MLM; What is it?

Like the world of Muslims, illegal immigrants and Gay Marriages, few things engage readers more than a discussion of MLM: Multi-level marketing.

This author has studied MLM both face to face and from the side lines, for 38 yrs. Our firm has spent over 100,000 hours examining interviews, newspaper reports, legal decisons and had this report:

This Representative earns money three ways; he sells kits to new Representatives. He earns money from soap sales to his own customers [of which there are rarely many] and he earns money from the soap sales that HIS Representatives and his Representatives and their Reps sell. And on and on and on.

My opportunity to conduct an audit of a 6th level Amway Agent came at a unique time. I was in the dating game. It just so happened that on her way to recruit a new Agent, this lady in AZ found me “Desirable” and visa-versa. During our third week dating, I offered to audit her books after listening to her stories and visiting he home and seeing her Amway assets, and methods. She was bothered that her net cash in the bank was much less than she felt it should have been.

I examined her paperwork, compared it to her stated answers and compared that to her history with the company and deduced, ANALYTICALLY, that instead of her netting $35.00 an hour [1982], she was instead netting $5.62. She was horror stricken. While she was proud of her wall of cassettes that her up-line Agent had sold her and was assured was recoverable–that the up-line agent would buy them all back at her original cost–she called him and he said “You have misunderstood, we don not buy back cassettes. She could have made a big deal out of his previous lies to her but she decided not too.

She lost her house two months later and filed for bankruptcy.

This author has never found one person who was ANY level Agent for any MLM that netted more than $5.70 an hour. These agents were, unfortunately, not only not previous or current business students in college, but had never taken one course or read one book in accounting, so they had no idea about how to examine an income statement or balance sheet. I will agree that, with one trip to any public library, that literature or education could have been surmounted.

Next, the proliferation/invasion of MLM into internet newsgroups world-wide.

This author “Owns” several Yahoo Groups, also known as newsgroups. Mine deal with real estate and business. I have a FAQ [Frequently Asked Questions] that state “No MLM invitations or ‘business’ may be conducted on this group.” I have 25 groups. Each time I create a group, immediately, 25% of the new subscribers are MLM Agents. And they have the audacity to admit it. “Wanted, Agents to open down-lines in A, B and C cities and nations.”

When I ask my peers who have newsgroups on similar or different subjects, we all find that 25% or more of new subscribers are doing the same thing; promoting their MLM group in spite of a prohibition of same. Polite requests to refrain from doing so, are ignored.

Next; new Agents I meet.

In the past 12 years, I have met

Keller-Williams straddles the line when they offer new Agents a fee to recruit other new agents.

The main law that is broken in the US by MLM is the federal law of Deceptive Practices. Plus the law where recruiting is the main objective without having any employers seeking employees.

While I have never seen one, this is of interest: “A legitimate multi-level marketing opportunity is the value of some business purpose. Ask yourself, "What does the company sell?" An illegal pyramid scheme has no business purpose---rather its emphasis is on getting other people to enlist. 1. Original Source: Los Angeles Times, April 27, 1999.” More references; Multilevel marketing (MLM) schemes 1. Multilevel marketing plans, also known as network or matrix marketing, are a way of selling goods or services through distributors. These plans typically promise that if you sign up as a distributor, you will receive commissions for both your own sales and those of other people you recruit to join the distributors. Multilevel marketing plans usually promise to pay commissions through two or more levels of recruits, known as the distributor's downline. While some MLM schemes are supposedly legitimate, if a plan offers to pay commissions for recruiting new distributors, it likely is illegal. State laws against pyramiding say that a multilevel marketing plan should pay commissions only for retail sales of goods or services, not for recruiting new distributors. [Indiana University Information Services-http://kb.iu.edu/data/afvn.html]

More references;

Amway is a multilevel marketing (MLM, also known as network marketing) company founded in 1959 by Jay Van Andel and Rich DeVos. The company's name is an abbreviation of "American Way." [1] Based in Ada, Michigan; personal care products, jewelry, dietary supplements, water purifiers, air purifiers and cosmetics. Wikipedia.

Ja-Ri Corporation was the original multi-level marketing distributorship for Nutrilite nutritional products, founded by Jay Van Andel and Richard DeVos in 1949.[3] Ja-Ri's name comes from the founders' first names, Jay and Richard. Friends since childhood, Van Andel and DeVos became business partners in endeavors such as a hamburger stand, air charter service, and a sailing business. Ja-Ri was incorporated in 1959, and changed its name to "Amway" in 1963.

Regarding legal actions:

In the 1979 In re. Amway Corp. (93 F.T.C. 618) ruling,[7] the Federal Trade Commission found that Amway does not qualify as an illegal pyramid scheme since the main aim of the enterprise is the sale of product and money is paid only for business volume, personal and group. Amway was ordered to accompany any such statements with the actual averages per distributor, pointing out that more than half of the distributors do not make any money, with the average distributor making less than $100 per month. The order was violated with a 1986 ad campaign, resulting in a $100,000 fine

In 1983, Amway pleaded guilty to criminal tax evasion and customs fraud in Canada, resulting in a fine of $25 million CAD, the largest fine ever imposed in that country. The company was fined another $45 million CAD in 1989 to settle a suit brought by Canada's trade office.[10][11][12]. In an 1994 interview, Amway co-founder Rich DeVos stated that this incident had been his greatest "moral or spiritual challenge", first in "soul searching as to whether they had done anything wrong."

In 1999 the founders of the Amway corporation launched a sister (and separate) Internet-based company named Quixtar. The Alticor corporation owns both Amway and Quixtar, plus several other concerns. Quixtar replaced the North American business of Amway in 2001, with Amway operating in the rest of the world. Amway's internet sales in Europe are conducted via their Amivo website. The Access Business Group was split off to handle manufacturing.

http://www.mlmsurvivor.com/melaleuca.htm

March, 2000 1. Fourteen Melaleuca distributors have sued their upline and the company on charges that have become all too familiar to followers of MLM lawsuits.

Distributor retention is vital to the success of any MLM endeavor--This means that, in any given year, 50% of the distributor force quits.

So (according to the complaint), instead of an average attrition rate of only 5.5% per year, as they had been led to believe, the Holtons discovered that the annual dropout rate was really 66% per year -- an enormous difference. Kim Holton, who had sponsored people she cared about, was thrown into a serious depression and eventually committed suicide, leaving her husband and son.

PROSTEP LEAD MLM DEAD AFTER 12 YEARS 1. 26 August 2005 -- ProStep the lead generation company, dies at hands of the Law. After a recent defeat with the state of Texas over a disputed multi-year franchise tax and sales and use tax payments Prostep is shutting down. Here at the MLM WatchDog we can pretty well determine that means filing bankruptcy to escape the Texas bills due... Ed. Note: We always hate to see MLM Companies die, however there will be some humor if the Name List Brokers are selling the "Experienced Networkers! - Prostep Name List" next week!

THE WORLD'S DUMBEST PYRAMIDERS ARE HANGING THEMSELVES! 1. 22 July 2005- You have to read about these guys standing in front of a judge telling him that Elite Activity is not a pyramid ponzi... In person! Wow, all they had to do was shut down the website and run. Now, there's a shootout between them and the AG. Good luck! http://www.fortwayne.com/mld/fortwayne/news/local/12155218.htm MORE LAWSUITS EVERY TIME WE LOOK! 21 July 2005- Wow, this is one of the most sue happy couple of years I have seen in the MLM Industry! MLM Lawsuits -------------------------------------- http://www.mlm-thewholetruth.com/scams.shtml

1. Attorney General Warns of Marketing, Pyramid Schemes 11/22/06 4:15 AM ... and Charles Counties Attorney General Warns Consumers of Multi-Level Marketing Schemes, Pyramid Cons Maryland Attorney General J. Joseph Curran, Jr., warns Maryland residents to ... Better Business Bureau expels 2 firms Pittsburgh Post-Gazette 6/30/06 12:57 AM ... which include the plan's parent company, American Family Prepaid Legal Corp. of Irvine, Calif., to immediately halt their "illegal" conduct regarding current or future marketing ... Lee's Summit business owners indicted for false tax returns BizJournals.com 6/30/06 3:48 AM ... information. The Aldridges co-own and operate a multimillion-dollar multi-level marketing firm called , which sells American Silver Eagle coins. The company employed about 5,000 sales ... Concept Marketing International UK's Times Online reports crack down on scams and "matrix" schemes..."FINANCIAL fraudsters prey on the gullible and the vulnerable. But one scam has plumbed new depths" 10/19/2005 Norwich Evening News in the UK lists the top 10 scams in Europe - Click here 10/4/2005 New payment processor that will replace PayPal? Maybe not. See comments on GreenZap. Buyer Beware on Australian 2-Ups like Liberty League and Coastal Vacations! - see Rod Cook article. Government Cracks Down On Internet Mall Pyramid Promoters WFMY-TV CBS 2 Greensboro (NC) 5/13/05 10:35 PM ... NexGen3000.com, Inc.; Globion, Inc.; Robert J. Charette, Jr.; David A. Charette; Stephen M. Diamond; Christine Wasser; Infinity2, Inc.; and Edward G. Hoyt are barred from participating in any multi-level marketing businesses in the future. All are barred from making false or misleading earnings or income ... USATODAY.com - U.S. cracks down on 200 scam operations 2/22/2005 Federal agencies announced a crackdown Tuesday on about 200 operations that falsely offered lucrative work-at-home and other questionable business opportunities. ... U.S. cracks down on 200 scam operations. WASHINGTON (AP) — Make big bucks at home stuffing envelopes ...

BBB of Metropolitan Texas 8/19/04 11:59 AM ... "Gifting Club" - "Elite Activities" through recruitment of participants, as opposed to a multilevel marketing scheme, where money is made through the sale of a product or service. Staci Schneider, ...

http://attitudeadjustment.tripod.com/Essays/MLM.htm

by 1. Luke Setzer Multi-Level Marketing (MLM) companies like Amway and Nu Skin are notorious for hyping their "business opportunities" and promising riches to those who "work hard" at "building the business". However, a closer look reveals a very dark side to the MLM industry, as the following testimonial from a seasoned MLMer will demonstrate: My wife and I have been involved with the MLM industry for 20 years. We have built many large downlines and have come to the following well-reasoned conclusions. We're tired of building big downlines only to see them fade away, companies go out of business, regulatory action, lawsuits, bad press, etc. Distributors are along for a ride in a cart driven by someone else.

Selling a product-based deal is fine, but the idea of marketing a business opportunity to prospects when we know the numbers is not ethical for us. In its purest form, MLM is a viable method of marketing if its focus is on products and not primarily the business. Selling the dream of financial independence with MLM is a mirage for 90+% of distributors. The MLM industry statistics are that on average only 10% of distributors get a commission check each month. Of that 10%, 80% do not make enough to sustain themselves as a full-time income. Industry-wide company statistics show that 90% of distributors drop out of each company within a 1-2 year period. The distributor churn rate is terrible. Any way you cut it, MLM statistically does not work for 90+% of those involved. And those who make the big bucks are in a more elite group--usually 1/10 of 1% of all distributors. We found that we could not ethically sell the MLM dream of financial independence for all. It is impossible. For me to get $10,000+ a month, I have to build this on the backs of all the users, consumers, and little people--the ones who buy their $100 a month of whatever and don't get a check. This money flows upline to distributors and back to the company from people who don't make their monthly qualifications.

In MLMs, you do not own your own business, you do not own the product, and you are not in control of your destiny. The company holds all the strings--product supply, computer tracking, commissions, collections, customer service, order fulfillment, publicity, compliance, public relations, comp plan, everything. All you own is a position in a long line of distributors. You do not control the product you sell, the comp plan, what the company does or does not do, the money that is paid . . . distributors own nothing other than the opportunity to sign more distributors and manage the existing downline. You are at the mercy of the company, upline, downline, media, and government.

This is why we're doing our own thing--developing our own products (books, information products), marketing, and selling. We started this four years ago. We've got no one to answer to except us. We've got control. We direct market to customers, find more new customers, nurture that relationship, and make more sales. The most important thing we've got is our customer list and that relationship and goodwill.

I would like to recommend that you check out the following links. These pages will explain more: What's Wrong With Multi-Level Marketing http://www.vandruff.com/mlm.html What's Wrong With MLM--FAQs http://www.vandruff.com/mlm_FAQ.html The Zero Sum Theory MLMer Tom "Big Al" Schreiter on MLM http://www.mlmcentral.com/library/zerosum.html MLM Watch: A Skeptical Guide to Multilevel Marketing http://www.mlmwatch.org/ The Network Marketing Game Dr. Jon Taylor, who did the Network Marketing Payout Distribution Study http://whatisgood.com/nwm/ Worldwide Scam http://www.worldwidescam.com/ MLM or Pyramid Scheme? http://factsource.com/srmlm.html Cagey Consumer MLM and Financial Scams Exposed http://www.geocities.com/WallStreet/5395/consumer.html False Profits Analysis of Network and Multi-Level Marketing (MLM) http://www.falseprofits.com/ How do MLMs manage to recruit and retain enthusiastic distributors, even when those distributors lose money year after year? A close examination of the mind control systems of cults reveals disturbing similarities between MLMs and cults. This web site supplies a generic checklist for identifying cults: http://www.csj.org/infoserv_cult101/checklis.htm

Let's go through the list and comment: 1. The group is focused on a living leader to whom members seem to display excessively zealous, unquestioning commitment. In MLM, sometimes it's a leader, sometimes it's the company itself. More often it's a charismatic individual, whether that's the company founder or an upline. 2. The group is preoccupied with bringing in new members. In MLM, the answer is YES! YES! YES! 3. The group is preoccupied with making money. In MLM, the answer is YES! YES! YES! 4. Questioning, doubt, and dissent are discouraged or even punished. In MLM, the answer is YES! YES! YES! 5. Mind-numbing techniques (such as meditation, chanting, speaking in tongues, denunciation sessions, debilitating work routines) are used to suppress doubts about the group and its leader(s). Ever been to an MLM "motivational seminar"? It's not so much "mind numbing" as it is "mind distracting". Good feelings are whipped up and lifelong dreams stimulated and then linked to the "business opportunity", as if the latter could materialise the former. Logical flows of cause and effect based on rigorous research are replaced with highly emotional but intellectually flawed mental linkages to keep the MLM recruit hooked. 6. The leadership dictates sometimes in great detail how members should think, act, and feel (for example: members must get permission from leaders to date, change jobs, get married; leaders may prescribe what types of clothes to wear, where to live, how to discipline children, and so forth). For MLMers, the dictates are that "thou shalt market thy product every waking moment when one is not listening to one of thy company tapes or contacting thy friends and family to recruit them into the cause. Should thy fail to do this, thou art the gravest of sinners." 7. The group is elitist, claiming a special, exalted status for itself, its leader(s), and members. The "bad guys" are corporate America and their foisting of JOBs (Just Over Broke) onto the American "sheep". Never mind that it's much easier to manage life on a steady JOB income than on a nonexistent or even negative MLM income.

10. Unethical MLM practices include (1) outrageous income claims not achievable by "just anyone" despite their arguments to the contrary, (2) telling people to "fake it till you make it" (heard this one from a Nu Skin Blue Diamond distributor tape), (3) encouraging retail customers to use excessive amounts of product to boost resales (heard this one from another Nu Skin distributor tape). 11. The leadership induces guilt feelings in members in order to control them. Example: "What? You didn't make any phone calls today for your business? How are you ever going to get that new Mercedes (or big house, or quitting your job, or whatever other 'hot button' you might have)." 12. Members' subservience to the group causes them to cut ties with family and friends, and to give up personal goals and activities that were of interest before joining the group. Listen to some Amway tapes and learn how people have lost valuable relationships with families and friends because Amway became their all-consuming passion.

http://dmoz.org/Business/Opportunities/Opposing_Views/

Anti-MLM and Anti-Amway Webring - Sites containing informational material regarding the MLM industry, especially Amway. Cagey Consumer: Multi-level marketing - Analysis and debunking of Multi-Level Marketing as an industry as well as scrutiny of a number of specific MLMs and complaints generated about them. An Employment Scam in the Financial Services Industry - Describes an employment scam that finance grads and those considering financial, insurance and securities sales should be aware of. What to do if you've been scammed; links to similar sites. False Profits - About the book, an exposé and analysis of the multi-level marketing (MLM) industry FTC Sues Nationwide Internet Scam - Press release about FTC lawsuit against StreamLine business opportunity. The God of the Bible versus the god of Multi-Level Marketing - Christian site calling the teachings of Amway Motivational Organizations "a Satanic distortion of Biblical truth." The Hype of It - True story of a PartyLite Gifts consultant's trek to the top followed by the use of the 10 day clause by the company to terminate her contract. The Mirage of Multilevel Marketing - Article by Stephen Barrett, M.D., on bogus health products. MLM Survivor - News, lawsuits, personal experiences, and information. MLM Survivors Club - A discussion group for people who've survived MLM. Multilevel Marketing Plans - Tips from the Federal Trade Commission regarding MLMs. Personal Experience: Mary Kay Cosmetics - Associate recounts her negative experience with the company. PinkLightHouse.com - Ex-Mary Kay consultants offers news, stories, testimonials and forum on negative experiences with the company. Pyramid Scheme Alert - Exposes, studies and aims to prevent illegal pyramid schemes. Site includes news, alerts, resources, legal information, updates and consumer information about a number of companies and MLMs operating suspected pyramid schemes. Skeptic's Dictionary: multi-level marketin

Metabolife probe launched - Metabolife International, the leading seller of the controversial weight-loss supplement ephedra, is the subject of a criminal investigation by the Justice Department. (August 15, 2002) Bigsmart Pyramid Promoters Settle FTC Charges