Why ALL MLM schemes are fraudulent scams

MLM / Pyramid Scheme Scam/Fraud

MLM (or Multi-Level Marketing) and pyramid schemes are all (yes, all) fraudulent because they're inherently flawed and mathematically impossible.

What's an MLM scheme?

Multi-Level Marketing is a marketing scheme where the participant is rewarded not only for their own sales, but also for the sales of the other people that they recruit to join the scheme (who may/will also recruit others) resulting in multiple levels of commission.

Pyramid schemes, where there is no product/service or it's only used as a cover, have mostly been classed as illegal.

However, in many respects, both are similar, in particular the fact that the only real and primary source of income is to recruit others.

I think I understand, but can you give some examples so I have a better idea?

There are literally hundreds out there, but we won't name any here. Instead, here are a few warning signs (not all of these will be found in each one, but you should find a significant number of these in every MLM):

  • Promises of riches
  • "Residual/passive income"
  • "Fantastic business/income opportunity"
  • "Anyone can achieve this success"
  • "Make money from home"
  • Any mention of "downlines" and "uplines"
  • You need to pay to join
  • Encourages you to sell to your family/friends
  • You have to purchase a starter kit or make some monthly purchases to stay active
  • The presentation/sales pitch mainly concentrates on the recruitment of others with the sale of products/services given only a brief mention
  • The ubiquitous fabulous house, expensive car, exotic holidays, happy couple with children: "a millionaire lifestyle"
  • Aggressive/annoying sales tactics from long-lost friends and even some close ones
  • Your Facebook feed is filled with "friends" asking you to join the latest "get rich quick" scheme
  • Someone who you've not had contact with for years contacts you about a business opportunity
  • Some of the commission from any sales you make go to the person who recruited you
  • Overpriced products
  • Dubious, overstated benefits of health supplements

So why are they ALL fraudulent? Surely, some will be legitimate?

Before we come to that, you should know that some MLM schemes are outright ponzi/pyramid schemes or at least pseudo-pyramid. Just because they haven't been classified as illegal yet doesn't mean they aren't. To take legal action is costly and your average government anti-fraud body has a limited budget.

From an Islamic perspective, many (possibly all) contain at least one impermissible clause in the contract.

Now, let's come to the crunch. Even if any of these MLM schemes are technically legal and the clauses are deemed permissible, it's missing the bigger picture.

ALL of these schemes are inherently flawed. The promises of riches are mathematically impossible to achieve after a certain point. There aren't enough people in the world!

To date, out of hundreds of these schemes that have been researched, not a single one passes the legitimacy test[6].

This is why we would say that they're all "guilty until proven innocent", so if a new one comes along, they must prove they're innocent. Unless they can remove the inherent flaw, it's a lost cause.

Yes, but this new one's different!

All of them suffer from the same inherent issues.

Yes, some of them have minor differences, but the design and mechanics remain the same. At most, it may make them a little less worse than others.

We're speaking on a theoretical level, so it applies to all MLM companies.

Through geometric expansion, you quickly run out of people to recruit. This will be true for any scheme where you need to recruit others and gain a reward for doing so. This effectively gives you a pyramid structure.

The whole system by its very nature is flawed. It assumes an unlimited number of people exist.

Hmm, I'm still not convinced…

OK, think about this using some basic mathematics. If each participant needs to recruit, say, 6 (though often more) people, and the recruits need to recruit 6 or more people who also need to recruit that number or more, after only 10 levels, we're looking at 6 x 6 x ... x 6 x 6 = over 60 million after only 10 levels!

Don't forget that's just underneath you if you start now. How many have already joined and are already above you in the scheme? If we extend that for just 4 more levels, we'd need more than the entire population of the world (don't forget, that's from your position)!

Remember, the number of people are finite and these schemes assume an unlimited number of people. It just doesn't compute!

But aren't you making an assumption that it's a uniform structure with the same number at each level?

Yes, but three things to note here.

  1. 6 is a small number. It will often be more than that for many recruiters.
  2. It's actually much worse as local saturation happens much quicker (as we'll see later)
  3. We're working with the theoretical possibility that everyone is potentially successful.

Yes, but not everyone is successful. That's business.

You can't have it both ways! MLM schemes are promoted as a "fantastic opportunity" that anyone can do. Yet when presented with this argument, they’ll say that like any business, some people will fail.

In fact, it's much worse than simply failure. This is mostly hidden by MLM schemes for obvious reasons.

Studies have shown most people lose money. This is as high as over 99%[1]. In fact, the failure rates in MLM schemes can be worse than illegal ponzi schemes[1].

But some MLM companies have been around for 20+ years and are still running!

That's no indication or guarantee of legitimacy. There have been huge companies who were running fraudulent businesses on a massive scale which lasted for decades before collapsing or being caught by the authorities, e.g. Bernard Madoff.

Try asking any MLM company for statistics on average earnings including both active and inactive members and people who have left the scheme. Also ask them how many make a loss or earn a decent income. Be prepared for a shock or, more likely, no response as no MLM scheme will want this level of failure exposed.

But I know so-and-so who's successful.

If someone is successful, it's on the backs of other's failures. The people who joined at the beginning (top of the pyramid) make the money whilst the vast majority of the others lose out. Anyone "successful" in one of these schemes is directly benefiting from and has his success dependent on the failure of those beneath him!

But he's an honest guy! He wouldn't lie to me or defraud me. I know him. He can be trusted!

Even if there's an honest person who tries to work hard and does become successful, the exception doesn't prove the rule. Most people will fail. That's just how the system works. Your friend is part of that pyramid of failure, no matter how honest and hard-working they are.

The only real way to make money is to recruit others. The money is made by recruitment which is unsustainable. So anyone recruiting is selling an impossible outcome. That's fraud and deception.

Here's the thing. Many of the recruiters themselves won't even be aware of the true facts and the real nature of these schemes. Without even realising it, they're inadvertently defrauding people.

What makes it even worse is that people recruit from their "warm market" (friends and family), so they'll be cheating their near and dear ones first!

Not only that, the friends/family become competitors to each other and to the recruiter!

Imagine having 4 franchises on the same street corner. It'd be business suicide. Now imagine having 4-5 competitors in the same family!

The poor guy who happens to be the last person in the friends/family group doesn't even have a warm market to recruit to.

Have you tried cold marketing (selling to complete strangers)? You'll be lucky to get a success rate of 2-3% and that's for a seasoned sales person.

Anything else I should know?

Plenty more, but we’ll try and keep it short. The above calculations assume that people will even join or stay. MLM schemes are notorious for people churn/turnover/drop-outs, i.e. the number of people who join and then leave to be replaced by others to fill the hole.

Usually, when there's no demand or profitability, a business will take a product off the market. Here, there's (intentionally) no-one to pull the plug when there's no demand and the market has been fully saturated (and that doesn't take long at all, especially on a local level). The ones at the bottom are guaranteed to fail.

We've not even touched upon the morality and ethics aspect, the greed, avarice and numerous other flaws found within MLM schemes.

OK. I'm convinced. Can you give a quick summary?

  1. The people at the top make the money
  2. Too many people lose out
  3. Studies have shown up to 99+% make a loss[1]
  4. Average earnings are shockingly low[2][3]
  5. It's mathematically impossible
  6. The market becomes saturated quickly[4][5]
  7. By its very design, it's designed to fail[5]
  8. It results in defrauding near and dear ones
  9. Any "success" is tainted as it depends on the failure of others
  10. Many people leave to be replaced by others
  11. Many of them tend to display "cult" tendencies
  12. Participants become annoying and aggressive in their desperation to sell
  13. Largely target the desperate, vulnerable, unemployed and low/no income households
  14. It's ethically defunct and morally bankrupt

There's a lot of things to take in. Is there something simple that I can use to convince others?

Yes, here's the clincher: Our MLM / Pyramid Scheme Population Calculator

A calculator which you can use to prove the illegitimacy of all MLM schemes. You can use these real numbers to show the absurdity of these schemes. Unlimited recruitment is unsustainable. This fundamental flaw will expose the lies, the deception and fraud of ALL MLM schemes.

Please take this information and warn others, both from impermissible wealth and from making an expensive mistake.


[1] http://mlm-thetruth.com/shocking-stats-2/
[2] https://www.ftc.gov/sites/default/files/documents/public_comments/trade-...
[3] http://www.falseprofits.com/MLM%20Lies.html
[4] http://pyramidschemealert.org/saturation-and-the-myth-of-mlm-growth/
[5] http://www.vandruff.com/mlm.html#I
[6] http://pyramidschemealert.org/are-all-mlms-scams/

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Comments

Thank you for your article it made very interesting reading. Most MLM's are convinced it's not a pyramid scheme because there are goods&services on offer.

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