Episode 54: The Biggest Consumer Fraud You Didn’t Know About with Tracy Coenen

On this week's episode of the Investigation Game, Leah talks with Tracy Coenen about her take on the multi-level marketing industry. After working as a distributor for a well-known multi-level marketing company only to break even on her buy in, Coenen has used her expertise as a fraud investigator to highlight the scam that most people don't know about. Listen in to understand how this model often takes advantage of its members.

Tracy has been investigating fraud for more than 20 years, but she didn’t always want to be a forensic accountant. With a dream of one day being a prison warden, Tracy went to Marquette University in Milwaukee, WI to get a criminology degree. A class on financial crime investigations reminded her how much she loved Encyclopedia Brown books as a kid. She continued her criminology degree, but added accounting and economics courses so she could sit for the CPA exam… and here Tracy is, finding money in cases of corporate fraud, high net worth divorce, and other financial shenanigans.

Connect with Tracy:
www.pinktruth.com
LinkedIn Profile: https://www.linkedin.com/in/tracycoenen/
Twitter Profile: https://twitter.com/sequenceinc

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Transcript:

Intro (00:01):

Welcome to the investigation game podcast brought to you by Workman forensics.

Leah (00:08):

Welcome to the investigation game podcast. I'm Leah Wietholter CEO of Workman forensics in Tulsa, Oklahoma. Joining me today is Tracy Conan. Tracy has been investigating fraud for more than 20 years, but she didn't always want to be a forensic accountant with a dream of one day being a prison warden. Tracy went to Marquette university in Milwaukee, Wisconsin to get a criminology degree, a class on financial crime investigations reminded her how much she loved encyclopedia brown books. As a kid. She continued her criminology degree, but added accounting and economics courses. So she could sit for the CPA exam. And now Tracy is finding money in cases of corporate fraud, high net worth divorce and other financial shenanigans. Thank you for joining me today, Tracy.

Tracy (00:48):

Thanks for having me again, Leah.

Leah (00:50):

Yeah we had a lot of fun last time, uh, that you were on the podcast talking about working a billionaire divorce case. That was great.

Tracy (00:56):

The billionaire divorce case is always fun to talk about, and it's especially fun now that we've got Bill and Melinda gates in the news for their divorce. So I get asked a lot of questions about it.

Leah (01:07):

Yeah. I was actually thinking about that episode. Whenever my husband told me they were getting divorced because I never know what's going on in the world because I'm too busy. But, um, yeah, that was great. So today I'm excited because you're going back to talk about something totally different. We are going to talk about multilevel marketing businesses, if we can call it that. I, you know, in my outline I put quotes around it businesses. So you have been researching following and studying multilevel marketing for years. So what inspired this research?

Tracy (01:40):

Well, let me, first of all, uh, tell you your right to not really consider it a business. Uh, if you're in an MLM, you are not a business owner. You're not an entrepreneur, you're not a boss, babe. You are none of the above. You're part of a grand scam. Um, so how did I get involved in multi-level marketing? Well, let me tell you back in 1998 or 1999, I actually joined Mary Kay. So I was a beauty consultant. And at the time I was working as a forensic accountant at a firm and really enjoying that. Uh, but there was a part of me that really wanted to be a business owner and I didn't know how I could ever make that happen. And when I got introduced to Mary Kay and heard the story there, I was really intrigued by this opportunity to own my own business with a very low investment.

Tracy (02:34):

And I got started and didn't know at the time that all the information I was being fed about the so-called opportunity was essentially all made up or outright lies. So when they told me, um, if you're willing to put in this much time in this much effort, you can make this much money. All those numbers were completely fabricated. So I was involved with Mary Kay actively for about 18 months, and I was doing the whole recruiting thing and so-called teaching people how to do businesses of their own. And during that time, I actually started my own forensic accounting practice. And so I was kind of doing the two things side by side for about six months and then realized I really needed to focus. And that forensic accounting was the real future for me. So I dropped Mary Kay and at the time my upline made fun of me for doing that and told me I would never, ever make anyone feel good about themselves by doing accounting for them. And then in Mary Kay, I actually had an opportunity to change people's lives. Um, and years later here we are, my upline was a complete failure and multi-level marketing because that's what happens and nearly went broke and I have a successful forensic accounting practice.

Leah (03:46):

Yeah, gosh, you know, when I was reading your website with that, we'll talk about it in a little bit. I wondered if maybe this was the backstory cause you and I hadn't talked about that part, um, prior to this. And so I kind of wondered, so you, what we're going to talk about today, you lived and then coupled with forensic accounting, you just have a unique look and take, I think on, uh, what you experienced and then also what other people are experiencing.

Tracy (04:11):

Right. And what I did experience now is fodder for the people who love multi-level marketing to say, oh, you're just a failed distributor. And so you were bitter and angry and that's why you say bad things about MLM. And the truth is no, I'm very well researched and very well educated on the topic. And I understand it quite well. And that's why I'm against it.

Leah (04:34):

Okay. So why do multi-level marketing or MLMs? We'll just call it that, uh, succeed

Tracy (04:39):

Because they sell a dream to people. What they're selling is an opportunity and they are preying on people's insecurities. They're looking for their hot buttons. They are looking for in a lot of cases. Um, they're targeting people who have a financial need, and that might be because they're not making much at their job or because they feel like they're worth more than they're making at their job. Or, you know, everyone has dreams. They want to do things like go on trips and buy houses and cars. Of course, we all want to do those kinds of things. And so if you find a person who's not making a whole lot of money and you offer them an opportunity and you're able to make that compelling argument about the time investment, not being that great. And you run it the way you want to and you own it, you control it. Um, it's so compelling to people and it speaks to so many people and that's how they can continue to perpetuate this fraud.

Leah (05:33):

Yeah. How is this actually, how are MLM set up? Like why do the people selling the products not actually succeed? Like who wins? What is the structure?

Tracy (05:43):

Important thing to remember is it's not about the products. So when you hear about multilevel marketing companies, you hear a lot about the products, but I am here to tell you that the products are really just the front for the scheme. The products are what make these companies not be illegal in the eyes of our government. If you were simply selling a recruiting opportunity, that is an opportunity for someone to recruit people who then just recruit people. If it's a continuous recruitment, only situation, that's an illegal pyramid scheme. But if there's a product there and you can pretend that selling the product is what it's all about. And I'm recruiting you to sell products. You're never going to sell much of products. You're only going to be working on recruiting other people to pretend sell products, right. That that's what it is. You recruit people to pretend sell products and yes, along the way, some products do get sold, but it is such a small fraction of the amount of products that are actually bought by the distributors. Um, so why aren't people successful in selling these products? Um, for a variety of reasons, mainly the products aren't all that special. They aren't priced competitively. And because you cannot, as an individual peddling these products, you can't get enough traction. You don't have foot traffic like a store. Does you don't have people wandering off the street. It's hard to build a volume when you're doing one person to one person selling one-to-one selling you. There's just only so much you can do.

Leah (07:15):

Right. Have you ever, I didn't really dig into your website this far. So, um, so I don't know if you've, if you have an article about this or not, but have you ever done the math on, if you just sold products for one of these versus, you know, what they say that you can make if it's even possible.

Tracy (07:33):

Right. So in Mary Kay, uh, which is the one I'm most familiar with, we've run all sorts of numbers. And, um, they have something every year called the court of sales. Okay. All of their stuff is based around Queens and princesses and all this kind of stuff. And they have these courts that you can become a part of, um, and be winners. And, and, um, there is the court of sales. And if you make it onto the quarter sales, it means that you have purchased a particular amount of product from the company doesn't mean you've actually sold any, or they call it a quarter of sales, but it doesn't mean you've sold any of it. But if I assumed that you sold all of it and I assumed that you didn't give any discounts, um, after you're done, um, with some of the expenses involved in such, you might make, you might profit 15, $20,000 in order to sell that much product that you would need to, um, you are going to be putting in all kinds of hours to do this. You will not make minimum wage doing that. And that's the sad fact.

Leah (08:37):

Wow, that's horrible. So the way that, okay, so now explain if it's not the products, cause that clearly doesn't make you all the money that they promise isn't an out and out lie, that this is how much money you can make. Or if you recruit a lot of people, then you can a bunch of money.

Tracy (08:55):

So saying that you can make a certain amount of money is true because the keyword is can, right. But the way the big money is made, if anyone makes it, yes, you have to recruit in order to make the big money. So in Mary Kay, they talk all the time about part-time hours for executive pay, you can make executive type money for part-time hours. And the way you make this executive money is you become a sales director, which means you have a downline of at least 24 people or 30 people. They, they changed the rules from time to time. Um, but then those people all recruit more and recruit more and recruit more. Um, the thing is that this executive pay, I don't know where you and your mind think of executive pay. I arbitrarily use something over a hundred thousand dollars. I think that that's maybe maybe a little bit low and a little bit generous to them. Um, but if you look at that a hundred thousand dollar mark, um, there are less than 500 women in Mary Kay in the U S we're making that much. Um, and we're talking out of hundreds of thousands of consultants. So can you, in theory, yes. Will you most likely, not.

Leah (10:06):

So where's that money coming from? Do they get paid a portion of like, whatever the people invest quote, unquote, invest at the front, like whatever that fee is, right?

Tracy (10:18):

Yep. The investment is people below you purchasing products and, um, we call it front-loading where you recruit someone into the company and then get them to buy an inventory package before they've ever sold anything or developed any customers or anything like that. Um, and if you're good, you can get them to buy a package of $3,600 wholesale. Um, and you know, for, I think for the average American, that is not an insubstantial amount of money.

Leah (10:50):

Yeah, sure. For sure. But you've been told if you buy this $3,500 worth of products, you can make an executive salary on a part-time

Tracy (10:58):

Eventually. I mean, you have to be willing,

Leah (11:01):

That's the dream they're selling.

Tracy (11:02):

Right. And so I can tell you from experience, um, having devoted 18 months to this, I am a very by the book kind of person. And if you tell me, if you do a, B, C, and D you will have success. And if I know what that success is, and I know what ABC and D steps are, I will follow them. And so I went into the company and I followed their steps to a T. And at the end of my tenure with them, by the grace of God only I broke even. And when I say by the grace of God, only at the very end, when I was getting out, I worked my tail off to get rid of that, that inventory at the end, um, and get back what I paid for it so that I wouldn't be in a loss position. Um, but I recognize that I'm unusual. Nearly everyone loses money. It's so sad to know that a multi-level marketing, um, upwards of 99% of people lose money in it. And you'll hear all the excuses from the MLM lovers. Oh, they didn't try hard enough. They didn't do the right things. They didn't treat it like a business, all these kinds of things. Well, I'm here to tell you firsthand, I did all the things and, um, very, nearly ended up losing money.

Leah (12:16):

Yeah. So once you buy that initial package, let's say you get somebody to buy $3,500 for the initial, do you have and you paid $3,500 for your initial, do you have to keep buying so much, like, do I have to keep spending money to then feed your upline essentially?

Tracy (12:33):

Right. So all of these MLMs have minimum purchase requirements in order to stay active. So they call it active. And so in Mary Kay, for example, you have to buy a few hundred dollars worth of stuff every quarter. And people say, well, that's not very much. If you're actively working, of course, you're going to be ordering those products from the company to fulfill customer orders. And yes, yes. If you're actively working actively selling, it's an easy amount to cover. Um, but for example, if you wanted to take a break, let's say you had recruited 10 people and you really liked what you were doing, but for some reason you needed to take a break from the company for six months. If you didn't keep placing your minimum orders, you would lose those 10 recruits. They would get given away to your upline, right? So you have to keep staying active in order to keep them.

Leah (13:22):

This is like, I don't know, like, oh, there's a word.

Tracy (13:25):

Extortion.

Leah (13:26):

Yes, extortion. That's what I'm looking for. Like trapped horrible.

Tracy (13:32):

Um, it's, it's diabolical how games are created because when you hear their recruiting pitch, what it sounds like is a very reasonable business to be involved in someone's it's a relatively low investment compared to, let's say, if you wanted to start your own cosmetic store, right? You'd probably spend tens of thousands or a couple of hundred thousand dollars who knows, starting it, adding all the inventory and stuff. So this is a relatively low investment compared to that. And they're saying you choose your hours. You choose who you want to work with. I'll teach you everything you need to know. Step-by-step we have some really great training materials. We'll give you a website already to go to sell for you. It's super easy. Here are some techniques to sell and to meet people. It all sounds like a really legitimate business opportunity. And you come away from that recruiting talk, thinking, Hey, why not give it a shot? It would cost me a hundred bucks to sign up. And then, um, they've probably in the recruiting talk told you, you don't have to buy any inventory. Of course, once you sign up, they say, well, you don't have to, but if you want to be successful, you would.

Leah (14:38):

Yeah. So I think, I feel like I know how you're going to answer this, but I'm going to ask it anyway. Why do MLM set their businesses up this way instead of a traditional distribution through retail stores? Like if their products are that great and that life changing. And there are a few of these that I really genuinely like their products, but why have they set it up as an MLM instead of putting it into retail stores?

Tracy (15:01):

I kind of want to play the guessing game and see if you can get this one. Right? You said you have a guess.

Leah (15:05):

Yeah, because it's a scam. I became the mess, the ones that win. But so the

Tracy (15:11):

Owners of the company make tremendously more money as an MLM than they would if they set it up as a legitimate retail operation. Well, you know, all Mary Kay cares about is the beauty consultant buying the inventory. They truly don't care if that beauty consultant ever sells a lick of inventory. Right. So, um, what we know, what I know, um, on an anecdotal basis is that they're a very large percentage of what is purchased by beauty consultants is never sold and sits in basements and garages and goes to landfills and gets donated to homeless shelters and things like that.

Leah (15:48):

Yeah. So from, you know, and they're already overpriced, like you mentioned earlier, they're not at market prices. So Mary Kay, selling these to their consultants, it's already overpriced. So their margins on these things have to be astronomical. And then yeah. All they care about instead of actually selling to the end user, they are just concerned about selling high volume to these quote unquote consultants to then have to mess with the end user.

Tracy (16:10):

Right. And we'll get some feedback from some people who use Mary Kay products and say, oh, I found this, you know, this great cleanser, this great makeup. And I was never able to wear anything else before. I don't deny that some people enjoy the products because some people do. What is interesting is they promote the product as a very high end product. And they say, you know, we are on par with some of these really expensive department store brands, but at a fraction of the price. And the truth is Mary Kay is on par about with a typical drugstore brand. Um, and if you compare it to the drugstore brand, um, the Mary Kay prices are too high and not knocking drugstore brands. There's a couple of drugstore brands. I use myself because I like them, but they are priced as they should be.

Leah (16:58):

Right. So, okay. So several years ago, well, gosh, this has been, this was from my FBI internship days. I was working on a Ponzi scheme and, uh, like helping with it, like basically organizing files and creating some Excel schedules. I mean, nothing dramatic, but, you know, I was learning about how this scheme worked and this guy was still doing it and all this stuff. So, uh, and I believe he was indicted when I was working on the case and stuff. Okay. So I was doing that and just learning more about like his boiler rooms that he set up and like all these crazy things to run this massive Ponzi scheme at the same time, I knew someone who was getting into the, like one of the.

Tracy (17:40):

Amway Herbalife.

Leah (17:42):

No, it was like, I can't mana MonaVie would be, you know what I'm talking about? I like juice and it was it's muscles and all this stuff.

Leah (17:55):

And so I was like, oh, I'm going to, like, I don't know. I just, this person had gotten into several MLMs in my life. Like I knew that. And so I was like, let me just do some research. So I started researching and I start noticing that behind MonaVie, there's a lot of similarities between the guy that started that and his history with other MLMs. And I think Herbalife was in his past as well. And then, but there were like some weird similarities with the way that this Ponzi scheme had also been set up. And so based on comparing these two things, I was able to convince this person, go by acai berries at the, or like some sort of mix at the health food store instead of like joining this MLM. So anyway, they did, but so that kind of leads me to my next question. Like after, you know, it was because I worked on a Ponzi scheme that I felt like I was able to see behind this MLM, cause I'd never looked at them before. So is there a difference between Ponzi schemes, illegal pyramid schemes and MLMs? We'll be right back to this interview.

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Leah (20:32):

Welcome back to my interview with Tracy Conan.

Tracy (20:34):

The short answer is MLMs are a type of Ponzi scheme or illegal pyramid scheme. So it's kind of a subset. I'm assuming that your listeners know what a Ponzi scheme is?

Leah (20:47):

Maybe. But I think this one's going to be more applicable than to just investigators. So you can kind of tell them.

Tracy (20:53):

Ponzi scheme. What we have is, uh, someone who, uh, I would call him a promoter or a recruiter is going out, getting people to invest money in some sort of fantastic investment. Sometimes there really is no investment at all. Sometimes the investment is, um, only a fraction of the size that they're pretending it is. Um, and the promoter, um, usually is benefiting personally when someone invests and when someone invests at a later date, they expect that they're going to get some return on this investment. And so in order to pay that return, the promoter, uh, has to find some new money somewhere. So the promoter finds new investors brings in more money and so on and so forth, right. It's needs a continuous influx of money and MLMs work very much like that. It's just that there's this product involved in. So it looks like a business that you're investing in.

Leah (21:47):

Right and you're actually like getting something in return for your investment. You're getting these products, but you're being told that it's going to create this huge opportunity for you, which I think is the, if you were told here's $600 worth of products have fun, you know, like pace it, I don't know that anybody would pay $600 for a whole pile of Mary Kay or MonaVie or whatever. And to use it without that, to be all in, you know, like I know people sign up for MLMs cause they like the product and they'll buy $40 a month or whatever. And they have no intention of recruiting. But um, anyway,

Tracy (22:23):

Well it's really funny the MLMs, when you point out all the people who have failed to make money, the people who lose money, they say, oh no, no, those are the people who didn't want to make money. They just wanted to get their products at a discount, except for when you look at their websites and their promotional materials for these companies, it's all about how much money you can make. I'm like, well, if most of your people don't want to make money and they just want to be purchasers of the products, why are all your materials pushing this income opportunity? So there's, there's that mismatch between the information, um, that you're seeing and the excuse that they give, once someone points out how many people fail.

Leah (23:01):

Yeah that's true. So why don't you tell us about pinktruth.com? Um, I noticed on this site that this isn't just like what we're talking about today, your, your experience and so forth with Mary Kay or MLMs. Uh, but it looked like it's an online community. So how does it work and what are the sources of information?

Tracy (23:21):

Pink truth is the website that I started 15 years ago, focusing on Mary Kay, but also touching on other MLMs from time to time when I left Mary Kay in 2000, um, somehow I ended up online, uh, finding some communities where people were talking about companies like this and criticizing them. And it was really, um, the beginning of that type of criticism. When I signed up in 1998 or 99, I didn't find anything negative about Mary can the internet. And so I didn't have anything to, you know, try to verify what they were telling me the numbers would be in things like that. And so in 2000, I, you know, I found a couple of communities and started chatting with some people who were complaining and sharing some experiences. And, and over time, some websites popped up that addressed Mary care, other MLMs. And in 2006, I decided to start my own website and it started out being called Mary Kay sucks.

Tracy (24:20):

And then after a few months, my attorney said, I'd prefer it if you change that name. Yes, because it could really trademark issues. Companies are known to come after folks who use their names in this way. So I changed it to pink truth and it started out mostly as a gossip type of site. Let's gossip about the people who are very visible and Mary Kay and things like that. Talk about their events and the things that go on there and got a really big following really quickly. And all of a sudden I felt a responsibility to do something with that and felt like I needed to get a little more serious about it. And so we started to do some education and things like that. And ultimately I made the decision that the site's purpose would be to educate people about Mary Kay and give them a place to ask for help and vent about their experiences.

Tracy (25:10):

Um, so from the beginning I was, you know, always accused of, you're trying to bring down Mary Kay. I'm not trying to bring down Mary Kay. I'm not going to be able to bring down Mary Kay. It's been around for a really, really long time. I think 55 plus years. I am there as a resource. So if you are potentially signing up for Mary Kay and you bother to go look on the internet for information, you're going to find pink truth. And then you have an opportunity to make an informed decision. But we also have the component that involves, you know, women just supporting one another, mostly women. We do have men who come there. Um, most of them are spouses or boyfriends of people been involved in Mary Kay. And so we let people talk with one another, share their experiences. Um, in 15 years of doing this, the story never changes, right?

Tracy (25:59):

It's old for me, I've heard it all. I've seen it all. It repeats. Um, it just doesn't change. It's the same sad story, the same recruiting scripts, the same ways to victimize women and to, to entice them into spending more money than they should on stupid products. Um, but you know, for the people who participate, we found it's been very cathartic for them, uh, particularly to find out that they're not alone and that they're not stupid. They, you know, there's lot of people have been swindled when they find out the person who started the website is actually fraud investigator and felt defrauded. Um, that makes them feel better.

Leah (26:36):

Yeah, for sure. Um, so is Mary Kay publicly traded like herbal life?

Tracy (26:42):

No it's owned.

Leah (26:45):

Know, what's amazing to me is when I went to look at the different posts on your site, it's amazing to me that their same stuff works. Like, like you were talking about the, um, just the different levels of what you can earn like, or, uh, I think I saw an article on there about like the dress code that the dress is still thing. Like it's so antiquated feeling to me, but I mean, it still

Tracy (27:09):

Works. It's still works. You know, they have this dress code and if you recruit up to certain levels, if you get up to sales director level, you get to wear or have to wear the suit every year. There's a new business suit, it's a skirt and a jacket, and you're going to spend three to $500 on this suit. And it is a status symbol. Um, it is used, there's a, there's a few purposes behind it. One of it is, um, it, it's kind of a rules thing, right? To re, to remind you that there are company rules to follow and you almost follow the same rules. Um, it's a ranking thing, right? It's to show off rank and to get people interested in moving up a rank, because if you're the next rank prop, you get to wear different colored Bluffs. And then maybe like, you know, next month I want to be in that blouse. Um, and it creates envy it, which is really great. Like, oh, you want to be in this suit too. And honor those kinds of things, bring in more money for the company because in order to get to that suit, you cannot get to that suit through product sales. You can only get to that suit through recruiting, recruiting, and then your recruits have to buy products. And so the amount of money that is generated for the owners of the company through that process is insane.

Leah (28:25):

And then, I mean, you have to buy the suit.

Tracy (28:27):

Yes.

Leah (28:28):

Probably marking that up like three or four times.

Tracy (28:31):

Correct.

Leah (28:32):

Oh my gosh. So has it been the same owners the whole time?

Tracy (28:36):

Yes. Yeah. Mary Kay Ash's family owns it.

Leah (28:39):

Wow. And they're just crazy wealthy from this.

Tracy (28:41):

Absolutely.

Leah (28:42):

So what kind of lawsuits, you know, like I know that there's lawsuits and like, uh, shorts against Herbalife. Cause I watched that documentary on Netflix, I think is what it is with Bill Ackman, but like what kind of lawsuits or anything like that? I mean, do they have a lot of lawsuits?

Tracy (28:59):

Mary Kay themselves has initiated a number of lawsuits against people who are selling their products online. So the contract with Mary Kay says, you can't sell on eBay. You can't sell on Amazon. You can't set up your own online store. You can't set up a retail location anywhere. You can only sell through approved methods, which is person to person or through Mary Kay's stock website that they allow you to pay them to use. And um, if you let's say you were involved in Mary Kay and you had thousands of dollars of products left and you wanted to quit and wanted to get rid of those thousands of dollars of products, how are you going to unload them? Well, some people try to sell them online, try to put them on eBay, things like that. The company cracked down on that because if people are able to buy discounted products on eBay consultants, aren't going to order as much directly from the company. And it, it, it shows a fault in their business model. If, if there is a product that they say should sell for $40 suggested retail, but I can go on eBay and get it for $10. That suggests a problem with their business model.

Leah (30:07):

Right. But I mean, thinking about that too, like you can't, I think that those rules emphasize and provide additional evidence that it's not about selling products, because if it really was, you would let people sell online because you want to maximize the amount that you're selling. But, and if I'm a recruit and I'm looking to get into this business and you tell me, I can only do it person to person, and we're talking about margins of hardly anything, right? So for me as the consultant, like the only way you make money on stuff like that is because of your margin and volume. But like if they told me, oh, you can only order online through our website. Well then there's no incentive for people to buy from me as a consultant.

Tracy (30:47):

Right.

Leah (30:47):

I mean, they're like cannibalizing for sure from the beginning.

Tracy (30:51):

But they have an answer for that. Leah, the answer is this. They have great margins. You buy a product for a dollar and you sell it for $2. What they now tell you is nobody wants nobody is going to pay you full price for that product. Those full price sales are very few and far between. So you're going to have to discount from that suggested retail and you're right. The margins are going to be very, very thin when at the end of the day. But the other reason that they, the reason they give for not allowing sales through sites like eBay or through doing your own thing is because there was a product guarantee that if you buy your products, your Mary Kay products from, um, from a full beauty consultant and you don't like them, you can return those products and get your money back. And if the consultant has since quit, you can go directly to Mary Kay and they'll give you your money back. And they say, in order to maintain the integrity of that process and that product guarantee, we can't allow these rogue sales on sites like eBay, because who knows where you're getting something from. And, and we can't control quality. We don't know if someone's selling expired products. Oh, hint. They don't know if someone's selling expired products. Even if they are a full-blown beauty consultant, it's all smoke and mirrors.

Leah (32:03):

Yeah for sure. So based on this website and all of the complaints and everything that get posted there, what do you think some of the most common or top struggles or complaints people post about are?

Tracy (32:14):

They're not making any money and that they were, um, induced to do this with lies that they weren't told the whole truth. Of course, they're told only the positive and the potential of becoming a beauty consultant. And they're not told it, I mean, who would ever sign up if the recruiters said, listen, the deal is 90% of people lose money at this, but I hope you would be in the 1% who makes money. I mean, nobody's ever going to sign up, right? There's other data that suggests, um, 74% of people lose money. Okay. I don't know who's right. And who's wrong. But even still, if they told you 74% of people lose money, but you might be in that other percentage that makes money. You're probably still not going to sign up.

Leah (33:01):

Yeah. Definitely. I feel like you could go find a commission job part-time and make more money than working with an MLM.

Tracy (33:09):

Absolutely. Absolutely. You know, we've often said that you can just go get, even, even if you went and got a minimum wage job somewhere, you're likely to make more than you will make with me.

Leah (33:20):

Yeah. So I really hope a lot of people listen to this episode because it, and I think it's so tricky because of how they're worded and, and all this stuff. Um, and unfortunately now we do have the internet and if I go research a company and I can't find reviews about them, good or bad, I'm like, Hmm, I'm not going to take a risk on that. You know, like, whereas before, if you didn't find something on them, it just didn't exist yet. Um, so hopefully people do that research, but one last question, what are other MLMs that you've researched and are they the same or different from Mary Kay? And then ultimately, are there any good MLMs?

Tracy (33:55):

Basically they're all the same. It's just a different product. And it's a matter of them trying to find a product that seems like a unicorn, right? There's something special and different about it, such that you can't buy it in a, in a traditional retail outlet. So we have some magic juice, some special potion, something like that. Um, so it's all the same game, just a different product. And are there any good MLMs? No, that are not. Um, in my opinion, they're all legalized pyramid schemes. In other words, um, Ponzi schemes, pyramid schemes, as a general rule are illegal in the U S why do MLMs continue to operate without the government coming after them? It's something our government has decided that they are going to allow these schemes, you know, parade themselves around as being a business opportunity. And our government government has generally taken the position that it is a business opportunity and that people have to inform themselves before they sign up. And that it's okay. Okay.

Leah (34:56):

Yeah. Um, I was thinking about, you know, even if let's say that I chose to join an MLM, let's say I, can I quote unquote, invest $3,500 for, you know, the, this top level of, or top amount of the product. And then I decided this is a whole scam and I want to go Sue Mary Kay. Nobody is going to take a case where I invested $3,500. So it's like, it cost more to litigate it for through $3,500.

Tracy (35:22):

Right. And they're taking, they're taking little bits from people, you know, they might, they get some women who invest a couple hundred dollars or $600, you know, but if you can get hundreds of thousands of women to each do that, it's a ton of money. And so I like to call multi-level marketing one of the biggest consumer frauds out there, because there are so many people get in, get involved in it. I am told that there are at any given time, about 7 million people in the U S involved as distributors with MLS. It's huge. Um, and if you think about these companies on an annual basis, taking from each of these 7 million people, anywhere from a couple hundred dollars to several thousand dollars, and you do that math it's astounding, how much is taken from consumers all under the guise of it's a business opportunity.

Leah (36:15):

Yeah. And they have little to no overhead. I mean, they've got to make some nice marketing and, you know, create these tool online tools or whatever, but you set up one and you're good for however many people it's extremely scalable. And then you're buying a cheap products that you're just adding branding to, that you make seem like they're more, I mean, so their take home is stupid. For those creating them.

Tracy (36:38):

That's right, for sure. And then when the people fail, cause you know, they're going to fail because by the way, if we did the math as to how many people would have to be recruited in order for everyone to make money, like we, we run out of people super fast. If everyone was doing all the recruiting, but when you fail, it's your own fault, you didn't do it. Right. You didn't try hard enough. And people internalize that. I mean, what we see with most of the people coming out of these MLMs is they do internalize that and they do take it on themselves. Um, I thought I was doing what I was supposed to, but I must not have been in. That's why I failed. I wasn't working

Leah (37:09):

Hard enough. I didn't hustle enough or whatever then, oh man, I did. We haven't even talked about conferences that these in airlines have they, I mean, they charge for those, right? So these people come and pay for these conferences to be told, this is how you go hustle and do a great job.

Tracy (37:25):

Well, what's interesting is most of the multi-level marketing companies do offer some sort of money back guarantee to distributors. So for example, in Mary Kay, if you sign up as a consultant and you buy a bunch of products and one day you decide, you want to quit, you can return any of the products that you have in your possession that you have purchased within the last year and get 90% of your money back for it. So they say it's almost a no risk situation. The thing is there are all these other costs that go into trying to be a business owner, such as the conferences, the business building tools, you know, the supplies, the gas running around in your car, going to these meetings and all this kind of stuff. There are so many other costs that even if you can recoup 90% on the stuff that you've purchased and last year, it doesn't fully cover it.

Tracy (38:12):

And by the way, if you get real deep into one of these MLMs and you've been in for years and have been building up your inventory, because what happens is you're trying to move up this ladder and get to these next levels where you're wearing the different colored blouse and all that stupid stuff. And every step along the way, you're probably buying a little bit of extra product that you don't need because why just $500 a product away from that next level. And so you might top it off with that $500. And then a couple months later, maybe you're $700 away. And you top it off a little bit because somebody is telling you, don't worry about it. You'll sell the product someday. And that promotion is worth it because your commission rate goes up. Things like that, isn't it diabolical.

Leah (38:56):

It's so evil. I just, that's probably what I just think it is. That's how I feel about it. It's like there, the fact that they would even only refund 90% of your products is sick because they have no risk. Like they, none, they are taking all the money and they are putting the risk on people who, the people I have met typically can't afford. I mean, they, they invest more than they can afford is what I've noticed. It's not like a, oh, I have this nice job. I'll give Mary Kay a try. I'll put in $200. Like I'm going to go just above. I mean, even watching Herbalife, I think some of those people like went into debt, building out their stores and everything. And then they realized the products can't even pay for the retail space. I mean, it's just, it is diabolical. And, and then to convince people in these positions, I mean, it's kind of, it's like mind control. I mean, cultish, even if I can go there, that people in your upstream are so convinced by this messaging, that they would pass that along to create all this guilt and shame him. And you're not good enough. And I mean, that's like, that's amazing.

Tracy (40:15):

I'll just say it it's a cult.

Leah (40:15):

Yeah.

Tracy (40:15):

I'll end for you with the, with a tiny little anecdote. When I started the website 15 years ago and immediately made this big splash and was popular. And we had, uh, I, I didn't for a long time, I didn't want to share the kind of numbers of like how many people are visiting the site. But we had tens of thousands of visitors every day to the site. It was fantastic. And Mary Kay ladies were losing their mind over this. Can't Mary Kay, shut this down. This is so terrible. This, this is pink porn. It shouldn't be out there. It's awful. And so, um, the executives at Mary Kay sent a letter out to the very top of the pyramid people. And this letter said, these websites come and go, don't talk about it with your people. Just wait it out. It will eventually go away.

Tracy (41:06):

And 15 years later, I am still here. They did not know how persistent I am. And that's part of the reason why I started the site was because I saw sites that would come and go, people get tired of it, or they'd get threatened by someone. Oh my gosh, I've been threatened by it. I can't tell you how many people I've gotten all the insulting emails, telling me how stupid and fat and ugly I am. And I should find something else. I it's all happened to me and I don't even care. I'm just, I'm in it. Uh, I was always in it for the long game. And so 15 years later, we still haven't gone away.

Leah (41:37):

I love it. I was, when I visited the site, I was blown away by the number of people who have visited the site. I mean, it's amazing, great work. We're going to be sharing it. Uh, we'll make sure we put it in the show notes and then your LinkedIn and all of that for, um, our listeners. But gosh I know so many people that are in MLMs because I don't know, does your Facebook, my Facebook feed it's either kids or MLMs and dogs. Like I feel like, or, you know, friends who have melons and doctors. So I, gosh, there's a solution to this, but so I'm totally, this is just totally candid here. And, uh, uh, like I'm making this up on the spot is what I'm saying. But like, if somebody could take that $3,500, like if you have enough to invest in Mary Kay, quote, unquote, invest, not even meaning that seriously, but take that money, put it in a bank account and decide what you want to do and start your own business will be so much more successful.

Leah (42:43):

I mean, start a service based business because services have terrific margins. If you keep your overhead low and you will get the dream. I mean, what is, you know, I want to ask my friends who were sharing this, like, but what is your dream? Like, what do you want to do to bring value to this world? Like, I get that you, like, I think there is something about, oh, but if I am a Mary Kay consultant or a young living consultant, then I'm going to be a boss, babe. And like all these things, when you can, there are lots of things out there that you can do to provide services that are low startup costs, and you could do it with $3,500 and make your money back in a few months and then actually make money. I know MLMs are way more risky.

Tracy (43:29):

I wish we can convince people on a large scale of exactly what you're talking about. Like I said, I've been into education on this issue for the last 15 to 20 years, and it's just an uphill battle.

Leah (43:39):

I now have ideas of course, but I need to wrap up this episode, but, um, well Tracy, thank you so much for joining me. And so I'm going to put your website and also your LinkedIn information show notes. Um, is there any other way that you'd like for our listeners to connect with you?

Tracy (43:57):

No, those are those ways are perfect. Okay.

Leah (44:00):

Well, thank you for joining me again. This was awesome and we'll talk again soon.

Tracy (44:05):

Until next time.

 

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