MLM Schemes: A Very Bad Idea

Are you one of those people who actually debates the Jehovah's Witnesses when they come to your door? Someone who occasionally plays along, out of some sense of perversity, in situations you know you'll never buy into? Do you understand the motivations behind the people who reply to Nigerian 419 scammers and string them along? Then maybe you'll understand why I ended up hitting the "reply" key when I got an email from a PR woman last week, offering up "a licensed compliance officer who came from the brokerage industry but now works at a direct marketing firm that falls into the multi-level channel". Apparently this compliance officer had written a "thoughtful piece" on how multi-level marketing (MLM) is good, and isn't the same as pyramid schemes, which are bad.

Reader, I bit. But now, 14 emails later, enough is enough. Let me tell you, quite clearly and explicitly, that MLM schemes are not good. They are bad. And that even the "licensed compliance officer" who works for one of those schemes admitted to me that "the difference between an MLM scheme and a pyramid scheme is really a subjective one." Let me also say that insofar as there is a difference between MLM schemes and pyramid schemes, Liberty League International, the scheme for which she works, is a pyramid scheme. (For the sake of your delicate sensibility, dear reader, I shall refrain from linking to it. Google with extreme prejudice.)

I do understand the allure of get-rich-quick shemes, and of smooth sales pitches explaining that you can transcend your cubicle-bound life and have all the freedom and money you'll ever need, just by spending thousands of dollars on a few DVDs and the occasional live event. I do not understand why or how a PR person could possibly imagine that a financial journalist would ever fall for such a scam. (Although reasonably respectable publications such as the Spectator, in the UK, have been known to laud pyramid schemes in a cover story, so anything's possible, I guess.)

Liberty League International is, at heart, a classic pyramid scheme. There are, however, limits to the promises it can make, thanks to the consent agreement which presumably resulted in their hiring a compliance officer in the first place. You pay a member of the scheme $1500, or more, for a set of DVDs called "Beyond Freedom" and the right to make money selling those DVDs to others. And why would other people buy those DVDs? So that they too can make money selling the same DVDs to even more people, of course. It's what's known as an "endless chain" – a real giveaway that you've stumbled upon a con. (Here are others.)

The actual intrinsic value of the Beyond Freedom DVDs is probably no more than the value of the average self-help book at your neighborhood Barnes and Noble. The rest of the price ends up filtering up towards the top of the pyramid, where the founders of the company are prominently featured on its website looking tanned and healthy and wealthy in front of their private jet.

Meanwhile, at the bottom of the pyramid are thousands of crushed souls whose lives have been damaged by buying, at great personal expense, into dreams of untold riches. So never mind Nadine Boisnier's "thoughtful piece". Let me give you my own rules for deciding whether or not to join any kind of MLM scheme.

Don't.
If you really must, then make sure there's a valuable and real consumer product at the end of the chain – a product you like, and which you would happily buy even if it didn't come with the promise of making you wealthy.
But really, even, then, don't.
If you're still thinking about it, ensure you avoid spending any more money up front than you can happily afford to lose.
And then think long and hard, and ultimately come to the right decision: No.

Many MLM schemes can be extremely profitable, for their owners: Herbalife, in the US, and Natura, in Brazil, both even got as far as a stock-market listing. But unless you own the thing, it's worth staying well away. Especially from any company which feels the need to tell you that it's not a pyramid scheme.

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