Thursday 22 March 2018
'The Daily Beast' begins to report the truth about 'MLM' cultic racketeering.
When Jenny* first became an Amway seller with her husband in 2004, she hoped it would be a lucrative way to earn income on the side and provide for their growing family.
The company, which sells household products like detergent, mouthwash, and more via direct sales reps and multilevel marketing, promoted itself as a way for her and her husband to become “small business owners.” All they’d need to do was sink a few thousand dollars in to get started, purchase some products, and recruit several other sellers.
To Jenny, it sounded almost too good to be true.
“I was young, I was in a not great place emotionally,” she said, noting that her father had recently died around the time she started. “When I heard what Amway could offer and I saw a group of people that were offering not just money but a family and community it really appealed to me.”
She and her husband went all in, investing thousands of dollars in the business. They drained their retirement savings, broke the lease on their apartment to pump more money into Amway, and sacrificed nearly every small luxury in their lives. Still, Jenny says, they were losing over $10,000 a year.
By the time she and her husband left Amway nearly 10 years later, Jenny claims they had lost over $100,000.
“We were told to cut out everyone who didn’t buy our products or participate in our ‘downline,’ including family.”
Since she got out, Jenny, like so many other former multilevel marketing—or MLM—reps, has found refuge in a burgeoning Facebook community of nearly 40,000 people dedicated to calling out the predatory nature of MLMs.
The group, called “Sounds like an MLM but ok,” was started less than a year ago, and has become a key critic of the continued spread of MLMs.
Posts in the group flag new MLMs to watch out for. Women speak freely about the ways that they were duped by MLM companies in the past. In one post a woman explains how a MLM clothing retailer infiltrated her group of friends, who eventually pressured her to join. She ended up thousands of dollars in debt after just a few years.
Another woman posted about growing up in a household where her parents were Amway reps and how it tore her family apart. She said family vacations were cut short or rescheduled to accommodate Amway meetings and business appointments. Many times her parents left her alone at home, including on holidays like Christmas and New Years, to go to Amway rallies.
“I will tell to any parent who thinks an MLM will help their families,” she said about opening up about her experiences. “I will tell any kid who loses a parent to these schemes, in the hopes that they know they are not alone.”
Every year, women are driven deep into debt by multilevel marketing companies. These firms—many of which have been accused of operating as glorified pyramid schemes—rely on a network of sales reps who sell their products primarily through social media.
In recent years, MLMs have co-opted the language of entrepreneurship, telling primarily young women, stay-at-home moms, and military spouses that they can become “self-employed” #girlbosses if they simply spend thousands of dollars in savings to buy up inventory and sell it to their friends.
You may have seen friends or acquaintances making these types of sales online. Maybe it’s an old college friend posting about a “sip and shop” LulaRoe party at her house, or perhaps it’s a former sorority sister commenting on your Instagram selfie and telling you she thinks you could use some Rodan + Fields eye cream. Or maybe an ItWorks rep has approached you at the gym, letting you know she has a great new weight-loss solution.
These types of scenarios play out regularly and support what has become a multi-billion dollar industry.
“Several women have posted about MLM reps attempting to capitalize on a tragedy, such as the death of a loved one, to try to recruit group members into their ‘downline.’”
According to a report made available on the Federal Trade Commission website, 99 percent of people who join MLM companies lose money (PDF). Unless they’re on the top of the pyramid earning commission from a network of recruits, the report notes, most people who get pulled into MLMs never make back the money they’ve invested and many more sink deep into debt. Even at the most legitimate MLMs, like Amway, the odds of making a profit are infinitesimal, according to the report.
When reached for comment, Amway responded to The Daily Beast by pointing to a section of its website where it attempts to explain that it’s not a pyramid scheme.
“Pyramid schemes are a form of financial fraud based on recruiting new people to make investments used to pay the people who joined earlier. In Amway, distributors (Amway Business Owners) make money from the sale of our products—never from recruiting. On each product sold, we set aside a portion of the product cost as ‘bonus’ (sales commission). This is shared by Amway Business Owners who work together in sales groups according to their contract with Amway,” the statement reads in part.
This explanation ignores the fact that countless MLM reps lose money thanks to the nature of many MLM sales schemes. This cycle has become so common that several class-action lawsuits have been filed in recent years against these types of schemes, claiming that they’re deceptive and “preordain participants to lose.”
In 2016, the MLM Herbalife agreed to pay out $200 million to settle FTC charges that it had deceived sellers with an “unfair” compensation structure. The FTC claimed Herbalife caused “substantial economic injury to its distributors.” As part of the settlement, the company agreed to restructure its business and “make only truthful claims about how much money its members are likely to make,” according to FTC Chairwoman Edith Ramirez.
And in 2010, Amway itself settled a class-action lawsuit—filed by its “independent business owners” against the company under its former name, Quixtar—alleging that the MLM operated as a pyramid scheme that “scammed” lower-level sellers out of millions. Amway agreed to pay out $34 million in cash and another $22 million in products, but did not admit to any wrongdoing under the settlement and rejected the characterization of its business as a pyramid scheme.
“These types of businesses have really pulled the wool over stay-at-home wives and mothers and target them nearly exclusively.”
Among the most recent and notable lawsuits in this genre was one filed in October 2017 against clothing retailer LulaRoe. According to the Associated Press, the company “encouraged women who wanted to sell its leggings, skirts and other clothing to take out loans, run up credit cards and even sell their breast milk” to afford inventory, then left the women in “financial ruin” when they couldn’t sell the merchandise. (The company has called the suit“baseless.”)
Angie*, a member of the Facebook group, knows this cycle all too well.
She joined LulaRoe, in February 2016 after a friend invited her to a selling party. She immediately sunk thousands of dollars into the business before leaving a year and a half later.
Luckily, Angie escaped without falling into debt, something she considers to be an enormous stroke of luck. She joined the Facebook group in November 2017 and immediately found a community of fellow ex-MLM sales reps and likeminded women.
While she had long lost faith in LulaRoe, it wasn’t until Angie became active in the group that she says she realized how toxic MLM practices are.
“The MLM group has helped open my eyes to how much these types of businesses have really pulled the wool over stay-at-home wives and mothers and target them nearly exclusively,” she told The Daily Beast.
“They make these women think they can make all sorts of money at these things with (as LulaRoe puts it) ‘full-time money with part-time work.’ It’s simply a way to hook poor schmucks like myself into making a quick buck, when in reality most do not,” she added.
Katie Young, one of the Facebook group’s administrators, said awareness and education are the group’s two largest goals.
“If you read stories from the ex-consultants in the group and all the terrible stuff they’ve went through and what they’ve dealt with, you’ll be amazed,” she told The Daily Beast. “One of the girls in the Amway AMA… by the time she got out she was 26 and had to start completely over. She had no friends, no family.”
Young said that she assumed co-control of the group last April after her friend, the group’s founder, decided to step away. She had never been an MLM sales rep herself, but through the group has become a force in the anti-MLM community.
Young says while it’s easy to laugh at the consultants, one thing she really wants the group to focus on is the broader problematic nature of these companies.
Still, she says, it’s hard not to mock the behavior of some of the MLM true believers. Hundreds of posts in the group show screenshots of hilarious and disturbing exchanges with sales reps who will stop at nothing to sell their product.
There are the women recommending Young Living (an MLM that sells essential oils) for cancer treatment, the mom calling fellow parents on the playground overweight and telling them to buy ItWorks (an MLM diet treatment), or the woman claiming that no woman wearing LipSense (an MLM lipstick brand) will get hit with divorce.
These sellers are often shameless, turning any interaction into an excuse to try to push their product or recruit more women to join beneath them. The group’s cover photo exemplifies this type of exchange: An MLM rep responds to a post about a woman’s son having a critical health crisis by trying to sell her unrelated essential oils.
“An MLM rep responds to a post about a woman’s son having a critical health crisis by trying to sell her unrelated essential oils.”
The reps’ names are always obscured in posts and Young and the other admins have a strict “no bullying reps” harassment policy—but it’s hard not to read some posts in the group without noticing how delusional and spammy MLM sales reps can be.
Members of the group have posted about MLM reps trying to sell them unverified “treatments” for serious medical issues. They’ve posted examples of MLM reps body-shaming or fat-shaming women in the gym in order to sell them MLM weight-loss solutions. Several women have posted about MLM reps attempting to capitalize on a tragedy, such as the death of a loved one, to try to recruit group members into their “downline.”
Unfortunately, most reps are blind to the inherent dangers of the MLM business model. Based on countless conversations she’s had with women in the group, Young says MLMs may keep their sales reps captive through a method of indoctrination that isolates them from anyone who would try to encourage them to leave the scheme.
“These MLMs cut you off from everybody,” Young said. “They tell you that if someone is being negative about your journey or ‘business venture’ to block them immediately and cut them off from your life. They tell you that ‘you don’t need negative people in your life.’ They say that instead of listening to people you love and hearing them out, just block them.”
Jenny said that throughout her time in Amway she was encouraged to re-examine every relationship she had through the lens of her business. “We were told to cut out everyone who didn’t buy our products or participate in our ‘downline,’ including family,” she said. Amway did not respond to request for comment on this claim.
MLM sales reps who do manage to get out of the system often find that they’ve isolated themselves from friends and those they were closest to. For these women, the Facebook group provides a lifeline in the early days when an ex-rep is struggling to get back on their feet, Young said.
“It’s really important for me to provide a safe place for former consultants who need somewhere to go to vent about their frustrations and be reminded why they don’t want to get back into an MLM,” Young said.
“These companies prey on people who are looking for community and looking for somewhere to belong.”
She said many ex-MLM reps will come to the group and post things like, “I just got out of an MLM and I need to go somewhere to reinforce that this was the right decision. I need to be reminded that going back in is not a good idea.”
Young and her fellow admins are strict about who can and cannot join the group. The biggest rule is that no current MLM reps are allowed because the admins believe that could create a potentially unsafe and hostile environment.
“The best part of being in ‘Sounds Like MLM, but OK’ is knowing that there are others out there who understand and feel the same way as I do,” said Mary, a former MLM rep.
“Once you’ve been scammed by an MLM, it’s hard not to feel stupid or foolish. MLM’s also tend to make you feel like failing is your own fault (as opposed to it being a flawed business model that guarantees there will be only a few winners and many losers). The Facebook group is like having a support group for victims.”
She said that the group has shown her that she’s not alone and helped her feel validated in leaving.
“I also get to help others by sharing my experiences and knowledge with others who are coming out of a similar situation or maybe have friends or families stuck in an MLM,” Mary said.
Although the group is technically registered as a support group with Facebook, it often functions as a grassroots advocacy organization.
Young said she and her fellow admins work hard, screening through hundreds of post submissions a day, to ensure that the content in the group is fun, entertaining, and engaging so that they can reach the broadest amount of people.
She believes that informational humor and openness are effective techniques to win over the hearts and minds of those who don’t yet see the failings in MLMs.
The group provides a slew of documents on every MLM and information regarding MLM schemes and a master document of all known MLM companies. The group also recently held an Ask Me Anything series with former reps to educate group members about alleged predatory practices by the companies.
Young Living and ItWorks did not respond to a request for comment. A LulaRoe representative emailed The Daily Beast a link to a CBS news articlewhere the founder refutes claims that the company operates as a pyramid scheme.
Young said she’s unsure of exactly how many former reps the group has reached in total. And while it’s tough to digitally quantify the group’s impact, it has undoubtedly become a go-to resource for those seeking to educate their friends in thrall to MLMs.
One current member, who worked as a former rep, said she discovered the group after a friend tagged it on her Facebook posts several times. She thought it was a joke, but ended up joining the group and was shocked at what she learned about the company she had previously sold for.
Kelly, a member of the group who has never personally worked for an MLM, said the group has helped her enormously in standing up to the aggressive MLM reps that approach her.
“A few weeks ago when I joined, I posted for the first time talking about being stressed out by MLM sale reps targeting me because of my public battle with endometriosis,” she said, explaining that they were attempting to sell her “essential oils” as medical treatment. “After posting about it a ton of women stepped forward and told me their personal battles with endometriosis and gave me words of encouragement and it made me feel really good to have a place to vent and to know that I’m not the only one not only battling something painful, but also having to deal with the stress of constant MLM messages.”
The Facebook group also partners with and supports the The Anti-MLM Coalition, an online coalition that works tirelessly to expose the alleged ills of MLM companies.
In the meantime, managing the group has become something of a part-time job for Young and the other admins. A stay-at-home mom herself, Young said she’s happy to put in the time and effort because she knows the group is doing good in the world.
“These companies prey on people who are looking for community and looking for somewhere to belong,” she said. “We want to give people that place.”
Daily Beast (copyright 2018)