A multi level marketing scheme called “Pre Paid Legal” suffered a setback. Its stock crashed Monday losing 23% of its value, reports The Street.com.

One short-seller said, “It’s only a matter of time before a pyramid based on misleading people begins to collapse.”

Pre Paid Legal reportedly used an “Amway strategy” of multi level marketing to fuel its growth.

However, according to the Detroit Free Press “Multilevel marketing — practiced by such well-established companies as Alticor’s Amway unit — is a legitimate form of business.”

In Michigan Amway is a major employer and perhaps the Detroit Free Press is reluctant to discuss Amway’s own troubled history within a recent article about “get-rich-quick” schemes.

Multi level marketing (MLM) companies such as Amway and Pre Paid Legal seem to frequently focus more on the pitch than their products. That is, slick sales hype and high-pressure meetings where potential distributors or sellers are persuaded to become involved.

Many former MLM distributors have likened such high-pressure approaches to coercive persuasion. And the mindset produced by some MLM companies has been called “cult-like.”

This MLM mindset is often evident by the participant’s willingness to accept whatever the company and/or his “upline” says, rather than objectively examine such claims through an independent and careful process of critical analysis and/or due diligence.

A kind of false euphoria, or “dream” of success often replaces the common sense of many MLM distributors. And anyone who offers criticism of the MLM plan, is apt to be labeled as a “dream killer.”

What is the MLM industry based upon? Is it about offering viable and competitive products, or selling dreams, which are unlikely to be fulfilled? Is the profit for MLM founders through primarily achieved by product sales, or feeding off layers of distributors, who have become “true believers.”

Pre Paid Legal’s current problems seem to indicate the inherent fragility of many MLMs.

Historically, the collapse of Equinox, a recent court ordered shut down of Trek Alliance and a pending class action lawsuit against “New Way to Wealth” seem to indicate the more sinister side of some MLMs.

Many people are losing money in MLMs and they remain essentially an unregulated industry.


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