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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.
Read the list of "30
Typical MLM Misrepresentations" engaged in by recruiting MLM’s.
Reports
on other law enforcement issues can be found at –
http://www.mlm-thetruth.com/law_enforcement.htm
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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
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