MLM Travel Scheme, YTB, May Be Finished Off by State Regulators
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 California
Attorney General, Jerry Brown, has struck what may be a fatal blow against the
MLM scheme, Your Travel Biz.com, and provided a great benefit to hundreds of thousands of
consumers. Your Travel Biz.com is a classic pyramid in which consumers buy the right to become "travel agents" and then make money when they recruit other "agents."
The California Attorney General sued YTB in August of 2008, calling the company a "gigantic pyramid scheme". Now it has settled with the company. The result will likely lead to the company's ceasing operations.
According to the California AG press release, the settlement includes "Significantly limiting how much people can make from individuals they have recruited and who have become recruiters themselves. Sixty percent of recruiters' sales must come from persons who are not themselves recruiters;"
This requirement goes to the heart of the classic MLM fraud which is perpetrated by many other MLM companies. Most MLMs have little external revenue (nobody buys the products except the salespeople!). If this requirement were imposed on other companies in the Direct Selling Association, it would lose most of its members; the public would be free of the plague of false income propositions, all based on "endless chain" recruiting and masquerading as "direct selling."
A full explanation of the settlement and its potential impact on other MLMs can be read at the False Profits Blog, "MLM Travel Scheme, YTB, May Be Finished Off" (05/15/2009 09:25 AM Filed in: Economics/Financial)
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Recession Spawns MLM Scams Disguised as "Safe Havens" and Financial Rescue
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Unemployment
is rising. Loans are hard to get. Foreclosures are skyrocketing; small
business owners are closing their doors. Into this sad situation comes
multi-level marketing (MLM), claiming to offer consumers a "fall back" or
rescue. They call it "direct selling" and they claim it is "recession-proof."
The problem is, the "income opportunity" peddled by most multi-level marketing
companies is not direct selling. Direct selling during a Recession is a possible income opportunity, but it is certainly not a safe haven. It is not recession proof. In fact, it is among the hardest jobs in the world, with huge turnover and very little profit potential. What product would people need to buy from a friend or neighbor - at higher prices - than they can readily buy in stores or online? And how much does it cost in time and money to do the marketing, selling, delivering, and servicing?
In reality, the "direct selling" offered as "network marketing" is just the age old "endless chain" trick. You pay
money to the MLM for the right to sell the MLM opportunity to others who pay money for the opportunity sell the MLM opportunity to others who will pay money
to do the same. What is the opportunity, you ask? It's the opportunity to sell the opportunity! Get it?
To make a profit each person needs many more people below them. This is also called a pyramid scheme. Later investors pay earlier ones, with each level growing geometrically. The pyramid money is disguised as fees, marketing and sometimes
inventory. In nearly all cases, the "inventory" is higher priced than similar goods in stores, yet the direct selling industry claims consumers will buy more when the economy goes down! In fact, they claim people make money in direct selling when times are good and when times are bad! This may sound familiar. It is exactly the same claim made by billion-dollar-fraudster, Bernard Madoff. He too said his investors would profit from his scheme, in good times or bad.
The fact is that the true "product" that is being purchased in most direct selling schemes is the right to sell the opportunity to others. The opportunity to sell the opportunity!
As to the clam that the money is really for "products" and "business costs", not just the opportunity to sell the opportunity, the question must be asked: why would unemployed people, who may be facing home
foreclosures, buy expensive and relatively unknown products during a
Recession? And, as to why "direct selling" increases during a Recession, the related question must be asked: why would consumers buy more of these higher priced products during a downturn?
Unemployed consumers can be persuaded to buy high priced products ranging from weight loss pills to chocolate - if they are told they will get all their money back plus a big
profit when they recruit others to do the same! In other words, this is a classic money transfer dressed up to look like a business. The
money a few will get comes from the losses of many others "below"
them. At the end will be the vast
majority who will not - and cannot - find enough new "buyers." The promise that
everyone can find a "safe haven" in this money transfer scheme is a cruel lie.
The result of falling prey to an "endless chain" recruitment scheme
will be even greater losses for thousands of people who spend their
remaining savings, or take on more debt, to join a MLM scheme.
The
Direct Selling Association (DSA) has been selling the bogus idea of a "safe haven" and recession-proof business to the
media. Some journalists have bitten the hook. Recently the New York Times
took the bait and reported bogus figures about "median income" levels of MLM
participants. However, it did at least include a warning about
recruitment schemes and included the Pyramid Scheme Alert website as a resource.
However, the New York Times refused to correct the mistaken numbers about "median income". The Times
defended the figure on the grounds that it accurately reported what the
Direct Selling Association told them! The DSA is not a government
agency. It is a lobbyist and PR promoter of multi-level marketing.
The article stated, "The barriers to
entry (in direct selling) are fairly minimal. Start-up kits - required
by most companies - cost about $99 on average... The median income from
direct selling is $2,400 annually, according to the (Direct Selling)
association, but those who recruit and manage others can earn
significantly more."
These two figures - $99 "on average" to start up and a "median income" of $2,400 - are spectacularly misleading.
--True start-up costs (the fee is just the first cost) can be in the thousands and may require monthly inventory
purchases and even more costs for "marketing and motivation."
-- As for income, 99% of all MLM participants lose money. The $2,400 figure of "median income" (half of all MLMers would make more if that is the "median") is pure fiction.
-- For half of all direct sellers to earn $2,400 (median income), as the DSA told the NY Times, the total sales of direct sellers would have to be far more than $100 billion! And, all the MLMers would have to be retailing all their products!
--
The DSA misleads with numbers about "retail" sales, but almost any
number used would be fake. Most its members do not track retail sales.
This is because most MLMers don't make retail sales! They only recruit
other "direct sellers." The direct selling claim is just a camouflage
for recruitment scams.
Far from providing a safe haven during a Recession, MLM schemes
actually widen the wealth gap; they sap resources from most people who invest and
siphon the money to a small group of promoters; they entice people to try to
make money off their friends' and family's losses.
In the midst of a
Recession, MLM has found a great new market - unemployed people,
desperate for income. Other industries are also profiting - gambling, lotteries, payday loans, and bankruptcy lawyers.
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| No More Silence: Take Action ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Over
the last eight years, Pyramid and Ponzi schemes have grown and spread.
The Internet is now choked with "cash gifting" scams and "matrix
selling" frauds. Pyramid selling scams have multiplied and now boast
that the Recession will bring them more desperate "recruits." The false
promise of income from an "endless chain" recruitment scheme is the
lure of these multi-level marketing scams. Many of the "job" and
"business opportunity" solicitations on the internet are nothing more
than pyramid schemes, flim-flam frauds.
Consumers now have a way
to fight back. A petition for stronger regulation is being gathered on
the Pyramid Scheme Alert Website.
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