By Alyssa Asick, Staff Writer
Have you ever had an old friend, coworker or acquaintance reach out to you and ask if you wanted to be a part of their “business opportunity”?
For me, when one of my old managers reached out to me to see if I wanted to know more about her business, I didn’t think much of it. The links she sent me were all positive, but all the information was coming directly from the company itself.
As soon as I started researching the company separately, one of the first articles that came up was from ABC News about a lawsuit against them due to their products causing their customers to go bald. Horrified, I proceeded to look into the company further and found out that she worked for one of the most manipulative multi-level marketing (MLM) schemes.
Since then, my old manager has tried contacting me many times. I even deleted Facebook, but she continued to comment on old posts of mine and messaged me about joining despite my lack of response. This is fortunately only one experience I have had out of the many people involved with MLM schemes that try to lure people in.
The Federal Trade Commission (FTC) is responsible for protecting consumers in that they regulate deceptive and fraudulent business practices. They have the most accurate information about both pyramid schemes and MLMs.
The FTC describes a pyramid scheme as “ [a company that] promises consumers or investors large profits based primarily on recruiting others to join their program, not based on profits from any real investment or real sale of goods to the public. Some schemes may claim to sell a product, but they often simply use the product to hide their pyramid structure.”
Like pyramid schemes, recruiting is the foundation of the MLM structure. According to Network Experience’s website, the first multi-level marketing company was “The California Perfume Company” in the 1880s. They had about 10,000 consultants selling products for them and have since renamed themselves AVON which is one of the most well-known MLMs. The company Amway was the next successful company that fully took advantage of recruiting. It was founded over 60 years ago and has now accumulated 3 million consultants.
Each of these 3 million people are selling the exact same products, which begs the question of why would you want to recruit more people who are meant to be each other’s competition? The only answer is that the consultants get the most money by recruiting.
Knowing this, the business structure of MLMs are unavoidably similar to pyramid schemes. Multi-level marketing companies’ main defense against the many allegations they receive from the FTC and others are that they sell products. However the FTC said: “There are two tell-tale signs that a product is simply being used to disguise a pyramid scheme: inventory loading and a lack of retail sales.”
MLM companies like LuLaRoe and Monat have many lawsuits out against them for selling clothes covered in mold and hair products with chemicals so strong it caused women to lose their hair.
These companies also highly mark up their prices and it puts the consultants in a very difficult position if they decide to quit or if they cannot sell the products they purchase through the company. They also have to raise their prices as less people become interested in their company since they have no other way of being able to pay so many consultants just on sales.
The media channel Vice produced a documentary about several women who were very high up in the LuLaRoe MLM, and all ended up in bankruptcy. This happened because consultants cannot move up in levels if they do not purchase more products for themselves every month. They are pressured by the people who recruited them to “reinvest” their money back into their company and ended up losing everything they made.
Since the focus is never on the actual products for these companies, the only way for consultants to make money is through recruiting. With a pyramid structure, it is only the people at the top who make any money.
When an MLM is first created, it’s easy to be more successful because you’re at the top of the pyramid. After an MLM has existed for years, the market becomes so oversaturated with consultants that there isn’t anyone left who wants to join and the people at the bottom have absolutely no way of making their way up the pyramid or through ranks.
These companies tell the recruitments that they can work through ranks or levels within the company to move up, but the more people who join the more difficult that becomes. The income disclosure statements are all the proof anyone needs to see that 99% of consultants for these companies do not make any money.
Since this type of work does not appeal to many people, these companies target women who are in vulnerable positions. Stay at home mothers, military wives and people in financially vulnerable positions are particularly at risk for being recruited into these schemes, according to an article on Career Contessa website. These women are looking for friends and a community to be accepted into, and these relationships only last as long as they are making sales in the MLM.
Since the pandemic has caused so many people to lose their jobs, consultants have been telling people to use their stimulus checks to buy their way into an MLM. The consultants have also been telling people false income claims and saying they make significantly more than they actually do to manipulate people into joining them. This is all according to the Federal Trade Commission website where they even list some of the scam messages that have been reported.
The FTC stepped after having seen these harassing messages online. On the FTC website they go into detail of what warnings and changes that need to be made by these companies so they will stop going against the rules. Many companies have had to make consultants make their social media accounts private because the FTC has said that anyone who is found to be making false claims or mentioning the stimulus check will be immediately forced to leave the company, and claims are mentioned in almost all the posts in many of these accounts.
While there is a significant amount of proof and testimony that these businesses are dangerous, there are still people who argue otherwise. Other than their argument of them selling products, according to an article on the Talented Ladies Club website, many say that they would not be able to run if they were illegal. This claim does not hold water because something illegal can still be done even if the person or company does not get caught immediately.
The second argument is that they still get sponsorships by other companies who are more reliable. According to Mary Kay’s website, they were the official beauty sponsor for season three of the show Project Runway. They have had Avon and Mary Kay sponsor some of the seasons, although Project Runway has lost many of its views in recent years, and Mary Kay has lost so many sales that they have closed all their businesses outside of the U.S.
A final argument that consultants make is that they are given free cars and trips for doing well within the company. While it appears like this, the companies that do this do not actually give out free cars. The FTC also covers this on their website, where the consultants have to put the car in their name, and the company will only make the payments as long as they continue to meet the mandatory monthly goals. If they don’t, the consultants are responsible for paying for the car and most of the time they can’t afford it and it either gets repossessed or they have to sell it.
For the trips, consultants are responsible for paying for everything other than the travel itself. It also is not a vacation, because they are expected to work while they are on these trips.
The fundamental structure of a multi-level marketing scheme is in line with what the FTC considers a pyramid scheme. The only reason they all have not been shut down yet is because they use products as a cover for a business. Lastly, they rely entirely on vulnerable people and recruiting to make the majority of their money.
Save yourself the time, money and distress and do not join an MLM no matter how much you are baited by the consultants. And if you can, try to inform the people you know who are involved in one because if these companies can’t recruit anyone new, they will eventually all close, and it will put an end to these disguised pyramid schemes.
