which puts the consumer further ahead. None of them have actually participated in their own challenges, although I’m more than happy to do so.

But we don’t need my participation. On FatWallet.com, this challenge has been completed over and over, and the UFF MMA loses every time. Here is a set of links that will show you how the MMA loses. It is astonishing that promoters of United First Financial can still pretend that their product is worthwhile:

There once was an agent named James Hughbanks.

He challenged us to see the truth. He said that spreadsheets and other cheap stuff are nothing compared to what the MMA can do.

10 different scenarios to prove that MMA is better. Different loans, different interest rates, life-changing situations.

A simple spreadsheet we created. In all 10 scenarios, the MMA was behind.

In the end, he had to admit the truth. The MMA will always lose.

The UFF agent proposed 10 different scenarios. Under every single one of them, the consumer using the UFF MMA would lose… taking a longer time to pay off their debts.

UFF Results::
MONEY MERGE ACCOUNT START PAYOFF PERIOD 6.75 YEARS
SCENARIO PAYOFF
1. PAY RAISE OF $50 BIWEEKLY – PAYOFF – 6.667 YRS 8/2014
2. SAVE $150 MO IN BUDGET – PAYOFF – 6.25 YRS 3/2014
3. SPEND $900 FRO 8.5 MO – PAYOFF – 6.583 YRS 7/2014
4. DEPOSIT 3500 – PAYOFF – 6.417 YRS 5/2014
5. SPEND 20,350 FROM EQUITY – PAYOFF – 7.167 YRS 2/2015 TRUE COST IS $28,084
6. BUY CAR-12K PAY MO. PAYMENT PAYOFF – 7.583 YRS 7/2015
7. LOSE JOB OF BIWEEKLY ———- OUT OF MONEY IN 35 MONTHS FROM EQUITY LINE
8. SAVE $500/MO IN CHILD CARE PAYOFF – 20.667 YRS 8/2028
9 NEW BIWEEKLY JOB – PAYOFF – 10.583 YRS 7/2018
10 RUN HELOC AT 18% FROM DAY ONE PAYOFF – 11.167 YRS 2/2019

DIY Results:
Base: 5/2014 (6.5 years)
1. 2/2014 (6.25 years)
2. 10/2013 (5.917 years)
3. 2/2014 (6.25 years)
4. 12/2013 (6.08 years)
5. 8/2014 (6.75 years)
6. 1/2015 (7.167 years)
9. 4/2016 (8.417 years) (7, 8 and 9 are related scenarios.)
10. 5/2016. Note that my simulation did not get affected that much by the HELOC rate increase to 18% because I used HELOC for emergency purposes only. Total HELOC interest incurred (Cell T7, non-compounded) increased from 557.23 to 1487.94 but you are still able to pay off the loan at the same month.

Summary:
The DIY approach had a .25 year (3 months) advantage to begin with because of the $3500 software cost. From scenarios 1 to 6,the DIY approach remained between .20 to .40 year advantage (~2 to 4 months). This is to be expected since we’re supposedly running the same scenarios, therefore similar results. The variance of +/- 1 month between the scenarios would be due to the fact that the loan could be paid off in month x, but in certain instances there is some balance left causing the other scenario to finish the following month.

Our end result after scenario 9 are quite different, so we would have to look into that. As mentioned above, the DIY approach did not get affected by the HELOC rate change (Scenario 10).

JHB, I do not need to see your software as we have produced similar results (except maybe for 7, 8, 9 where you end much later). If you disagree on the result in any scenario, investigate the spreadsheet. I display ALL the data monthly. If you think I entered the wrong payment scenario (incorrect start or end month, incorrect amount), go ahead and change it and click on Calculate. It should give you the payoff date.

And now, I rest.

And it was all done with one simple spreadsheet. No factorial math. No complicated paydown scenarios. Just the simple “pay more toward the debt with the highest interest rate” plan.

Almost five years ago, women started speaking out about Mary Kay on the internet. My site Pink Truth is the most visited “anti-Mar Kay” site around, and each day, we have thousands of visitors to the site.

The reason why sites telling the “other side of the story” about May Kay is because the company’s success depends so heavily on half-truths, long-running myths, and outright deception. Of course, Mary Kay Inc. isn’t directly involved in these deceptions, but they’re aware that their representatives are telling tall tales in furtherance of Mary Kay domination of the world.

Representatives are notorious for telling lies like “Mary Kay is Taught at Harvard!” and “You can start your own business for only $100!” and other fairy tales.

Below is an excellent example of how women repeat untrue things about Mary Kay ad nauseum, and those who hear these lies are none the wiser. Without sites like Pink Truth, they’d have no way to debunk these myths and find out the truth. This comment was left by a visitor to this site:

WOW! Funny how this article is supposed to “educate” women to make a good decision… but yet it says NOTHING about what Mary Kay is founded on: God first, Family 2nd, Career 3rd… I know literally hundreds of women who bring in tens of thousands of dollars a month, who have travelled around the world for free, and whose husband retired in their 20’s or 30’s and stayed home full time with their family BECAUSE of their wives’ MK careers. I know mothers who get to be at every soccer game, every PTA meeting, and anything else BECAUSE of their MK careers. I can’t even begin to list all of the things I find wrong with this “article” What an amazingly one-sided, narrow-minded, un-researched blog.

This woman claims she knows hundreds of women bringing in tens of thousands of dollars a month via Mary Kay.  That is a flat-out lie, and here’s the data to prove it.

Every month Mary Kay puts out a publication called Applause, which is the promotional magazine they send out to consultants. In that magazine is a rundown of the top commission earners in the company. This data proves beyond a shadow of a doubt that hundreds of women are not bringing in tens of thousands of dollars a month in Mary Kay Cosmetics.

Here are two pages from the December 2009 Applause Magazine. These pages show the highest earners at the level of National Sales Director (NSD) and Sales Director (SD). I added up how many women made $20,000 or more (that’s tens plural, right?) in commissions for the month of August 2009, which is what is presented in the December issue.

NSD – 40 women at $20,000 or more commission
SD – 0 women at $20,000 or more commission

What if we get rid of that plural — tens of thousands — and just look at who made $10,000 or more:

NSD – 143 women at $10,000 or more commission
SD – 24 women at $10,000 or more commission

But wait! The Mary Kay supporters may say that August is one of the lower earnings month for all of the pyramid participants! In that case, let’s take a look at June 2009 earnings. That is always the highest earning month, because the upline is putting extreme pressure on the downline to buy more and more product to “help the team” achieve a goal for the end of the fiscal year (June 30).

Here are the two relevant pages from the October 2009 Applause Magazine. The women making $20,000 or more in the highest earning month of the year for Mary Kay representatives:

NSD – 97 women at $20,000 or more commission
SD – 7 women at $20,000 or more commission

Again getting rid of the plural and looking at who made $10,000 or more:

NSD – 185 women at $10,000 or more commission
SD – 227 women at $10,000 or more commission

What do these numbers tell us? That the commenter’s claim that hundreds of women are making tens of thousands of dollars each month with Mary Kay is false. In the best month, 104 women made $20,000 or more. That’s not hundreds of women. In a regular month,40 women made $20,000 or more.

Even if we lower our standards and look at those who made $10,000 or more in a month, we only have 412 women in the best month, and 167 in a normal month.

You think that sounds impressive? Well remember that these figures are gross income. All of their business expenses have to come off that figure. And don’t let anyone convince you that the expenses are low. At this level of the pyramid, the expenses are high.

And you might look at the 412 women in the best month making $10,000 or more and think that’s a big number. Remember that there are approximately 750,000 representatives in the United States. That means 0.05% (yes, a fraction of 1%) made $10,000 or more in the best month. 99.95% of the representatives did not.

And there are 36,000 sales directors in the United States, which are considered to be near the top of the pyramid in a prestigious position. Yet of those 36,000 women who are “at the top”, only 227 of them made $10,000 or more in commissions in Mary Kay’s biggest month of the year. 227 is a whole 0.6% (yes, again a fraction of 1%) of them. 99.4% of those 36,000 women at the top are making less than $10,000 per month with Mary Kay.

So please, let’s stop the lies about the earnings in Mary Kay. Almost no one makes an actual living from Mary Kay, and even fewer make what might be considered an “executive level income.”

The company is named, along with CEO Harland Stonecipher anbd Chief Marketing Officer Mark Brown. The FTC seeks not only to take away the money Pre-Paid Legal made on these services, but also permanent injunctive relief.

Of course, the company’s press release made no mention of all the work done by Robert FitzPatrick of Pyramid Scheme Alert and Barry Minkow of Fraud Discovery Institute, who both worked vigorously to expose the frauds being perpetrated on consumers by Pre-Paid Legal.

You can read more about the work of both Robert and Barry, which I participated in, on this blog.

You see, the marketers of multi-level marketing companies have gotten very savvy. They know that plenty of us have figured out their con game. They now have consumers convinced that theirs is “one of the good ones.”  They’ve convinced consumers that they’ve seen the “bad” MLMs, and that theirs is surely one of the “good” MLMs. (Yet they never tell consumers which ones are the “bad” ones, do they? Why is that?)

Robert writes in a recent newsletter:

In just a few months time, PSA received direct inquiries about more than 100 different MLMs! Consumers appear to know that “some” MLMs are scams, but ernestly believe most are good. Since 60% of all consumers quit MLMs within a year after failing to earn a profit, and more than 90% cycle out in several years time after suffering loss, there is a massive base of negative experience. Yet, consumers are still searching for the “good” MLM that they believe is out there and will become their ticket to wealth or at least a refuge from the Recession.

And in his blog, Robert discusses why  consumers believe MLMs are generally viable despite all the evidence to the contrary. The secret is convincing a potential recruit to look at the “products” the multi-level marketing companies are pushing. Most often these are pills, potions, lotions, fruit juices, and the like.

FitzPatrick writes:

Sadly, few people get the big picture about multi-level marketing schemes. For the most part, MLMs are all the same scheme! From old established schemes like Amway to new startups like the Trump Network, these are the same flim flam in different clothing. One MLM may sell vitamins while another sells weight loss herbs. One sells legal services insurance and another fruit juice. But all of them, in reality, sell the exactly the same product: an endless chain income promise. MLMs are all in the “business opportunity” business, not “pills, potions and lotions.” And all of them sell the same “opportunity”, which is the chance to sell the “opportunity” to others who sell the same opportunity, forever and ever. Amen.

The MLM makes it appear that these products are the focus, so their MLM is different. Different from what? From the real scheme behind MLMs, the endless chain recruitment.

But the truth is that all MLMs are the same. They all rely on continuous recruitment in order to have a chance to earn any significant income. And even still, the vast majority of participants who do recruit new “distributors” still do not make a viable income.

Consumers jump from MLM to MLM looking for the “right one.” They generally think there is some secret they didn’t know or some “right” product that they weren’t pushing. They never realize that over and over, they’re pushing the same bogus “product” in all the multilevel marketing companies… and that “product” is the recruitment into the “opportunity.”

So why don’t consumer protection agencies and non-profit consumer watchdog organizations go after the multi-level marketing industry? According to FitzPatrick:

For many in the media and at the Better Business Bureau, who ought to inform the public about the reality of MLMs, the truth that none of the big names of MLM offers legitimate income opportunities seems to be too “uncomfortable” to accept. If it were true, it would indicate a colossal fraud and a huge failure of regulation. Could this be? Recent experience would seem to open the door to the truth, yet denial still reigns.

And here’s another way the multi-level marketing companies deflect attention from their real purpose of recruiting into infinity… Make up phony reasons why they’re not one of those “bad pyramid schemes.”

Mary Kay Cosmetics is known for touting “we’re dual marketing” (a made-up term to keep focus off their multi-level marketing structure) or saying “our products are sold only twice, once to the distributor and once to the customer” (unlike those bad multi-level companies that have the product sold many times over through various levels).

Many of the MLMs refer to themselves as “direct sales” to hide their recruiting intent. After all, we all know that the companies involved in the “Direct Selling Association*”
Here’s another phony claim to hide the real truth behind multilevel marketing:

Another reason people miss the big picture and keep picking MLM shells with fraud beans underneath: they are told that if the scheme sells a product, it is automatically legitimate! Only schemes that charge large upfront “fees” are scams, they are told, even by the likes of the Better Business Bureau. But, they are assured, if the MLM charges you for products and marketing materials, it’s legit. This is utterly false and dangerously misleading, but many reporters and BBB offices are merely repeating what the MLM industry tells them.

In fact, no MLMs charge large upfront fees any more. They now use a different way to get your money and transfer it to the the schemers at the top of the recruiting chain. Nearly all the money they get now, whether upfront or monthly, comes from the salespeople’s own purchases of “products” (overpriced) and “marketing materials” (worthless). Most consumers pay and pay and pay and don’t ever earn a dime in income but they believe it was all legitimate (even though they lost money) because they purchased products (at absurdly high prices and in order to qualify for commissions they never got), rather than paid “fees.” Here’s the MLM trick: the purchases are the infamous “fees” in disguise!

And the ever-famous argument in favor of MLMs that goes something like this… “If they were doing anything wrong, the government would have shut them down!”

Unfortunately, that’s not the case. Multi-level marketing companies are swindling consumers out of billions of dollars a year, and our law enforcement agencies allow it to continue. Robert explains:

And then there is the sad and outrageous role of our Federal Trade Commission (FTC), which was corrupted by lobbyists and campaign contributions. In 2000, it virtually stopped investigating and prosecuting MLMs. This has given MLMs the aura of legality. MLMs now routinely use the very same defense that fraudster Bernard Madoff employed so successfully for years. When questioned about his scheme, he would say, “How could I be running a scam if the government is not even investigating me and has never prosecuted me?” So, too, MLMs use the lack of law enforcement as part of their false claim of legitimacy and the FTC’s inaction becomes a tool of the fraud.

The scammer have a million reasons why they’re legitimate and why it was the consumer’s fault that she or he made no money. After all, if it is the structure of MLM itself that causes a 99% failure rate, who would ever join? Sure, there are plenty of small business failures each year, but they are at nowhere near the excessive rate that consumers fail in multi-level marketing.

So let’s blame the consumers for the astronomically high failure rates! They didn’t try hard enough. They didn’t really want to make a profit. They quit too soon. They didn’t really know how to market. They didn’t talk to enough people. They didn’t put their full efforts into it.

These excuses for failure sound plausible until you’ve had the experience I’ve had… Hundreds of thousands of people have visited my site, Pink Truth, to talk about their experiences in Mary Kay and other multilevel marketing companies. I see over and over that many put forth great effort and really did want to turn a profit, but the system of MLM itself kept them from achieving that. These are people who have seen great success in their jobs, who would likely be successful at a legitimate busines venture, but who were unsuccessful in MLMs.

Why? The structure of the MLMs guarantees the failure or almost everyone. There is no such thing as a “good” multi-level marketing company.

* Contrary to what the Direct Selling Association would have you believe, they are not a watchdog group for the industry. Their purpose is not for members to have a hand in policing the activities of other members. The organization’s #1 purpose is political lobbying. They exist to ensure that laws protecting consumers from the predatory practices of all the MLMs are never enacted.

This site is not affiliated with or endorsed by United First Financial.

We have discussed at length all of the reasons why the United First Financial Money Merge Account (UFF MMA) program is a waste of $3,500. In fact, we’ve even proven how even if the software was FREE, consumers are better off not using it.

The evidence which  supports these assertions is based in simple math. A few simple calculations show that MMA loses every time against a basic do-it yourself method. It is common knowledge that the fastest way for a consumer to pay down a group of debts is to pay the minimum monthly payments on each bill, and after paying all required monthly expenses, send any extra cash toward the debt with the highest interest rate.

Here is a more in-depth explanation of that concept. Even Dave Ramsey, the guru of getting rid of debt, admits that anything other than this method will cost you more money. But the reason he promotes a different method (his “debt snowball”) is the psychological effect he says it has on consumers. That’s fine to consider, but everyone has to admit that Dave’s snowball plan is slower than the method above if the consumer applies either method consistently.

But the simple math behind this doesn’t convince UFF Agents like Johnny, who has been part of the discussion here for the last few days. Johnny threw down a challenge for me: He wanted to pit the UFF MMA against my do-it-yourself method and see who comes out ahead. Having done this before, I know that the do-it-yourself method ALWAYS comes out ahead of U1st Financial.

How do I know that? Simple. With UFF the consumer starts out $3,500 behind because of the cost of the software. If the consumer finances the $3,500 cost, their debt is already $3,500 higher at our starting point than with my do-it-yourself method. If the consumer has cash to pay for the $3,500 software, their debt is also $3,500 higher at our starting point than with do-it-yourself because that $3,500 of cash could have been immediately applied to reduce debts had it not been for the UFF pruchase.

Despite my multiple invitations for Johnny to begin our challenge by providing me with MMA’s numbers, he hasn’t participated. I’m pretty sure that it’s because he’s guaranteed to lose and he knows it. But maybe he doesn’t.

He proved today that he can’t handle a simple math problem. In a discussion thread on this site, I mentioned the above method of reducing debt by paying the ones with the highest interest rates first.

Even a person who isn’t good at math and can’t do this calculation on his own certainly could do a Google search for “fastest way to pay down debt” and see that multiple sources agree that the method I’ve cited is mathematically the fastest way.

But UFF agents like Johnny don’t seem to care about the facts. He won’t participate in the challenge that he threw down, and he won’t even bother to research this issue. Here’s what he had to say today (bold added by me):

If you have an intelligent reply I will follow through with challenge and the homework to answer your childish taunts. Your method is not based on facts, it’s based on emotions or opinions. Paying down the debt with the highest interest first is emotional and in fact most often NOT the best way. Typically it is the higher balance with the low interest rate that over time eats away so much interest.

Maybe, you let the debate do the homework for you because you certainly have not done yours. But, surrounding yourself with yes men and not letting a open dialog happen you will never truly grow nor will this tired old blog.

That is most unfortunate for those who can benefit from a service that since you talk crap about will not at least for now. If that is the case and UFF is the best thing since sliced bread you are directly responsible for unfair reporting and another way to look at it might be to say that you may indirectly cause your readers further financial burden. Those who might actually believe you without putting you, your work, your credentials and your credibility to a challenge.

A simple math problem proves Johnny wrong. Let’s use two credit cards as an example. One has a balance of $10,000, an interest rate of 19%, and a minimum monthly payment of $200. The other has a balance of $5,000, an interest rate of 10%, and a minimum monthly payment of $100. The consumer has $600 each month to pay toward these credit cards.

What’s the fastest way to having them both paid off? My way. Pay $100 per month on the card with the $5,000 balance, and pay $500 per month on the card with the $10,000 balance. When the card with the original $10,000 is paid off, apply all money to the other card until it’s paid off.  Using a simple monthly interest calculation, it would take 31 months to pay off both credit cards with total monthly payments of $600 for the entire payoff period. The total interest paid would equal $3,083.76

Using Johnny’s flawed methodology, the payoff would take 32 months, and the total interest paid would equal $3,830.26.  That’s $746 extra wasted on interest if you listen to Johnny.

And did I magically come up with one of the few scenarios in which my numbers win? (After all, Johnny says my way is most often not the best way.) But he’s wrong. My numbers will always win. Pick any numbers, plan a payoff my way or Johnny’s way, and my way wins.

And here’s my spreadsheet to show you all the numbers.

Now the next criticism will be that every consumer doesn’t have the know-how to make the spreadsheet I did. And that’s true. But the spreadsheet isn’t necessary. I only made it to prove that my math is right, and Johnny is wrong. The consumer doesn’t need the spreadsheet to apply the concept. And even if the consumer thought she or he did need such a spreadsheet, there are plenty of templates to be found on the internet for free.

Score:
Tracy – 1
Johnny – 0

I win!