False Claims and Broken Promises in Multi-Level Marketing

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Robert FitzPatrick, an internationally recognized authority on multi-level marketing and pyramid schemes and a court certified expert witness on MLMs and pyramids, details the lies told in MLM in this article, A Disguised Pyramid Scheme: The Non-Retail “Direct Selling” Company:

Instead, the non-retail direct selling schemes present a compelling and very alluring picture to potential recruits that diverts attention from the flawed structure and its disastrous outcome. Virtually all companies of this type in every country they operate in make the same alluring and misleading promises to recruits: Continue reading

Create Your Own Multi-Level Marketing Company in Ten Easy Steps!

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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 PrePaid Legal, 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.

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 an actual end user, 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

Calculating Loss and Failure Rates in Multi-Level Marketing Schemes

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In Chapter 7 of Dr. Jon Taylor’s book, The Case (For and) Against Multi-Level Marketing, he details the failure rates of participants in multi-lievel marketing companies. In order to analyze the true failure rates and to calculate actual profits or losses from participation in these (improperly termed) “business opportunities,” it is necessary to wade through confusing and incomplete disclosures and to estimate figures that are critical but not provided by the companies.

Dr. Taylor completes a thorough analysis of the numbers. Of the hundreds of multi-level marketing companies active in the United States, Dr. Taylor could find income disclosure statements for only 30 of them. What are the others hiding?

The analysis of these 30 income disclosure statements was completed through the following process: Continue reading

Why Retailing Does Not Occur in Multi-Level Marketing Companies

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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 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

Penn & Teller on Multi-Level Marketing and Pyramid Schemes

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Last month, Penn & Teller’s Showtime show Bullshit! featured multi-level marketing. They did an excellent job of hitting the high points on why MLMs almost guarantee failure for all the participants. Sure, there will be a couple of people at the top of the pyramid that make money, but that’s only because hundreds or thousands below them have lost money.

Lost money? Yes, MLM is all about losing money. They use a product as a “front” to hide this money transfer and make the scheme appear to comply with the law. But the products are of dubious quality, and significantly overpriced. MLMs aren’t really selling a product, they’re selling an “opportunity,” one in which almost everyone loses.

Here are some highlights from the episode: Continue reading

Usana Health Sciences Knows it Products are Being Sold Illegally in China

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Almost three years ago, Barry Minkow and Fraud Discovery Institute released a report on Usana Health Sciences (NSDAQ:USNA), listing ten red flags of fraud he and his team (which included me) uncovered about the company. The report criticized the company’s business model, essentially calling it a pyramid scheme in which recruiting is the focus (rather than the actual sale of products) and pointing out how little money Usana distributors actually make.

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. Continue reading

The Lure of Multi-Level Marketing

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I constantly marvel at how multi-level marketing (MLM) can continue to lure in millions of people a year, who collectively pump billions of dollars into these losers. Time and again, industry experts calculate a failure rate of 99% (failure = losing money on the deal) … And still consumers line up to sign up for these things.

Even the COLD HARD FACT that they have almost no chance of turning a profit does not deter them. Stop and think about it. These people have less than a 1% chance of turning a profit in MLM, yet they still sign up and pay hundreds or thosands of dollars each into these recruiting schemes. (Schemes… because the name of the game is signing them up and getting their money via fees to join and/or inventory purchases.) Consumers have a better chance of coming out ahead if they simply put their money on a table in Vegas. Continue reading

Fantastic Article About MLMs and Moms

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The publication Brain, Child has a wonderful story written by Stacey Schultz, about the devastating effects multi-level marketing companies can have on women. She’s included specific comments about Herbalife, Arbonne, and Mary Kay, but also has a lot of general information on MLMs.

Excerpts of the story that pertain to Mary Kay and my site, Pink Truth, are here. You can read the full story here. It’s long, but well worth a read.

Utah Woman a Star in Pink

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The Salt Lake Tribune
By Steven Oberbeck

In the world of Mary Kay cosmetics, Gladis Camargo of Riverton is a superstar. During the past 13 years, Camargo has built up a marketing organization of nearly 40 sales directors who in turn are responsible for leading, training and motivating more than 3,000 independent beauty consultants.

Later this summer, she will be recognized at Mary Kay Inc.’s annual seminar in Dallas for achieving the position of “independent national sales director” – a ranking only attained by about 500 women during the company’s 44-year history.

“I fell in love with Mary Kay the first time I came into contact with it,” Camargo said through her daughter Karen Borquez, who translated from Spanish. Camargo said her first experience with the company was in 1994 when she attended a skin-care class offered by an independent consultant.

As a result, she quickly embraced the business opportunity the company offered. Continue reading

Brilliant Comments About Herbalife

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A falling stock price is good! Allegations of fraud are good! Why? “When these business models are doubted, returns tend to be the greatest.” That’s a quote from an analyst. Fraud in China by Herbalife (NYSE:HLF) apparently equals “doubt about the business model” to him.

Here are his statements as reported by the Associated Press: Continue reading