Many people lose money on schemes that involve multi-level participation. Such programs have often been described as “pyramid schemes,” due to the disproportionate amount of people who lose at the bottom as opposed to the elite few who reap benefits at the top.
Laws in the United States are often ambiguous, riddled with loopholes or weak regarding multi-level marketing (MLM) schemes. The Federal Trade Commission has on occasion shut down such businesses like Equinox and Trek Alliance, an Equinox spin-off that was recently shut down by court order.
Sadly, most often by the time such companies are closed by the authorities; many people have already lost money.
Some of those caught up in MLMs say there is a kind of “cult like” process of coercive persuasion, which takes place through the recruitment, seminar and conference formats used by such businesses. Spouses and friends have at times described distributors as “brainwashed,” when explaining their seemingly irrational commitment and conduct.
A recent article appeared in the Portsmouth Herald, which spelled out how and why these schemes are simply “mathematically improbable” and therefore fail.
Assistant Attorney General Connie Stratton, of the New Hampshire Consumer Protection and Antitrust Bureau explained this succinctly. She said, “The reason they don’t work is because they have so many levels of distributors. If you work out the math, what happens is that a very few people make money and the majority do not. All the money goes to the top, so you’d have to recruit your way to the top. The problem is that so many people are needed to get there that the market gets saturated and the scheme falls apart.”
One expert stated that the loser rate typically exceeds 93% and in some schemes 99%. And that product-based programs are the most damaging.
Here are a few comments from people who were damaged by MLMs.
“I lost all I had, great job, my financial future, my wife, children, and soul.”
‘I lost $5,000.00 and some of my dignity.”
“I became a Director with the firm several years ago–eventually my sales force did over $100,000 per month in product sales. Despite this I lost over $75,000 as a result of the lies and deceptions of this company. I could tell so many stories of people going broke and the reality of the cult like brainwashing.”
“When we started this business we were only $7,000 in debt, now we are $32,000 in debt, due to this crap. Since the day we left the organization, we have been working nonstop to pay off credit card bills, and loans totaling $25,000.00. We fell for their lies, deception and faulty ad and practices. I hope the Feds make them feel, pay and suffer like we now are.”
What can be done?
It seems that federal regulations regarding the MLM industry are needed to protect people. Essentially, there is no such effective regulation now.
Anyone considering participation within an MLM should do his or her homework and research in-depth before becoming involved or paying a penny.
Sadly, most participants don’t do this and instead are taken in by the pitch. However, today through the Internet investigating such companies is actually becoming an increasingly easy process.
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