Timothy J. Muris (left), accompanied by former Assistant Secretary of Defense Charles S. Abell. (Courtesy of Wikimedia Commons)
A few months back I opened up a series on a ghastly hustle, which saturates the culture of the right: “multi-level marketing” (MLM)—pyramid schemes, if you will. To review:
• When the industry emerged in the mid-1960s, schemes in which original investors, and the companies themselves, thrived even as almost all new recruits further down the chain made nothing, were considered to be frauds, plain and simple. They were thus widely prosecuted.
• The burgeoning “industry,” led by the DeVos family’s Amway, adjusted via clever lawyering—successfully reframing pyramid schemes as “direct selling,” each new “distributor” was now induced to purchase goods each month as part of their “investment”—only under such staggering prices that it’s almost impossible for the distributor to make money. The lawyers in a case against one such MLM company, Trek Alliance, which “sold” (not many) water filters, cleaning products, nutritional supplements and “beauty aids,” did an analysis in which they concluded that of their distributors “98.8 to 99.6 percent fail to achieve any earnings,” and “in all likelihood more than 96 percent…experienced business failures.”
• As noted in a report called “The Main Street Bubble: A Whistleblower’s Guide to Business Opportunity Fraud—How the FTC Ignored and Now Protects It” by Robert L. FitzPatrick, author of False Profits: Seeking Financial and Spiritual Deliverance in Multi-Level Marketing and Pyramid Schemes and an expert witness or consultant in more MLM cases than any other private citizen, such massive failure rates “are intrinsic to the design. 99 percent of consumer/investors must lose for a tiny group at the pyramid’s peak to gain…. The system is closed. Value is not exchanged. Money is merely transferred.”
• These hustlers also have to grow or die—expanding the scheme to new marks is key to their business model. Writes FitzPatrick, they “churn through 50-80 percent of victims annually, replacing them with new ones.”