Monday, 6 August 2012

'MLM income opportunity' fraud has been identified by the mainstream media.

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In 1945, whilst most, contemporary mainstream commentators were unable to look beyond the ends of their noses, with a perfect sense of irony, George Orwell (1903-1950) presented fact as fiction in an insightful 'fairy story' entitled, 'Animal Farm.' He revealed that totalitarianism is merely the oppressors' self-gratifying fiction mistaken for fact by the oppressed. In the same universal allegory, Orwell described how, at a time of vulnerability, almost any people's dream of a future, secure, Utopian existence can be hung over the entrance to a totalitarian deception. Indeed, the words that are always banished by totalitarian deceivers are, 'totalitarian' and 'deception.' Sadly, when it comes to examining the same enduring phenomenon, albeit with an ephemeral 'American/Capitalist' label, most contemporary, mainstream commentators have again been unable to look further than the ends of their noses. However, if they followed Orwell's example, and did some serious thinking, this is the reality-inverting nightmare they would find.

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At last, someone from the mainstream media has again begun to investigate the reality- inverting nightmare lurking behind all so-called 'Multi-Level Marketing income opportunities.' Virginia Sole-Smith (an American freelance journalist who recently published an insightful article about 'Mary Kay') has examined the wider-picture, applied common-sense and deduced that 'MLM' is an absurd, but nonetheless dangerous, Utopian fiction which has been peddled as fact  to countless millions of vulnerable individuals around the globe. During the course of her research, Virginia Sole-Smith has discovered that there is no quantifiable evidence which proves that any so-called 'MLM income opportunity,' has ever had a significant, and sustainable, revenue other than that deriving from its own participants. 
This means that all so-called 'MLM income opportunities' can only have been dissimulated pyramid scams or closed-market swindles (promoting the crackpot pseudo-economic theory that endless-chain recruitment + endless payments by the recruits = endless profits for the recruits) from which the overwhelming majority of participants could not ultimately have received any more money than they contributed in the first place. In reality, without the possibility of achieving significant, regular retail sales to the general public for a profit, the participants in all so-called 'MLM business opportunities' have been peddled infinite shares of their own finite money. 

In order to avoid being held to account for conspiring to commit fraud and obstruct justice, numerous gangs of wealthy 'MLM' racketeers have cowered behind their echelons of shyster attorneys and steadfastly pretended that:

they are American patriots - religiously-inspired, law-abiding capitalists and philanthropists.
they are vehemently opposed to pyramid fraud and support tough legislation to control it.
they believe that their companies' products (i.e. effectively-unsaleable wampum) have been regularly sold to the public for a profit, but, sadly, they can only 'estimate' distributor retail sales.

'MLM distributors'' own purchases (i.e. 
unlawful internal payment/investments made on the false expectation of earning an income) were, in fact, lawful external retail sales based on value and demand, because 'MLM distributors are consumers and end-users.'  
the majority of 'MLM income opportunity' participants have only signed up to buy discounted, 'MLM' products without any expectation of earning an income.

This carefully-scripted propaganda clearly forms part of an overall pattern of ongoing, major racketeering activity (as defined by the US federal Racketeer Influenced and Corrupt Organizations Act, 1970).

David Brear (copyright 2012)

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The following is Virginia Sole-Smith's latest article:

'Why Mary Kay is Only the Beginning.'

http://www.theinvestigativefund.org/reporters/virginiasolesmith/ http://www.theinvestigativefund.org/blog/1671/why_mary_kay_is_only_the_beginning



In my Investigative Fund article,  "The Pink Pyramid Scheme," which appeared as the cover story of the August issue of Harper's, cosmetics direct sales giant Mary Kay claimed "it employs multiple sales directors who earn more than $1 million a year." But the figure that surprised me more was this: of the 600,000 Mary Kay consultants currently working in the United States, only 300 of them are making a six-figure income — off the commissions they earn when the women on their sales teams buy products. That paints a stark picture: A very small, select group of folks (0.05% of the workforce) at the top of the pyramid, earning money off the vast numbers of people working the lower levels.


In fact, when you look at the direct sales industry as a whole, the picture gets even bleaker. There are 15.6 million Americans (and many more across the world) working for a direct sales brand like Amway, Scentsy, Herbalife, Nu Skin, Stampin' Up!, and of course, Mary Kay. The Direct Selling Association, a trade association which represents the interests of these companies in Washington DC, claims that the industry posted almost $30 billion in retail sales last year.

'Mary Kay's chief attorney, Laura Beitler'We can't, and don't, track retail sales' (i.e. The corporate officers of 'Mary Kay'  have neither confirmed nor denied that have been committing pyramid fraud).  

This is problematic for two reasons.
First: Nobody in the direct selling industry actually tracks their retail sales — at least, not that they'll admit in public. Mary Kay boasts of $3 billion in global wholesale sales, but all that number tells us is how much Mary Kay consultants paid to be in business with the company by purchasing their $100 starter kit and subsequently making giant investments in inventory, which they try to retail at skincare classes, parties, or Mary Kay-hosted websites. "We can't and don't track retail sales," Mary Kay Vice President of Compliance Laura Beitler admitted to me on NPR's On Point earlier this week. The DSA most likely estimates its retail sales figure off the industry's collective wholesale sales, assuming everyone sells all the inventory they buy. Mary Kay, for example, promises that you'll earn a 50 percent commission on every product you sell. If we use that as a ballpark, all the $30 billion retail claim tells us is that 15.6 million sellers spent $15 billion on direct sales products last year.
Second: Even if we presume that every last direct seller sold every bit of inventory he or she purchased (while incurring no business expenses) so the $30 billion in retail sales could be accurate, direct sellers aren't making much money. Divide the sales figure by the number of sellers and you get an average of $1923.08 per year, or $160 per month. Of course, as the industry argues over and over: People join direct sales for different reasons. Some "just love the products" and are happy earning a small stipend; others are trying to launch a full-time career and this range may skew the average paycheck. But Mary Kay will honor hundreds of top saleswomen this week at its Dallas convention with its "Court of Sales," which requires a minimum of $18,000 in annual wholesale orders to qualify; at the top, a handful place as much as $25,000. Again, assuming a 100 percent sales success rate and no business expenses, these women would only pocket $18,000 to $25,000 per year. Hardly the "great part-time choice" or the "lucrative full-time opportunity" that Mary Kay claims on their website's "Make Money" page. Or the "financial independence" that Amway advertises and "earning what you're worth" as Herbalife puts it.
The only way to make real money in any of these multi-level marketing (MLM) companies is to forget about selling to the retail market and focus on recruiting members of your "downline," who will buy lots of inventory for their own businesses, from which you earn a percent. "My wife has made a lot of money in a Multi-Level Marketing company and I have the tax returns to prove it," said one caller to On Point on Monday. "But we didn't feel good about it because we knew we were doing it on the backs of tons of people."
And none of these harsh realities are disclosed to a new direct sales recruit. In 1976, the Federal Trade Commission passed a franchise disclosure rule, which requires a franchiser to provide a wealth of data to interested franchisees, including accurate income estimates, the location of competing franchises, and overhead costs. But any business with a starter fee of less than $500 was exempted from the rule — making it very easy for MLMs to stay under the radar. In 2006, the FTC proposed a disclosure rule specifically for MLMs, which would have required documented earning claims as well as a "cooling off period" where recruits would get a week to think over their decision. "The industry spent millions of dollars fighting that rule," Douglas Brooks, a Boston-based attorney who has litigated numerous class-action suits against MLMs told me in a phone interview. "The companies got thousands of sellers to swamp the FTC with comments." In 2008, the FTC gave in and exempted MLMs from the new rule — it went into effect this past March but only applies to minor businesses like vending machines.
Brooks reports that the DSA is now going state by state, pushing to get a law passed that purports to protect consumers against pyramid schemes — but in reality, re-classifies all those wholesale orders as "retail sales," protecting the companies from pyramid scheme charges. And they're not afraid to buy political muscle either: Mother Jones reported in May that Mormon-founded Nu Skin donated $50,000 to Mitt Romney's 2008 campaign. Wrote Stephanie Mencimer:
Nu Skin isn't Romney's only connection to the MLM industry. Gordon Morton, cofounder of the supplement company Xango (the self-described creator of the mangosteen beverage "category"), served on his 2008 campaign's finance committee. This past January, David Lisonbee, founder of the Sandy, Utah-based MLM company 4Life Research, donated $500,000 to Restore Our Future. And Romney's current finance chair, Frank VanderSloot, is the CEO of Idaho-based Melaleuca, a multilevel-marketing company that sells green cleaning products and nutritional supplements. Melaleuca and its subsidiaries contributed $1 million to Restore Our Future last year.
Romney has gone on record about his love for Melaleuca and its "promise of enhancing the lives of people." He also worked with Nu Skin, as Mencimer reported last year, when he oversaw the 2002 Salt Lake Olympic Games and persuaded the peddler of dietary supplements to help sponsor the games with a $20 million contribution; Romney appeared at Nu Skin's 10th international committee in return, telling the crowd that Nu Skin, like the Olympics, is "about taking control of your life and managing your own destiny." 



I focused my story on Mary Kay because I wanted to explore how the company uses a"you can have it all" fantasy of modern womanhood to manipulate women. But the truth is, that's just one marketing tactic employed by an industry baiting dozens of expensive traps with persuasive rhetoric about bootstraps and the American dream. The number one question I've gotten since publishing the piece is: "But is this company any better?" Usually this query comes from folks who've already invested time and money with an MLM or two and are wondering if maybe, just maybe, they picked the company who does things right. For the most part, the depressing answer is no. "We could go company by company through the DSA's members and applied the FTC's anti-pyramid scheme test," says Brooks. "Very few companies would pass."

Viginia Sole-Smith (copyright 2012)

5 comments:

  1. Mary Kay is the member of Amway founded Indian Direct Selling Association and has been inducing Indian women to become members and sell its products which are exorbitantly priced.
    It says that there are lot of Indian women who have 'disposable income' (Yes they used this word) and make them members of Mary Kay promising quality makeup material.

    It is high time the media exposed all such multilevel marketing racketeers.

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  2. Thanks Shyam - what is very interesting about Virginia Sole-Smith's articles, is that this young, American, freelance journalist (who specializes in women's issues) appears to have first recognized the cruel deception lying at the heart of the 'Mary Kay MLM income opportunity' racket, as a form of affinity fraud directed at women.

    The instigator/boss of the 'Mary Kay' mob is a woman, and she has almost-exclusively exploited her fellow women by steadfastly-pretending that she has built her own success on helping other women to succeed. The boss of Mary Kay has played the unoriginal role of ordinary poor woman turned superwoman, and she has enslaved her poor adherents by peddling them the fantasy that they too can become superwomen themselves by exactly duplicating their leader's 100% positive attitudes and behaviour.

    However, when you examine the wider-picture, it becomes immediately obvious that, for decades, all 'MLM income opportunity' racketeers have used essentially the same tactics - pretending affinity with their intended victims. The instigators of the 'Amway' mob, set the tone in the late 1950s by steadfastly-pretending to be ordinary, poor, ex-servicemen, turned supermen. They enslaved their poor adherents by peddling them the fantasy that they too could become supermen themselves by exactly duplicating the 100% positive behaviour and attitudes of their leaders.

    David Brear (copyright 2012)

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  3. Virginia Sole-Smith's article and your many well researched blogs (a sample of which I've just scanned) are in danger of completely changing my view on regulating pyramid selling and the legal version of it - MLM.

    Although I've not worked for, or consulted to, the direct sales industry for over 20 years now I have always believed that the founder/owners of MLM companies are equally as interested in retail sales as the founder/owners of 1 to 1, party plan and all other forms of direct selling.

    Indeed, I always advised prospective and existing owners and CEOs of Direct Sales companies not to pay bonuses unless they had evidence, customer receipts, of retail sales - to prevent inventory buying of positions for bonuses.

    After all, in the UK, Kleeneze has an MLM plan and I've never heard of anyone suggesting that Kleeneze doesn't derive its income directly from products that are sold on to the end consumer.

    I always thought, perhaps naievely, that the pernicious side and income derived from non product sales (training, motivational tools, meetings etc) was from a minority of network leaders who needed to be tackled firstly by the company, failing that the trade body (he DSA) and if self regulation failed then by the government regulators.

    In my relatively brief period going to DSA conferences etc, from 1984 to about 1990, nearly all of the management and founders of MLM companies that I met around the world, appeared honest and upfront and certainly not a part of an organised scam.

    What upset me then, and led to me voting with my feet, is the same issue that upsets me, today. It is that most large corporates,including banks and governments, have some owners, shareholders and executives who when they see something is just 'plain wrong', and sometimes illegal too, still put their personal or corporate income before righting the wrong.

    Those with the status, power and dosh justify it as being 'only business' whilst the wronged are often belittled to add to their lack of dosh and wellbeing. I know I'm passionate about supporting start ups and micro-enterprises but I'm convinced that big corporates and other big organisations are on balance, more dishonest, discriminatory and disinterested in their suppliers, staff and customers than is the case with most micro business owners. That's why i get so angry that 95% of government funding goes to the 5% of businesses that are not micro businesses.

    These articles have nearly convinced me that any direct selling scheme where there is a risk that 'leadership' positions can be bought through filling garages with unsaleable stock should be outlawed. The risk of real harm through even a minority of unscrupulous leaders appear, from your research, to be too great - harm to finances, family, welfare and overall well being.

    It's a shame because I've always promoted all forms of part time direct selling as a fab way of learning how to start and run your own business. I still believe that and so I'm still a fan of direct selling.

    I do, however, really hope I haven't signposted people into the hands of those that may exploit them as appears to have happened with some MLM companies. I truly hope that I haven't been as naieve as your and Virginia Sole-Smith's articles suggest that I have but I suspect it is just 'a hope'.

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  4. (Before I reply, Blog readers should take note that TONY ROBINSON OBE IS NOT Tony Robinson from Guilford in the UK a.k.a. 'Pitchwood Insider, who is yet another transparent front for the 'Amway' Ministry of Truth).

    Thank-you Tony Robinson OBE.

    I above all people, fully-appreciate how difficult it is for any honest person who has been involved in the promotion, and/or regulation, of traditional 'direct selling' to take onboard the scale of the pernicious racket which has been lurking behind all so-called 'MLM income opportunities.' Unfortunately, what you have said about the founders of 'MLM companies appearing to be honest and upfront,' was also said about Bernie Madoff (and by many people).

    In reality, as you are fully-aware, in order for what has been described as the 'legal version of pyramid selling, MLM,' to be economically-viable, participants must regularly retail significant quantities of goods, and/or services, to the general public for a profit. The term 'MLM' was coined more than 50 years ago, but each time a so-called 'MLM income opportunity' has been rigorously investigated, it has been discovered that virtually no products or services have been retailed to the general public for a profit by the participants. In recent years, due to bad publicity on their home turf, 'MLM' racketeers have shifted their dissimulated criminal enterprises to emerging economies like India and China.

    The traditional 'direct selling industry' has become progressively-infested with 'MLM income opportunity' racketeers, whilst the officers of 'Direct Selling Associations' (who have become financially-dependent on 'MLM' racketeers) have continued to turn a blind eye. Those who (like yourself) have walked out of the direct selling charade, have generally felt obliged to remain silent for fear of litigation.

    Sadly, the quantifiable evidence (in the form of an effectively total absence of income tax payment by countless millions of constantly-churning, so-called 'MLM business owners'around the globe during more than half a century) proves beyond all reasonable doubt that it is not just some 'MLM income opportiunities' that have been fronts for human exploitation, it is all of them.

    David Brear (copyright 2012)

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  5. Your post is spot on! I am a former Stampin Up demonstrator and I spent $$$$$ and made zero! I worked my butt off but no one wants to buy overpriced items they can get somewhere else. You can get no where in this company without recruiting. The big time demos who make all the money have like hundreds in their downline and they make videos and things trying to convince everyone that anyone can do this. Not true! Only a handful of the thousands of demo's make those mega bucks and most are personal friends of the CEO and have been with the company since it's inception. There is a very cult like atmosphere in SU, it's pretty scary actually! It's sad that people waste their money on this crap when you can find better products from regular companies for a lot less money and no brainwashing! My advice is for everyone to stay far away from SU and companies like it! You will only lose your shirt and possibly your sanity if you get involved!

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