mlm – Fraud Files Forensic Accounting Blog

07 Mar

LuLaRoe Fraud Complaints

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”: Read More →

05 Dec

LuLaRoe Review: Bad “Business”

LuLaRoe leggings have become popular, and therefore the multi-level marketing (MLM) “business” of LuLaRoe has taken off. I’ve said over and over that multi-level marketing is not a business because more than 99% of participants lose money. But I wanted to take a look at this company specifically, because it’s been getting so much press.

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.)

Imagine how many people need to be in the downline and how much they each need to buy to generate this volume. Simple math tells you that everyone below the woman earning $35,000 can’t build a pyramid of this size. There simply aren’t enough people on the planet, and there are only so many customers available for each distributor.

Let’s talk about some of the specifics downfalls to this fake business. Read More →

10 Nov

John Oliver Exposes the Scam of Multi-Level Marketing

Last Week Tonight With John Oliver devoted this week’s episode to multi-level marketing. Although he uses quite a bit of humor in his presentation, his analysis of MLM is spot on. Multi-level marketing companies are pyramid schemes, plain and simple. MLM is not a business. It doesn’t matter what product you’re trying to sell, the whole set-up is a fraud in which 99% of participants lose money.

The full episode is shown below, and is well worth the time spent watching. John Oliver mentions companies like Mary Kay, Herbalife, Market America (Shop.com), Jeunesse, and Youngevi. The producers did an excellent job of honing in on the important facts about an industry that is made intentionally confusing (in order to conceal their fraud, of course).

29 Jul

MLM: It’s About Recruiting, Not Sales

I’ve been telling you for years that multi-level marketing is NOT about selling products. It’s about recruiting people into a fake opportunity. The products are the “front,” meant to make MLM look like a legitimate business. In reality, very little product is retailed to actual consumers. Instead, it’s sold to new recruits into the scheme, who have little chance of ever retailing those products for a profit.

Look no further than the case of Herbalife to prove my point. (This point is usually difficult to prove, as MLMs do their best to hide the numbers so we never see the truth behind the scam.) This month Herbalife entered into a settlement agreement with the FTC that has them paying $200 million and substantially changing how the company does business.

Herbalife falsely claimed: “Settlement Does Not Change Herbalife’s Business Model as a Direct Selling Company.”

The FTC clearly disagrees, and said in its press release about the settlement (emphasis mine): Read More →

09 Feb

Herbalife Victims Video: Almost Everyone Loses Money in MLM

Multi-level marketing is not a business. I’ve written numerous times about the fact that more than 99% of participants in multi-level marketing (MLM) lose money. Companies like Mary Kay Cosmetics promote the “income opportunity,” but when the vast majority of MLM distributors say they lost money, the story changes to “they didn’t really want to make money,” or “they just did it for fun,” or “they didn’t try hard enough.”

The truth is that MLM is not a “business opportunity.” Almost everyone who participates is guaranteed to lose money. You can follow all the instructions, talk to everyone you know, invest money in the scam, and you will still lose money. Why? Because MLM is nothing but a pyramid scheme in which all the people at the bottom of the pyramid will lose money.

Check out this new video featuring victims of the Herbalife “business opportunity.” They put lots of money, time, and effort into their “businesses” and ended up losers. Read More →

09 Mar

Multi-Level Marketing is not a Business (It’s a Pyramid Scheme)

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. Read More →

21 Jan

Why Multi-Level Marketing “Million Dollar Earner” Status is Nonsense

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.

Why Multi-Level Marketing Companies are Pyramid Schemes

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. Read More →

10 Oct

Video: Multi-Level Marketing is NOT Like Corporate America

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. Read More →

06 Oct

Avon is NOT a “Good” MLM

Last week I wrote about Good MLMs Versus Bad MLMs. The truth is that there is no such thing as a “good” multi-level marketing company. Oh sure… MLM supporters will tell you that some “direct sales” companies are doing it right, and some are doing it wrong. They will tell you that every company has “bad apples,” but that you have to look past those and see the good people.

These arguments are all false. Companies call themselves “direct selling” in order to direct attention away from the fact that they are recruiting schemes. MLMs are all endless chain recruitment schemes in which 99% of participants are guaranteed to lose money. That is not a business… it is a game rigging in favor of the owners of the company, and participants are guaranteed to lose no matter how hard they try. Promoting this as a “business opportunity” is unethical and immoral.

It therefore follows that if the company and the opportunity are unethical and are not a business, the people promoting the company and opportunity cannot be good. A horrible, deceitful “opportunity” does not change into something right, moral, and ethical, no matter how “good” the person promoting it is. Read More →