Before we share our list of over 350 MLM* programs we have evaluated, it is important that you do your own evaluation. We will not be responsible for the consequences of a decision that is ultimately yours to make. (See Disclaimer below.) But we are confident that here you will receive the best advice available on how to make that decision.  

To begin, obtain the compensation plan of the MLM program you are considering. Then answer the questions for each step and follow the links to its conclusion. Then again you might want to review some of the feedback we have received.

Click here to begin the evaluation.

Then you can see how your evaluation stacks up against ours. So start the 5-step evaluation now.  Or - if you wish - you may first want to read below from some of the feedback we have received:

____________________

Feedback: 

___________________

I'm being approached now by a family member to join a brand new internet social
networking group (like facebook, etc), as a front for a MLM scheme.  It's called Blastoff
which launches in October '09.   I believe it's a step-child (so-to-speak) of Pre-Paid Legal.  I just had to fend off another relative who tried to recruit me into her NuSkin network.

It's everywhere!  I'm being bombarded...Monavie, NuSkin, Melaleuca, Pampered Chef, PPL and now Blastoff!  I resent that they look upon you like you're an idiot for not being
interested and worse yet for speaking out against it.  I'm going to start carrying your
cards. 
- M. Clark 

_____________________________________

  It seems appropriate to quote the following insightful article from Durocher’s OKC Business, Central Oklahoma’s Business in Print and Online, Posted: Monday, July 28, 2003

Column: Is it just a glorified pyramid scheme?

Pre-Paid Legal is in need of better reality, not better stories

By PETER S. COHAN
 

Pre-Paid Legal Services, a $359 million multi-level marketer of legal expense plans based in Ada, loves a good story.

Pre-Paid's founding legend is such a whopper. In 1969, company founder Harland Stonecipher was involved in a car accident. The other driver survived the crash. But, according to Stonecipher's memoir, "I faced thousands of dollars in legal costs stemming from an accident in which I was blameless."

Stonecipher's version is incomplete. Business Week Online interviewed his attorney at the time and reviewed copies of the suits. The attorney said that Stonecipher sued first for roughly $125,000. The other driver later sued Stonecipher for less. He ultimately settled for $3,000. According to the attorney, Stonecipher's version "made a lot better story if he was sued first."

As its employees, customers, and shareholders have seen, Pre-Paid's entire operation is based on such "better stories."

Sales recruitment

Pre-Paid's operation depends on recruitment of new "associates" who sell Pre-Paid policies and recruit other associates.

Pre-Paid's associate recruitment relies on telling better stories. At Pre-Paid sales conventions, thousands of associates and recruits listen to passionate speeches. The parking lots are full of Humvees, Mercedes, and Maseratis.

Len Clements, a multilevel marketing expert, offers an eyewitness account of 2000's Pre-Paid recruitment meeting. According to TheStreet.com, Clements listened to Tommy Vu, the 1980s infomercial star widely sued by disgruntled students of his $15,000 real-estate sales "boot camp."

"Tom Vu takes out a five-dollar bill and wraps it around the microphone stand," recalled Clements, "Then he asks the audience, ‘If I said you could take this $5 for $1 of your own, what would you say?'

But Pre-Paid's recruitment conventions exclude story-damaging details. According to Robert FitzPatrick, president of Pyramid Scheme Alert, these include:
 - The average Pre-Paid associate takes home under $3 weekly;
 - Many of Pre-Paid's 341,000 associates never recoup the $249 they pay to access the Pre-Paid "opportunity;"
 - Half its associates leave and half its customers terminate their policies annually; and
Pre-Paid prepays a year of sales commissions but forces associates to pay them back with interest if they don't meet their sales targets.

Stonecipher declined to comment on the number of levels in Pre-Paid's marketing structure, each level's number of people, its turnover, its average associates' earnings, or the percentage of associates who earn over $30,000. Such details might not make a good story.

Customer closing

Pre-Paid also omits pesky facts from its customer sales pitches. According to an Alabama lawsuit, associates are instructed to tell prospective customers that Pre-Paid's coverage offers unlimited legal access and coverage. In an issue of Pre-Paid's in-house magazine, Connection, David Savula, a leading Pre-Paid associate recruiter, wrote: "Does our product cover everything? Yes. So if somebody asks does it cover this or does it cover that, we're going to say, ‘Yes.'"

Contrary to Savula's claim, Pre-Paid's written policies limit coverage. Cases involving bankruptcy, alcohol, drugs, preexisting conditions, divorce, annulment, child custody, and many others are covered in a limited way.

Will-writing and contract reviews are among the few services covered for free by the Pre-Paid policies.

Its Alabama attorney defends the gap between associate's words and Pre-Paid's contracts by noting that it cannot be held responsible for the verbal assurances of its non-employee associates.

Stonecipher did not describe the policies as offering unlimited coverage. He pointed out that there are different levels of policies and that they cover different services.

Shareholder scams

The Securities and Exchange Commission (SEC) has twice forced Pre-Paid to restate its financials. In 1994, Pre-Paid wanted to do a public stock offering, however the SEC said no unless Pre-Paid expensed its customer acquisition costs instead of amortizing them. Pre-Paid fought the change but ultimately capitulated - devastating its balance sheet. Stockholders' equity fell 90% to $2.4 million; assets declined 69% to $11.1 million; and 1993 net income of $306,000 became a net loss of $613,000.

In 2001, the SEC again forced Pre-Paid to restate its results. Pre-Paid went from treating sales agents' commissions as an asset which it amortized, to expensing them immediately. Pre-Paid slashed its 2000 per-share earnings 42% to 81 cents and its 1999 results 66% to 57 cents.

Stonecipher said that Pre-Paid should treat the commissions as an asset the way life insurance companies do, however, the SEC did not agree.

Pre-Paid's disclosure of and protection against lawsuits are flimsy. Its recent quarterly report details numerous lawsuits filed against Pre-Paid. Stonecipher declined to estimate the suits' total damages. But Pre-Paid's SEC filing estimates that just two assess $415 million in damages. Yet Pre-Paid has reserved a mere $3.3 million against all these lawsuits.

Many believe Pre-Paid's stock is due to fall. Pre-Paid's short interest is higher than all but three NYSE stocks. With 8 million Pre-Paid shares sold short and a 186,000 share average daily trading volume, it would take 44 days to cover this short position.
But Pre-Paid is in a Mexican standoff with these short sellers. According to a hedge fund manager with a large Pre-Paid short position, "either you're a cult believer in Pre-Paid - because much of the stock is held by people who are associated with the company - or you're short. And there's very little in between. The sales associates are only buying - never selling - and the company has its big buyback program [Pre-Paid has spent $145 million since April 1999 buying 6.5 million shares]. Meanwhile, the shorts can't short the stock anymore. So the stock's just going to sit there until there's a major event."

Stonecipher's comment on why the short interest in Pre-Paid is so high: "Ask the shorts."

In 2002, Pre-Paid took on a $30 million credit line to finance a $30 million headquarters edifice and to buy back more stock. To avoid default, Pre-Paid must retain over 50% of its customers with policies in force for under a year. In 2002, that rate was a meager 51.8%. Pre-Paid must keep the ratio of Total Liabilities to Tangible Net Worth below 375 percent. But Pre-Paid's stock repurchase program lowered its net worth, so its bank loosened the ratio from the original 250 percent to avoid a default.

Stonecipher did not comment on the loosening of this covenant but claimed that Pre-Paid is in no danger of violating any of them and that the bank with which it has the credit line had visited Pre-Paid recently to lend it more money.

My conclusion: Pre-Paid needs to dump its "better stories" and deliver a better reality.

_________________________

Peter S. Cohan is president of Peter S. Cohan & Associates (www.petercohan.com), a management consulting and venture capital firm. He's the author of seven books, including the forthcoming Value Leadership: The 7 Principles That Drive Corporate Value in Any Economy (Jossey-Bass, A Wiley Imprint, September 2003).
 

 NOW - 

Click here to begin the evaluation.

After extensive research corroborated by MLM company reports, "5 Red Flags" have been identified which when found in a compensation plan lead to losses in excess of 99% – in at least four independent investigations. Read the full report on "The 5 Red Flags of a Recruiting MLM", a summary of which was published in the newsletter for the National White Collar Crime Center and presented at the Economic Crime Summit Conference in 2004. 

Since it is based on solid research, It is much safer to use the "5-step Do-it-yourself Evaluation" for an MLM program, than to accept the claims of MLM recruiters in making your decision on whether or not to participate.
 

"Your logical questions and objective research are exactly what is needed in this industry."  —Donna Horowitz
 

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 fifteen 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 This  Research: The investigative research that formed the basis of these reports includes: 

• Extensive comparative research on compensation plans of 350 MLMs and alternative business models to clarify differences and to find the causes of high MLM participant loss rates,
• Interviews with and feedback from thousands of MLM distributors and ex-distributors in a wide variety of MLM programs, 
• Interviews with the top experts in the field, 
• Surveys of hundreds of tax professionals where MLM is concentrated – representing thousands of tax returns of MLM participants, 
• Actual tax records examined by Wisconsin investigators
• Court records in MLM cases – including IRS income tax records of top distributors in one state, 
• Household consumer surveys regarding MLM participation, 
• Surveys of leading MLM company presidents, 
• Private and public financial disclosures by MLM companies, 
• Communications with law enforcement officials at all levels, and— 
• Direct experience with prominent MLM companies and communications with top MLM officials
  

For more information on the research and analyses underpinning these reports, go to – MLM Research and MLM Consumer Guides  

Search Challenge: 

There are many blogs and sites giving positive and negative information about PrePaid Legal. Just do a Google search - enter in "Is PrePaid Legal a scam" or "Is PrePaid Legal a pyramid Scheme?" and see what you get. You would be wise to do a lot of reading of the experiences of others - negative as well as positive - before joining their program - or any MLM. And you can do the same for any other "income opportunity" you are wondering about Also, be sure to read the reports linked from our home page, such as "1357 ways to earn a LOT more money than in MLM."

General note regarding MLM deceptions: 

These types of deceptions allegedly promulgated by MLM promoters mentioned here are not unique to this MLM.  A complex set of deceptions is routinely used by MLMs of almost every stripe – with the possible exception of some party plans. This is not necessarily because MLM promoters set out to deliberately deceive those they target for recruitment, but because MLM is inherently flawed and must utilize misrepresentation and deceit to succeed and survive. Please do yourself a favor and read “Typical Deceptions” (used in MLM recruitment).

"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

* Chain-selling programs are referred to as "multi-level marketing" (MLM), "network marketing," "consumer direct marketing," etc. The MLM industry would even like to be called "direct selling," even if little direct selling to actual customers is taking place. Regardless of what promoters call a program, this 5-step do-it-yourself analysis will help you evaluate their potential for income or loss.

Avoid falling for the semantic trap of chain-selling promoters who say they are not MLM, or multi-level marketing. If the program pays on more than one level of participants, it is multi-level or MLM. If you get paid only for selling directly to customers and get no override commissions (other than a small referral fee) for recruiting more than one level of participants, it is single level compensation and could be considered true direct selling.

DISCLAIMER: These evaluations are intended purely as a communication of information in accordance with the right of free speech. They do not constitute legal or tax advice. Anyone seeking such advice should consult a competent professional who has some expertise on endless chain or pyramid selling schemes. Readers are specifically advised to obey all applicable laws, whether or not enforced in their area. Neither the Consumer Awareness Institute nor the authors assume any responsibility for the consequences of anyone acting according to the information in these reports.

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. And 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.  Check out these handy answer cards (8 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 on the home page.