MLM – a business of deceptions – and "The Sting"

MLM – a business of deceptions – and "The Sting"

I just watched the video of the engaging film “The Sting,” starring Paul Newman and Robert Redford. In the world of organized crime, and even among small operators, the ability to pull off a successful confidence game (“con game”) that defrauded others of large sums of money was a matter of pride for successful “con men.”

Experts who have studied this phenomenon of network or multi-level marketing (MLM) have been struck with similarities between these schemes and illegal confidence games. But there are striking differences:

(1) A confidence game, or simple fraud, is clearly illegal. Conversely, even when technically illegal, most MLM’s are accepted by most law enforcement personnel as harmless – in part due to the unwillingness of victims to file complaints. Even though tens of thousands of participants may have been defrauded of small to large sums of money, such victims almost never file complaints – as is typical of all endless chain selling schemes.

(2) Con artists usually are fully aware that they are cheating their victims. Conversely, it is rare for even top MLM promoters to be aware of the harm, in terms of losses, that they are causing to nearly all participants in their programs.

Typically, MLM programs and other endless chain-selling schemes are inherently uneconomic for all but those at or near the top of their respective hierarchies of participants. They defraud the vast majority of participants, who buy products on the basis of a whole set of misrepresentations. This becomes clear in analyses of actual payouts of MLM companies – based on company reports and surveys of tax professionals. For a look at the statistics on dismal earnings of MLM participants (actually losses for 99.9% of them, if all costs are subtracted from earnings), go to the page entitled “MLM - Network Marketing NUMBERS – the Odds of Success –vs. No-product Schemes & Gambling” at – http://www.mlm-thetruth.com/NUMBERS.htm

As with con artists, MLM promoters find themselves having to deceive if they are to succeed. If they tell the truth about the MLM they are promoting, no one will join and “pay to play” the game. (Such payments are usually in the form of product purchases). They must perpetuate the myth that MLM is “the wave of the future,” a truly fair and effective way to get a piece of the marketplace, a way to gain ongoing residual income by leveraging the efforts and purchases of others, etc. The truth starkly contradicts these claims. Promoters must promote a whole set of deceptions, or convoluted thinking, to create a picture of a truly viable, profitable sales or business opportunity.

A list of 30 “Typical Misrepresentations Engaged in by Recruiting MLM’s” can also be accessed at – http://www.mlm-thetruth.com/Misrepresentations-RecruitingMLMs.pdf
Reports on other law enforcement issues can be found at – http://www.mlm-thetruth.com/law_enforcement.htm

A concrete example of how clever an MLM can be at deceiving not only consumers, but also law enforcement officials, is Nu Skin’s one-page report of “Actual Average Incomes” of its distributors, on which I found 20 deceptions on a single page! Unfortunately, neither the FTC nor state officials detected any of them. To download the full “Report of Violations” of an earlier FTC Order for Nu Skin to stop its misrepresentations (including the page in question), go to Item #2 on the “Nu Skin’s Naughty Numbers” page at – http://www.mlm-thetruth.com/nu_skin's_naughty_numbers.htm

Another excellent report worth reading is “The 10 Big Lies of Multi-Level Marketing,” by Robert L. Fitzpatrick, President, Pyramid Scheme Alert. It can be found at –http://www.falseprofits.com/MLM%20Lies.html

Mr. Fitzpatrick has written another well-researched article on the subject that every person wanting to know the truth about MLM should read titled "The Myth of 'Income Opportunity' in Multi-level Marketing."

When all these deceptions are considered together, MLM could be described as “theft by deception,” even as a con game – perhaps the most successful of all time. But the fraud is dependent on an endless chain of self-deception, which is what makes it so insidious. As I have often stated, “MLM is the perfect con game. The very people who are being victimized (deceived) are out promoting the program (deceiving others) – until they run out of money (from “failure to work the program”) and quit. Since such victims seldom file formal complaints, authorities do nothing to stop it. Promoters recruit (deceive) new participants to replace those who dropped out (the victims). And the game goes on.”

A villain is very tough to find in these schemes. This is because the core of the problem is not the people or the products, but an inherently fraudulent SYSTEM – recruitment of an endless chain of participants as primary customers. Because the fraud is to be found in the system itself, this class of fraud could be referred to as SYSTEM FRAUD. For the "5 Red Flags" that clearly indicate an MLM is a fraudulent system, go to – http://www.mlm-thetruth.com/5RedFlags2column40pages2color3-6.pdf

NOTE: There are extremely rare exceptions – but they programs that don't act at all like typical MLM's. The compensation plans pay most commissions to the person doing the selling, so there is more incentive to sell than to recruit. For evaluations of over 200 MLM programs, go to –http://www.mlm-thetruth.com/mlm_evaluations.htm