Bernie Madoff, pictured here after being placed under house arrest in 2008, is not the only one in the business of building pyramids. (Reuters/Shannon Stapleton)
Last year I published an article in The Baffler called “The Long Con” that demonstrated how practices we associate with snake-oil salesmen saturate the American right—not just in its ideological appeals but in the way right-wing politics corrals a fleecable multitude all in one place, which conservative publications literally rent out as a source of handy marks for con men. A lot of folks found this to be a revelation, a bittersweet pleasure for me. On the one hand, it’s a blessing to me to be able to teach people new things about the world around us. But on the other hand, it’s frustrating; I wish people already knew about this stuff. It reinforces a fact: America truly does harbor two separate and nearly incommensurate tribes, “Red” and “Blue,” if you will; how many of us Blue folks know that getting roped into coughing up hard-earned money you’ll never see again to Republican-affiliated “multilevel marketing” (MLM) companies—in hustles formerly known as “pyramid schemes”—is as common in Evangelical and Mormon culture as going to yoga class in our own?
Robert Fitzpatrick, the author of False Profits: Seeking Financial and Spiritual Deliverence in Multi-Level Marketing and Pyramid Schemes and an expert witness or consultant in more MLM cases than any other private citizen, estimates that the industry Hoovers $10 to $20 billion out of the pockets of Main Street Americans every year. And hardly any of us know anything about it. As he explained to me in an e-mail, “Just as the Tea Party exists as a kind of phantom, funded quietly and invisibly from on high, with amorphous, uncounted members, the MLM industry has permeated Main Street without media recognition of its scale or force and largely in disguise as ‘direct selling.’ ” But “the Tea Party is at least beginning to be studied, its funding traced, its leaders examined.” MLM? Not so much. His book, published in 1997, was the first on the subject, though the industry has been rampant since the 1970s—and, save for a notable exception two years later from the heroic folks at tiny South End Press, there have hardly been any others since. That’s why I’m beginning a series on the subject today—in the hope that people will spread the word as widely as possible, and start learning more, and even organizing, on their own.
Let’s start with some basics—with some key regulatory questions. Fitzpatrick wrote a report called “The Main Street Bubble” that he hopes members of Congress will use to enhance FTC oversight, and to persuade the new Consumer Financial Protection Bureau to put MSM scams under its umbrella. It notes, “When they began to appear in the mid 1960s, pyramid selling schemes were widely understood to be classic frauds and were widely prosecuted.” The model statute came from California, which in 1968 banned “endless chains”—in which a franchisee only or mostly makes money from recruiting further franchisees, not from selling actual retail products. (In the most extreme variety of pyramid scheme, there is no actual product.) Another, softer practice, “referral-based discounting,” was widely outlawed: that means franchisees had to recruit new customers if they wanted to buy the material they were supposed to be selling at the advertised price. “By design,” Fitzpatrick explains, both practices “doomed most consumers to losses.”