- What is a pyramid scheme?
a. A pyramid scheme is a business structure where money is made through recruiting more members.
b. Multi-level marketing groups (MLMs) function very similarly.
c. Thesis: MLMs are just renamed pyramid schemes and should be illegal.
2. Why are pyramid schemes illegal?
a. They make get-rich-quick promises that are nearly impossible to achieve.
b. Inevitable collapse: eventually no people are left to be recruited.
c. Only the top 0.5% or so make the huge amounts of money promised; most lose money and end up in huge debt.
d. No products are sold, only money changes hands.
3. What is an MLM?
a. Multi-level marketing relies on recruiting people to sell products as your “downline” and earn some of their commission.
b. The only major difference between pyramids and MLMs is that MLMs actually sell a product.
4. Are MLMs and pyramid schemes the same thing?
a. American law says no, they are two different things.
b. In practice, MLMs behave very similarly to pyramid schemes.
i. Recruiting more members is the quickest way to make money.
ii. Huge promises are made and never delivered on.
iii. You’re recruiting your own competition, so if too many sellers fill an area, you saturate the market and the system collapses (ex. LuLaRoe).
5. MLMs use unethical tactics.
a. They market their “job opportunities” to single moms, military wives, low-income families; in other words, the most vulnerable.
b. “Fake it till you make it”: sellers are encouraged to flaunt their affluent lifestyles on social media even if they’re deeply in debt and are blatantly lying.
c. They promise you wealth and financial independence, when the (Mary Kay) income disclosures show that most of the sellers make less than minimum wage or even accrue massive debt.
d. Some (Mary Kay particularly) claim to “buy a new car” for top sellers, when they actually just take out a car lease which the seller then has to pay if their sales drop.
e. Pressure to buy: “independent distributors” are the company’s primary customers, since product is sold directly to them. The company has their money already and doesn’t really care if the distributors can sell the products sitting in their garage.
f. When independent distributors make illegal claims about the products (ie, lavender essential oil cures insomnia), corporate tends to look the other way or even encourage it.
g. MLMs allow a cult-like atmosphere to thrive.
i. The people who recruited you, your “upline”, are breathing down your neck to do/buy what they say.
ii. You are pressured to turn friends and family into customers or recruits.
iii. You’re encouraged or forced to cut out the “toxic people” who say anything remotely negative about the organization. (One woman was told to divorce her husband.)
iv. You’re subjected to vicious name-calling if you leave or want to slow down.
v. You’re encouraged to shun and/or vilify anyone who quits.
a. MLMs are pyramid schemes changed just enough to be legal.
b. The cult-like atmosphere hurts people and has ended marriages and friendships.
c. I believe that the legal definition of pyramid scheme should change to outlaw these predatory organizations known as MLMs.