Can This MLM Be Saved?

Includes: HLF, NUS, USNA
by: William Keep


Will making how MLMs operate more transparent help?

Investing in a reality show that can be stranger than fiction.

How might MLMs respond under an environment of increased scrutiny?

Dear Investor:

As your portfolio contains some percentage of high-risk/high-return opportunities, I want to pitch you on investing in a new TV reality show entitled: "Can This MLM Be Saved?" Naturally, you will want to know the concept and formula that will make this a success, particularly given the well-tread ground of reality shows.

The Concept: As the average American struggles to find a path leading to the American Dream, the show exposes the successes, fantasies, foibles, and failures of those choosing multilevel marketing (MLM) - a well-known, little understood, fraught-with-fraud, international "business model." Not as graphically troubling as Breaking Bad, but with closed-door meetings and promises of wealth, the storyline follows MLM companies fending off regulators as their distributors and new recruits struggle for a prize more elusive than becoming a 1%-er.

Big Drama: The drama of personal failure is a given, even predictable, as individuals pour money and effort into an all-against-all competition to pursue a business opportunity that offers unsupported potential (e.g., income from selling to non-distributors, really?), little data (unlike a franchise or traditional direct selling), and for which unproven "training" is available at a price. The biggest drama comes when the MLM company faces a dedicated team of pyramid scheme-hunting ex-prosecutors, one female and one male - think Hansel & Gretel: Witch Hunters, but with fewer gadgets.

Numerous product-based MLMs have been found to be, essentially, fronts for pyramid schemes. Courts have ruled (cases discussed here and here) that sustaining a business by rewarding participants primarily for recruiting others, who are in turn encouraged to pursue rewards based on recruiting others, etc., constitutes a pyramid scheme - a wealth transfer fraud masked by selling overpriced products and/or levying fees. Such schemes have been around for decades, and viewers will be invited to go online to submit stories about their own experiences of being recruited by a friend or family member. The growing number on FB will provide a rich source of examples.

How will MLM companies respond to the recent court case (here) that clearly indicates that sustaining a business by compensating participants primarily for recruiting others is a "no-no"? Will they try to document sales to non-distributors as a defense? Will they limit the levels of downline per distributor? Will they base compensation on what purchases can be traced to which "ultimate user"? If they claim that most participants join to buy products and enjoy being discount customers, how will they explain the need for massive, ongoing recruitment? Will they claim to be a buying club, leaving members to ponder what product discounts they have actually received? Are the discounts in regard to a hypothetical retail price that virtually no one pays? Or if pitched as a business, will they point to lame rules and policies, neither effective nor enforced?

Each season, one or two MLMs will be examined by a dedicated crew of ex-prosecutors, supported by a small number of attractive analysts experienced at exposing fraud (like CSI with spreadsheets). To handle longer cases (e.g., Herbalife), the show will intersperse new stories, such as college students in pursuit of leased BMWs "hooking up" their friends with cases of energy drinks (e.g., Vemma). Past court cases will provide context as judges close unsuspecting MLMs/pyramid schemes (e.g., Equinox, FHTM) and former MLM CEOs do the perp walk to jail (here and here) or, as in Gold Unlimited, first flee to a trailer park in south Florida.

Viewers will relate to the hope of new recruits as they attend information sessions to hear success stories: the former electrician with multiple homes who drives a Maserati, and the financially independent married couple who once lived in their car. Handheld cameras will help viewers experience the excitement as hundreds of soon-to-be-wealthy distributors share stories and line up for a photo-op with a top distributor. As the excitement crests, viewers will be quickly taken down the emotional rollercoaster as participants come to realize that success may be based on something other than "hard work", and only a small percentage make even minimum wage, let alone life-changing wealth. There will not be a dry eye in the house.

Each season, a contest will be held to allow viewers to vote on which MLM is most likely to be found to be a pyramid scheme. The prize will be an all-expenses paid, two-week vacation. The first week will be at the luxurious home of a top MLM distributor. Winners will get the inside scoop on just what it takes to build a downline, and participate in a floor-shaking celebration of opportunities at a recruiting meeting at the local Holiday Inn. They will learn how families support families, until they don't, and that top distributors turn over much less frequently than their downlines. Winners will spend the second week with the investigative team as they sift through evidence of deceptive marketing messages (the product can cure what?), recorded conversations that belie the true nature of the opportunity, and spreadsheets of downlines, memberships, purchases, and compensation records.

Fortunately, many MLMs are international; allowing crews to take viewers to exotic locations and listen to presentations in unfamiliar languages. The combination of excessive lifestyles + personal drama + tears of joy and disappointment + pursuing investigators is sure to be a hit. As no television series or movie can guarantee success, this investment will be risky. But, on the positive side, it provides an opportunity to make a non-scumbag investment, something that I am sure you will find attractive.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have received no compensation from any parties associated with any company mentioned above, except for Gold Unlimited and FHTM.