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Consumer Bulletin: Scams Disguised
as Businesses

In Iowa and other states in the US and in Canada hundreds of farmers are buying breeder pigeons. They think they are now in the pigeon breeding business. Elsewhere, millions of consumers are buying soap, diet pills, fruit juices and vitamins. They think they are now multi-level marketing (MLM) “distributors.” In all such cases, the farmers and the distributors believe they are in “businesses.”

Are they? No, they are not. Why?

A crucial part of a legitimate business is missing. Without this crucial part, they are actually in a money-transfer scam, a pyramid fraud, a Ponzi scheme. They don’t realize that this crucial part is missing because the scam is disguised as a business. It has products, “sales”, profits, contracts, meetings, CEOs, shipping, warehouses and distributors.

But it has no customers! All that is happening is one group of investors (breeders or distributors) is transferring money to others that invested ahead of them. For all to succeed, the chain would have to continue forever! It would have to expand endlessly! Unfortunately this cannot happen. As a result, most must lose.

The only (or almost only) people buying the vitamins or herbs or juices or soap are the “distributors” themselves. They can gain money primarily by soliciting other distributors, not from selling the products to retail consumers. The products are unknown brands, priced far too high to sell to retail customers and similar products are available for less money in many stores. There is no retail market!

Without retail customers, this is not a business but just a pyramid scheme. Each distributor gets full value from his purchase only if he is able to recruit others. If he doesn’t, he is stuck with goods he would normally not buy, or not in that large quantity or not at that high price. If he does not recruit others, he loses money.

Even if does recruit others, the pyramid is designed so that only a few at the top can be “winners.” He was told everyone could be who tried. This is completely false. As in a lottery, only a few can win in a pyramid recruitment scheme, no matter how many play and how sincerely they all try. The pyramid can only allow a few to “win” because the only place the winners get their money from is the “losers”. For there to be a few winners at the top, there must be many losers below them.

In the pigeon scheme, one company sells the breeder birds to the farmers and the same company commits to buy the offspring later on from the farmers. The selling prices and buying prices are fixed. One seller and one buyer. What’s missing? The market where the pigeon promoter is selling all the offspring that he buys from the breeders! That is, there are no customers for the all these pigeons!

Without a market, the only place the scheme’s promoter could get the money to buy the offspring is from other, newly recruited breeders. So money comes from later breeders to pay earlier ones. Each year, the promoter will need to recruit more breeders than in the previous years. Obviously, this cannot continue forever. At some point, he will not be able to find enough breeders. When he fails to bring in enough new investors (breeders), almost all previous ones will not be paid. The scheme will collapse.

In multi-level marketing, many people are led to believe that signing up as a distributor, buying products, and then recruiting more distributors is a business. It cannot be! Everyone is a salesperson. Where are the customers? A salesperson cannot be his own customer! So, he must recruit others and make money from their investments. But the chain cannot kept expanding forever. If the new recruit cannot find other new recruits, he loses and soon quits. What looks like a vitamin sales business is actually just a pyramid recruitment scheme, which causes 99% to lose. But, it is all wrapped up to look like a “direct selling” business.

Why must most people lose in the recruitment scheme? Basic math. If it takes 100 other distributors in your “downline” for you to become profitable, then this is true for every other person in the scheme also, including all in your downline. Every profitable one needs 100 others that are not profitable. Only 1% will ever be profitable! This would be true even if every distributor were as ambitious as Donald Trump and as wise as Warren Buffet!

Sadly, many consumers only see the disguise and not fraud underneath. They do no realize there is no market for these products, just an endless recruitment chain proposition, which is impossible. Endless distributor recruiting is not a business. It may be dressed up in a nice business suit, but the tools of a swindle are hidden underneath the fancy facade and behind the wily smiles.

Now Available,
Updated, Revised and Expanded

  • The most comprehensive and easily understood analysis of Multi-level Marketing
  • The true facts about MLM income promises and claims.
  • Eleven (11) MLMs Analyzed with Income Data
  • Charts on each MLM with Summaries and Explanation

Read before you invest… Read if your friends or family want you to join an MLM… Read to understand why and how money is made and lost in MLM.

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This page last updated on 8/13/08