Pyramid Schemes & MLM

MLM Income Disclosure Statements Updated Again

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For years I’ve been collecting income disclosure statements issued by multi-level marketing (MLM) companies. These are the proof that you have almost no chance of making money in MLM, no matter what the company or product.

Across the board, you see that the vast majority of the distributors make almost nothing in commissions. The “average earnings” for a company as a whole sometimes looks decent (who wouldn’t want to make an extra $2,000 per year!), but the averages are skewed by the handful of people at the top of the pyramid who make big money (at the expense of the many at the bottom).

I have updated our library of disclosure statements to include new disclosure statements for 2020. The newest ones include Amway, Beachbody, Inteletravel (PlanNet Marketing), Herbalife, LuLaRoe, Mary Kay, Melaleuca, Monat, Optavia, Paparazzi, Rodan + Fields, and Xyngular.

What is a Ponzi Scheme?

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Tracy Coenen explains exactly what a Ponzi scheme is: an investment scheme in which the promoter takes money from “investors” and promises to invest it. There is little to no real investment, and when it comes time to pay “returns” those investors, the promoter needs money from NEW “investors” to pay them. The promoter is generally stealing from the investors and constantly needs new money to keep the scam going. Ponzi schemes are often called pyramid schemes.

Why Real Product Sales Don’t Occur In MLMs

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Multi-level marketing companies (MLMs) like to refer to themselves as “Direct Sales” companies, because this puts the focus on the sale of the product or service, and takes focus off the business of recruiting.

I’ve been researching MLMs for more than 20 years, and I’ve found that companies use the product or services simply as bait and a cover. It is “bait” for recruiting because it looks legitimate to a potential recruit. (How many people would join MLMs if they were truthful and told you that what you really had to do was constantly recruit new people?)

It is a “cover,” since it is what makes the schemes legal under state and federal laws. Pyramid schemes (which are simply a transfer of money up a pyramid-like structure) are illegal. But if you use a legitimate product or service as your cover and your reason for transferring money up the pyramid, you can successfully claim that your company is not a pyramid scheme. Again, the product or service takes the focus off recruiting. Continue reading

10 Steps to Starting Your Own MLM

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Hundreds of thousands of Americans get sucked into Multi-Level Marketing (MLM) companies each year. From Mary Kay to Amway to Herbalife to Avon, the list is seemingly endless. Each offers its own special spin on the products it sells, but the main focus of an MLM is on recruiting new members. (Warning: They’ll deny that the focus is recruiting.)

MLMs live and die by the recruitment of new members, who make the bulk of the product purchases from the company. Little of the product is resold to a third party customer, but the MLM company doesn’t care. The sale has been made to the distributor (or associate, or representative, or member, or consultant, or whatever term you like). Continue reading

Herbalife Charged Criminally for Bribery

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This morning Herbalife (NYSE: HLF) was charged criminally for paying bribes to Chinese officials. The action is related to criminal liability under FCPA (U.S. Foreign Corrupt Practices Act).

The company disclosed in an SEC filing today:

  • Herbalife violated the books and records and internal controls provisions of the FCPA
  • The company will pay $123 million as a settlement with the SEC and DOJ, and this amount has been included in current liabilities on the June 30, 2020 financial statemetns
  • If the company doesn’t have any other violations for 3 years, this deferred charge will be dismissed

Herbalife disclosed in May that it had entered into a settlement agreement with the government. Today’s court proceedings make it official.

It’s fun to see pyramid schemes being held to account, even if it doesn’t happen often enough.

Monat Income Disclosure Statements

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Monat was started in 2014 as a subsidiary of Alcora Corp. The company has offers both skincare and haircare products, but has become known for its miracle shampoo and related products.

Unfortunately, Monat has been plagued by claims that the hair products cause hair loss and severe scalp irritation.

The distributors are called “Market Partners” and the company lists the following “perks” when you sign up:

  • Eligible for Independent Market Partner promotions and incentives
  • Your own replicated website/e-commerce store for easy ordering
  • 30% commission on retail sales, 15% commission on VIP Customer sales
  • Access to our physical and web-based materials to inform you, your team and your customers
  • No inventory requirements; MONAT ships directly
  • Freedom to explore sales territories locally and nationally
  • Prizes and fabulous incentive trips in recognition of reaching your goals
  • Access to Product Packs within your first 30 days of enrolling

Here are the income disclosure statements we have collected for Monat:

Is MLM a Legitimate Business Method?

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pyramid-scheme-mlmDefenders of multi-level marketing (MLM) are often heard saying that it’s a legitimate business method! Even government regulators say MLM is legitimate. And it is true that state and federal governments in the United States generally allow multi-level marketing companies to operate with little oversight. This is despite the fact that structurally and operationally, MLMs are nothing more than pyramid schemes.

Oh sure, the MLMs are careful to use lots of window dressing that makes it appear they don’t violate anti-pyramiding laws. There are even lawyers who whore themselves out to tell owners of MLMs how to “stay legal.” And of course, the massive lobbying on behalf of “direct sellers” and multi-level marketing companies ensures that current laws against pyramid schemes will not be enforced, and that no new laws impeding MLMs will be enacted.

Typical positive MLM talking points include: Continue reading

One Minute Primer on Ponzi Schemes

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In this one minute video, Tracy explains how Ponzi schemes work. They are also called pyramid schemes because the constant recruitment of new “investors” creates the shape of a pyramid, with many new investors required at the bottom of the pyramid to pay “returns” to the earlier investors.

The hallmarks of a Ponzi scheme include:

  • Promises of extraordinary returns (interest) on investment – When it sounds too good to be true, it probably is. Why on earth could you earn so much more on your money with this scheme than with a traditional investment?
  • There is no actual investment strategy – You won’t know this, because they’ll make it sound like there is. The promoter will tell you about this revolutionary product or business model or investment that is going to generate all this money. But in reality, there is nothing creating returns. The promoter is only generating “returns” from new investors, and is using your money to pay off other investors and line his own pockets.
  • Money from new investors is used to pay returns to earlier investors – Since there is no real business or viable investment strategy, new investors must be recruited to bring money into the scheme. The “returns” paid to earlier investors are often used as “proof” of the viability of the investment strategy when trying to recruit new victims.
  • The scheme eventually collapses – It may take a long time, but eventually the pyramid scheme fails when the promoter can’t recruit enough new investors to keep the money flowing.

Primerica Reviews on Glassdoor

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People researching multi-level marketing (MLM) company Primerica seem to end up on this blog. I wrote previously about the fake job interview that is really a recruiting session for Primerica, some of the scammy aspects of Primerica, and one former Primerica representative’s story.

I even get Primerica reps emailing me to tell me how awful I am for saying bad things about their company. It’s just a fact that MLM investment and insurance companies sell products that aren’t as good and are more expensive than traditional insurance and investment companies. They have less educated representatives, many of whom are dabbling in the field.

For fun, I looked for reviews of the Primerica “business opportunity” (no, MLM is not a business) and was pleasantly surprised with some findings on Glassdoor. Of course brainwashed reps have been asked to flood the site with positive reviews to tip the scales in the company’s favor. But there are still plenty of honest reviews about what a terrible “job” it is.

Here are some of the negative reviews of Primerica from Glassdoor:

SCAM

Pros

None absolutely none period run fast run far

Cons

all of them this is a pyramid scheme they hire people through friends and they get a commission when they do. Ive been one of those people. You pay $99 and then 25/month to access the website. SCAM. Then you sell life insurance through family and friends. These people are lower than scum. I would say more but more people can say it better than me. Whatever people said about Primerica is absolutely true. ITS A SCAM Continue reading

Who Has FIVE Foreclosures?

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Jennifer McKinney, that’s who!

Years ago I delighted in writing about mommy bloggers who earned gobs of money at the expense of their readers (and the advertisers who wanted to get in front of them), but were dishonest in one way or another. I’ve written about the shenanigans of Dooce, but we spent a lot of time on Jennifer McKinney, known as MckMama. She frauded her way through bankruptcy court and went on to shill for MLM company Xyngular.

McKinney is currently one of the top producers for Xyngular, and has been recognized as a “million dollar earner.” She started with Xyngular in 2012, and by mid-2014 she made $500,000. (Made… means commissions paid to her plus the value of trips and prizes given to her.) In late 2015 she was up to $1 million cumulative. Then $2 million cumulative by the middle of 2017. It was $3 million cumulative by mid-2018. She has likely surpassed $4 million cumulative by now… which is an average of $500,000 per year for the last 8 years. Continue reading