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for a quick summary of Dr. Taylor's
investigations [Click here for report in PDF format for printing], together with input from the world's top experts on product-based pyramid schemes. For more information about the Consumer Awareness Institute and Dr. Jon Taylor, click here.
2. Tax Prof's Know Who's Making Money in MLM/Network Marketing.
It's not the new recruits that are buying up products and sales tools to "play the game." Conclusions from this survey are strengthened by household surveys on MLM participation. See "Survey of Tax Preparters."[Click here for PDF format.]
3. Research Data Shows that Gambling Beats MLM.
 Where data was available, the rate of success for recruiting MLM's is abysmal. In fact, "recruiting MLM's" makes gambling in Las Vegas look like a safe bet in comparison. Even clearly illegal no-product pyramid schemes do far better. See "Which Does the Greater Harm?" [PDF]. See also the page on MLM statistics,including how to calculate the odds of profiting from an MLM program.
At the request of the National White Collar Crime Center, Dr. Taylor prepared a white paper for the 2002 Economic Crime Summit Conference. This information was also presented at the 2004 conference in Dallas and is my most recent condensation of all my research on the topic. Robert Fitzpatrick, President of Pyramid Scheme Alert said of a lengthy early version of this report: ". . . the very best piece I have ever read on this subject—very incisive, thorough, and illuminating. I think it would benefit every regulator in America and abroad to read this." At the very least, you should read the brief consumer-friendly summary, entitled "The 5 RED FLAGS for Identifying Exploitive Product-based Pyramid Schemes, or Recruiting MLM’s"
The 5 Red Flags were selected on the basis of direct experience and over eight years of comparative research, along with input from the top experts in the field. They were then validated with actual data from MLM company financials, court records, etc.. Serious researchers will want to carefully review the grid that was used for the final selection of the 5 Red Flags. Read "Comparative Analysis of Direct Sales and other Legitimate Distribution Models with No-Product Pyramid Schemes and Recruiting MLMs, or Product-based Pyramid Schemes." [Click here for PDF format.] This comparative analysis, identifying the causative factors in the compensation plan which collectively led to extremely high loss rates, was selected from earlier syndrome analysis, as reported in an earlier report - "Product-based Pyramid Schemes: When Should an MLM or Network Marketign Program Be Considered an Illegal Pyramid Scheme?" [PDF]
5. Tax Returns of the Top Amway Direct Distributors in Wisconsin Show Losses.
In a 1980 suit by the State of Wisconsin against Amway, the tax returns of the top 200 out of 20,000 distributors were examined. Their average income was minus $900! For more details, click here.
6. Review of Average Income Reports by Pyramid Scheme Alert also shows MLM/Network Marketing Programs to be Unprofitable.
Robert Fitzpatrick, President of Pyramid Scheme Alert, examined reports of average incomes of participants in several MLM/network marketing programs, using somewhat different assumptions than those used by Consumer Awareness Institute. He accepted their numbers without attempting to debug the deceptions in their reporting. Still, he came up with essentially the same conclusion – Their loss rates were horrendous. Read "The Myth of 'Income Opportunity' in Multi-level Marketing."
7. Analysis of sales figures supplied by the World Federation of Direct Selling Associations (WFDSA) shows increasing losses by participants as MLM grows world wide.
Karl-Heinz Kreiter has done an incredible job of showing how unprofitable direct selling is when the number of MLM participants is factored in - using statistics supplied by the WFDSA. They are condemned by their own numbers! Read the full report – "Outstanding unlimited growth potential for MLM?" at – http://www.mlm-beobachter.de/mlm/mlmwachstum_e.htm
8. Fascinating Case Study – Nu Skin Enterprises:
Read the "REPORT OF VIOLATIONS" (PDF – also mentioned in "law enforcement" section) by Nu Skin of the FTC's 1994 Order for Nu Skin to stop its misrepresentations, which required personal experience with and extensive research on Nu Skin and MLM generally to complete. Appendix E of the report (downloaded as a separate scanned PDF file), illustrates the mega-pyramid structure of Nu Skin's breakaway compensation plan, which enriches Blue Diamond distributors at the expense of huge downlines of victim-participants. In 1998, Nu Skin reported almost five times as much U.S. revenues to prospects (until 2001) and to the FTC as to the SEC in its official financial reports. Also, while Nu Skin officials did disclose some average income figures as requested by the FTC, the report supplied to the agency and to prospects was found by Dr. Taylor to contain 20 deceptions on the a single page! This also was reported to FTC officials.
9. Unmet Research Request:
The "NETWORK MARKETING PAYOUT DISTRIBUTION STUDY" [PDF] includes a long-standing request for data, which was sent to the presidents of 60 of the largest network marketing companies. Provided a format for them to demonstrate that they are not a pyramid scheme. Though some tried, none of the 60 companies were able or willing to comply.
10. MLM is based on deception.
Also, a review of the table in
30 Typical MLM Misrepresentations will help you to see that recruiting MLM's obtain their revenues by a whole set of misrepresentations. Taken together, they could constitute deceptive sales practices or simple fraud in virtually any jurisdiction.
11. Other Research:
Dr. Taylor has also done extensive research and written on the impact of MLM on members of the Church of Jesus Christ of Latter-day Saints, who seem particularly vulnerable to these schemes, due at least in part to very trusting relationships cultivated in their ranks. His book The Network Marketing Game: Gospel Perspectives in Multi-level Marketing addresses the ethics of MLM for Latter-day Saints, and in fact for all persons with a Judeo-Christian code of ethics.
PLEASE HELP! We believe this site presents information about MLM/network marketing that is as close to the truth as can be found. It can save you much time, money, and grief, as it has done for many others. Since law enforcement has essentially looked the other way on this type of consumer abuse, it is left to informed consumers to inform and warn their friends and relatives about the potential losses they could suffer from participation in a “recruiting MLM.” So please print and distribute at least 5 copies of the answer cards to those you care about – and ask each of them to share answer cards with 5 people, and each of them with 5 more, etc., etc. . . . In this way, you can influence many people for good – through an endless chain of truth-telling. Click here to see these handy answer cards (4 to choose from) that you can print and distribute now – as well as carry with you for those awkward moments when you are recruited by a well-meaning friend or relative. For more information, click on the appropriate links above. |
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"Your logical questions and objective research are exactly what is needed in this industry." —Donna Horowitz
Dear Dr. Taylor,
The only scientific data I found about the business practices of the MLM companies . . was on your web site. I very much appreciate your dedication to fact finding about the MLMs and their 'contributions' to our society. What you have found is yet another example of Americans with money and power defrauding middle and lower class people with much less. I applaud your painstaking research carried on over decades and at your own expense. The future of democracy depends on the kind of public awareness that you are making possible.
– Jonathan Baylis, MCS, M Ed, BC, Canada
Research and Consumer Guides: This research and information on MLM (multi-level or network marketing, etc.) was prepared with the help of top experts over ten years by the Consumer Awareness Institute, directed by Dr. Jon Taylor. Opinions vary widely on MLM's legitimacy. But here you will find objective research on success and loss rates, compensation plans, etc.
What went into the research by Consumer Awareness Institute: The investigative research that formed the basis of these reports includes:
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Extensive comparative research on MLM compensation plans and alternative business models to clarify differences,
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interviews with and feedback from thousands o f MLM distributors and ex-distributors in a wide variety of MLM programs,
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Interviews with the top experts in the field,
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Surveys of hundreds of tax professionals where MLM is concentrated – representing thousands of tax returns of MLM participants,
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Actual tax records examined by Wisconsin investigators
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Court records in MLM cases – including IRS income tax records of top distributors in one state,
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Household consumer surveys regarding MLM participation,
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Surveys of leading MLM company presidents,
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Private and public financial disclosures by MLM companies,
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Communications with law enforcement officials at all levels, and—
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Direct experience with prominent MLM companies.
A Parable that is Sad but True! Why does law enforcement fail to act against MLM fraud? Read the "Parable of the Missing Children", followed by comments directed t
owards persons wondering what they can do to inform people.
Victims and Observers Speak their Minds. Read "Excerpts from Quotes Regarding the Effects of MLM (network or multi-level marketing) on Participants and Families."
"Thank you for your great insights and all the work you have put into researching this little-understood subject. If every [person] interested in joining recruiting MLM's would just take the time to read your [reports] and educate themselves, they could save a lot of grief." —Michael Rawlings
"Thank you for your work on MLM! It is exactly what I've been looking for to get a data-based picture of the opportunity I am currently pursuing. Your logical questions and objective research are exactly what is needed in this industry." —Donna Horowitz |
