Guest Blog: The Biggest Consumer Fraud You Didn’t Know About - Multilevel Marketing
by Tracy Coenen
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.
Let’s talk about the reality of multi-level marketing. MLMs are nothing more than pyramid schemes that our government allows to operate. When you participate in an MLM, you do not own a business. You’re not an entrepreneur. You are involved in a pyramid scheme in which 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.
Multi-level marketing continues to thrive, and you can see the evidence all over Facebook, Instagram, and other social media. Several of your friends are inviting you to their party or they are 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 recruit if you Google the product before they can fill your head with lies about how good the product is.
Which companies are we talking about? Some of the most common names heard are Amway, Mary Kay, Herbalife, Avon, Isagenix, Legal Shield, doTerra, Market America, and Shaklee. But there are literally hundreds of these companies. Just about any company that shows you a product and then offers you an “opportunity” to buy the product at wholesale and/or make some money selling to family and friends is an MLM. Look for keywords like opportunity, compensation plan, sharing (“we don’t sell, we share!”), independent, and recruiting.
How prevalent is MLM? In the United States, between $15 billion and $30 billion is sucked out of the economy by multi-level marketing predators each year. You’ll hear MLM pushers say that this is an inaccurate characterization, as the money was used to buy products. Yes, some of the money went toward the products, but the products are overpriced and the quality is no better than what you could get in a drugstore or big box store. Distributors are wasting money on these products because they are buying more than they can ever sell or consume. And they do this because they must meet certain minimums to qualify for paltry commissions in the schemes.
Promoters will tell you that MLM is perfectly legal, so there is nothing wrong with getting involved. But just because the law doesn’t stop these companies from operating doesn’t mean they’re any good. Even though 99% of participants lose money in multi-level marketing, consumers still get sucked in by the millions.
People are lured in by the recruitment practices which have been perfected over the decades. New recruits are drawn in with personal connections and they’re made to feel important. These personal relationships are leveraged throughout the participation in the MLM, and they are used against the distributors when they try to get out. People don’t want to lose their friends and they will often continue to lose money in the MLM scheme instead.
Multi-level marketing companies are based on endless chain recruitment. They live or die based on the ability of distributors to constantly recruit more people. They make you think the MLM is about selling products, but it is not true. The products are used to make the schemes look like legitimate businesses, when the bottom line is that it is all about recruiting. Recruits don’t realize how quickly an area can get saturated from the recruiting activity. It’s inevitable when the participants are encouraged to recruit anyone and everyone.
Maybe the biggest problem with MLM is that no matter how hard you work, you are almost guaranteed to lose money. MLM supporters will claim that those who lose money just didn’t work hard enough. That’s not true. Simple math guarantees that almost everyone will lose money.
You can only make money if large numbers of people are recruited below you. That necessarily precludes almost everyone from making money, because they can’t recruit into infinity. As the pyramid below you gets wider, the new participants added have an even smaller chance of making money because there aren’t enough people in the world for everyone to make money.
No matter what your recruiter tells you, you aren’t going to make money. Those people bragging that they make money? Almost all of them are lying. They inflate their gross income, leave out business expenses, and otherwise flat out lie to you about making money. Of course they’re going to say they are making money. They are trying to suck you into doing what they’re doing. If they told you they were losing money, you wouldn’t join.
Here’s the bottom line: Recruiting others to recruit others into MLM is not a business. You are almost guaranteed to lose money. It’s not fun, and your friends and family don’t want to participate. Since our government won’t stop MLMs from operating, the only answer is to educate consumers so they avoid these scams.
To learn more about Tracy and her work visit: www.sequenceinc.com/fraudfiles