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International Association to Expose, Study and Prevent Pyramid Schemes
Pyramid Scheme Alert Update
Pyramid Scheme Alert is a non-partisan, non-profit, all-volunteer consumer education group. Contact Robert L. FitzPatrick, Pres. at
[email protected]
October 2007
There is one News and Commentary Report in this edition. Please feel free to forward this newsletter.
PSA LogoRather than offer various news items, this Update is dedicated to one clear message for the many consumers that contact Pyramid Scheme Alert with urgent questions about multi-level marketing. The message is also for journalists who have earnestly sought to uncover the truth about multi-level marketing.

And, we hope this Update serves as a useful support to our government regulators. When scams put on the clothes of respectable business, consumer protection is needed more than ever.

With more than seven years of research into more than 200 multi-level marketing companies, expert witness work on  MLM/pyramid court cases, meetings and talks with consumers, regulators and attorneys in several countries, and  diligent investigations into MLM pay plans, contracts, policies and products...

Pyramid Scheme Alert reports the following:

1. The overwhelming majority of multi-level marketing companies - almost every one we studied - is a financial trap, a scam, and a cleverly designed pyramid scheme. 90-99% of all people that join them lose money. See
The Myth of MLM Income Opportunity which documents the devastating loss rates. These schemes are not "direct selling" but pyramid recruitment schemes.

2. Though disguised as "direct selling" and offering health products, vitamin pills,  fruit juices or insurance,
the pyramid scam underneath the camouflage is revealed in the design and operation of these schemes:

-- Multiple "levels" that only serve to expand the scheme and funnel money from large numbers of people at the bottom to a few at the top.  
-- Requirements to buy products and pay other fees to join the scheme or to remain "qualified" for promised rewards.
-- Commission pay plans that send most of the money to the very top levels. One MLM that  we are currently researching - one of the largest in the world - sends 84% of all commissions to the top 1% of its distributor chain. What chance would the newest recruits - at the bottom - have to earn a profit?
-- Recruitment requirements to advance up the pyramid levels.
-- A closed system with virtually no retail sales to consumers who are not part of the pyramid, i.e., the people buying the products are the sales people themselves!

For more information on how to spot a pyramid see  the
"5 Red Flags of a Product-based Pyramid Scheme".

3. All claims, promises, and testimonials about these MLMs as "income opportunities" are false, misleading and harmful. People lose in these schemes because they were lured into a money trap, not because they "failed" or "quit."Any scheme in which less than 1% make a net profit is not an "opportunity."

4. The massive loss rates in MLM would be the same even if every participant had the talents and ambitions of Donald Trump and Warren Buffet! The loss rates are pre-determined by the scheme's design and operation. The recruiters at the top know all this even as they falsely hype the scheme as the "greatest opportunity in the world."

5. A consumer ought to approach all MLMs as money traps until he/she has done proper due diligence. Unfortunately, most consumers do the opposite. They treat the MLM as viable and legitimate unless they hear about a negative court ruling or law enforcement action, which they often do not find. Then, when they do lose money,  alienate friends, damage family ties and waste months or years of time - which virtually all eventually  do -  they conclude that the "failure" was their "own fault." They don't report the loss to the police and they seldom even tell their neighbors. MLMs are, therefore, able to continue scamming new people because word does not spread widely. Most consumers bear their losses in silence and shame.

6. Legality of MLM pyramids is a murky question determined by courts and law enforcement.  Many MLMs that are operating openly look and act exactly like others that have been prosecuted and shut down.  But whether a MLM pyramid scheme is determined to be illegal or is ever prosecuted, the same number of people will lose!

Strangely, we get inquiries from many consumers asking us if the  MLM they have been solicited to join is "legal." Often we ask these consumers, how many other businesses do they get into that they have to ask if it is "legal"? Shouldn't the very idea that you already doubt or question the scheme's legality be a tip-off?

Consumers question MLM legality for good reasons.

-- It looks too good to be true!  (Because it isn't true.)
-- How could it promise these huge incomes? (It only makes promises. It does not deliver on them.)
--Where does the money come from? (From you and all the other new recruits!)
-- If it is so good, why isn't everybody already in it? (Actually, tens of  millions of people have been in MLM. Nearly everyone quit within a year or less.)
-- What's the secret? (It's just the old pyramid scheme trick.)

How could so many MLM scams operate openly and brazenly without the police raiding the meetings and arresting the leaders? Why doesn't the FTC shut down scams that cause a 99% loss rate? Why don't the state Attorneys General halt the operations to prevent further losses?  Why aren't we seeing more MLM executives being led away in handcuffs or wearing orange jumpsuits while standing in front of judges?

We will address these questions in a future Update. Tip: politics and money affect law enforcement.
Special Reports for Consumers...
The "Non-Retail" Direct Selling Company

Recognizing the Disguises of Pyramid Schemes

Understanding MLM and Pyramid Schemes, a Radio Interview (MP3)

When MLM Operates as a Consumer Fraud, a Speech to Regulators (MP3)

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Contact Information
Pyramid Scheme Alert
Tel: 704-334-2047
Fax: 704-334-0220
Email: [email protected]