(December, 2019) The fortunes of investors in the $20 Billion “multi-level marketing” sector of Wall Street hang, by an almost invisible thread, on law enforcement policy of the FTC. Following the Herbalife (HLF) prosecution in mid-2016, two more MLMs, both of which are large, mainstream and members of the Direct Selling Association, were prosecuted as pyramid frauds in 2019. Adding to regulatory fears, the DOJ brought criminal charges of bribery against Herbalife officials in China. China is MLM’s final frontier.

MLM promoters and wily investors know that the violations cited by the FTC in these recent cases are imbedded in the MLM model. MLMs cannot “reform”. Pyramid scheme charges could be brought against any MLM. The industry operates on the strength of corrupting regulators and lawmakers, always a tenuous proposition requiring constant refilling of the trough.

Investor Angst

Wall Street analysts who examine past FTC actions and statements on MLM inevitably discover how confusing, contradictory, and strangely detached from real-world business they are. Despite over 30 prosecutions that are remarkably similar, no general investigation has ever been done of MLM practices by the FTC or even a review of the “business model.” Despite millions losing money in MLM, the FTC exempted MLM from a rule to make disclosures when soliciting money from consumers. There is also a foul-smelling history of revolving doors between FTC officials and the lucrative MLM world.

So, what should people that own stock in Herbalife, Avon (AVP), Usana (USNA), Nu Skin (NUS), Medifast (MED), Tupperware (TUP), among others, do if they still do not know what MLM really is? Even if they do know its true identity, how should they assess the state of FTC policy regarding law enforcement?

Absurdity of Conventional “Business” Analysis

Having spent the last two years writing the book, Ponzinomics, the first comprehensive treatment  of the MLM phenomenon, to be published in early 2020, I recommend abandoning Economic Analysis altogether. Just like consumers faced with an MLM solicitation, they should not waste time examining the fake business language, financial trappings, and pretenses of “direct selling.” Underneath is a classic “endless chain” recruiting scheme. Virtually every person that falls for the “income” promise will lose money. Claims to be “direct selling” are smoke and mirrors.

The investor would be better served to focus entirely on MLM Politics. A consistent pattern can be seen stretching over 40 years that provides guidance on what is coming.

  • The usual approach of researching SEC filings is futile. Those documents don’t address elements relevant to pyramid schemes. Colossal deceptions and utopian promises cause mass hysterias and irrational economic behavior, which is then depicted as “growth” and “demand” in financial statements. Massive attrition rates are papered over with recruiting figures.
  • Studying product trends is not helpful. MLMs sell the most ordinary products like cell phone service, meal replacements, life insurance and kitchenware. They don’t set trends, introduce new products or pioneer technologies.
  • “Demand” for MLM products, separate from its false income promise, has never been shown. Most MLM “salespeople” have barely a few personal customers or none at all. Most “customers” and “salespeople” stop buying MLM products in less than a year.
  • Explaining – in legitimate business terms – is a dead-end. Why millions of people would sign up for an “income opportunity” in which not even 1% a year ever gain any net profit? Why would people buy “sales kits” and sign “sales” contracts only to get a modest “discount.” What would account for nearly 100% attrition?
  • Science doesn’t help. Miracle “health” pills, “anti-aging” lotions, and “brain-boosting” potions are unregulated and require no scientific evidence to be marketed.
  • A business model analysis bears no fruit. MLM’s “endless chain” structure and incentives rely on “infinity”, making market saturation, numbers of competitors, size of sales forces, and productivity irrelevant.

The Politics of Enforcement

From 1980 to 1996, there were virtually no FTC or SEC prosecutions of MLM. President Reagan called MLM (Amway) true capitalism in America. In subsequent years, only smaller and marginal MLMs were investigated. Large MLMs were above the law. Smart money saw the obvious: MLMs were politically protected. A fix was in. More MLMs went public. Wall Street institutions bought in.

It didn’t take a marketing genius to see “M-L-M” meant Miracle-Lucre-Machine. Gross profits over 80%, no advertising or mass marketing needed to produce “demand.” Price didn’t matter. What wouldn’t sell like hotcakes that included the promise that buyers could become millionaires, without experience, capital or knowledge? Then, add in possible miracle cures and fountains of youth!

Also add in a growing MLM market of recruits for MLM’s utopian income plan – students with debt, military spouses with multiple deployments, abandoned factory workers, downsized or outsourced white-collar workers, undocumented immigrants, minimum wage workers with two jobs, Baby Boomers with little retirement savings, even seemingly affluent households facing perpetual job insecurity and heavy debt – and then also those tens of millions in countries begging for a slice of capitalism’s mythical bounty.

No wonder MLMs were declared “growth stocks”. The one small proviso was that pyramid fraud thing  raised occasionally online, in class action lawsuits or by short-sellers, but they had no lobby. The media ignored them as “anti-MLM.” Then, about seven years ago, the picture began to change.

Conflicted FTC

At first, new events only seemed to verify conventional thinking. Speculators laughed all the way to the bank as short-selling hedge fund manager William Ackman disastrously challenged MLM. The FTC ruined Ackman and the short-sellers by refusing to prosecute Herbalife as a pyramid scheme.

Yet, facts uncovered during that lost cause – and confirmed by FTC investigators – have inconveniently lingered. For example, Ackman and other short sellers gave evidence that MLM is running its recruiting model in China where it is outlawed. Ackman sent investigators to China who reported violations of China’s anti-MLM law. Recently, two Herbalife officials were charged with bribery in China.

Coincidentally, the factor of global saturation also emerged with Amway’s revenue, which skyrocketed from China operations, losing in a few years almost 30% of the volume built up over 50 years. It was the first global pop-and-drop cycle.

One other question lingered. Are the standards the FTC used in the prosecution and terms of settlement for Herbalife applied to all other MLMs? In the eyes of the FTC, are all MLMs equal but some more equal than others?

In explaining the FTC’s history of dereliction on MLM, I direct investors to the lucrative revolving-door for FTC officials into MLM-related jobs and the massive political contributions from certain MLM owners and promoters. Then, there is the elephant in the room, President Donald Trump’s personal history in the MLM business over a 10-year period. The current president of the United States is the most famous of all MLM-promoters. (Others have included O. J. Simpson, Bob Hope, Madeleine Albright, Hulk Hogan, Chuck Norris and Carl Icahn.)

Countervailing Force

Now, though, a countervailing force is gathering strength and pushing the FTC. This force is public awareness. For decades, millions of victims of MLM have been convinced by MLM promoters that their failures in MLM (over 99% “fail” each year) were only the result of bad judgment, lack of effort or “loser” mentality. The false story-telling persuaded the public that MLM is “direct selling” and most people in MLM really do make a profit. This myth provided regulators a cover for silence and, for some officials and politicians, collusion.

With revelations spreading of 99% annual loss rates, attrition reaching 90%, contrived income “averages”, and the virtual absence of bona fide “customers”, the public is awakening. The media routinely reference MLM cultism, brainwashing, social disruption and political bribery. An award-winning Netflix  documentary and a popular Showtime  series depict MLM as predatory, harmful and cultic. The popular John Oliver Show on HBO, which generated more than 20 million views, lampooned MLM as one big pyramid scheme. Then a popular Podcast, The Dream, attracting millions of listeners, tracked MLM’s murky origins and baffling escapes from law enforcement.

Perhaps a final blow against silence or inaction has been the sex-slave cult scandal of the MLM, NXIVM (pronounced Nexium). The characterization of MLM as a mind-controlling cult movement has loomed for years, but it is now getting serious attention. Cult experts are classifying MLM as a “commercial cult.” NXIVM was an MLM. The CEO Keith Raniere had a long record in the MLM business. He was a former Amway distributor and the founder of two other MLMs. One of his MLMs, Consumers’ Buyline, had over 250,000 distributors and was eventually shut down by regulators. See the Albany Times Union’s 4-minute YouTube on NXIVM: MLM.

Under this onslaught of facts, media attention, revelations, and growing consumer awareness, the FTC itself appears to have entered into its own agony. Remaining silent is no longer an option. The FTC’s corrupt history with MLM has come back to haunt the agency.

Legal “in Theory”

From 1979 forward, the FTC consistently asserted that “MLM is legitimate.” Since the mid-90s, it prosecuted about one or two MLMs a year, on average, not enough to affect practices but just enough to create an impression that the “bad apples” are being eliminated and all the other MLMs, by inference, are legitimate.

This FTC endorsement has led the public into a tragic briar patch, vainly searching for the “legitimate” MLM where people really do make money “on average.” The most common and persistent question I receive at Pyramid Scheme Alert, is  “Yes, okay, I get it about the MLM model… but (pleadingly) what about this MLM?”

As it turns out, the FTC has never named even one MLM as a model of legitimacy. Instead, it created a “theoretical” legitimacy for MLMs, which it endorsed. In that model, each and every new recruit has a viable chance of earning a sustainable income from retail selling. The recruiting element, under this theory, is for building a team of other “retailers.”

No one has encountered one of these theoretical MLMs. No one ever will. Viable, profitable retail selling, and endless recruiting of more salespeople in every territory, as any salesperson knows, are mutually exclusive, and who even needs or wants “personal salespeople” for buying commodities?


In Ponzinomics, I painstakingly document a 35-year history of revolving door connections between FTC officials and the MLM industry. “Endless chain” schemes foster a delusional belief affecting notions of livelihood, self-worth and business, which I term “Ponzinomics.” These self-destructive economic delusions do not endure unless supported with intentional neglect or disguised promotion from government

As one example in recent FTC history, I recommend that investors recall Herbalife’s settlement terms with the FTC – no pyramid scheme charge, time to implement a phony “restructuring”, and a modest payment, coming out of the victims’ own money, to a tiny proportion of “losers”. This sweet deal was negotiated with the aid of the immediate past chairman of the FTC – who was working for Herbalife. The previous chairman of the FTC at that time, Jon Leibowitz, had left the FTC and gone to work to help the company that the FTC was investigating and then prosecuted.

Ponzinomics  recounts the 40-year build-up of a “Pyramid Lobby” and an Orwellian PR machine that makes “wholesale” become “retail”, turns salespeople into “customers”, buying into “selling to yourself,” and redefines due diligence as “negative thinking.”

In my study of the history of MLM’s escapes and resolutions involving pyramid prosecutions, tax evasion, copyright violations, price fixing, false medical claims, deceptive income promises, cult persuasion, SLAPP suits, and bribery of governments, one common theme persists: Truth versus Lie. The impossible endless chain model with its impossible promise of “unlimited” income is the Big Lie. Will it endure? Or will Truth bring collapse?

In a New Yorker  essay in 1967, entitled, “Truth and Politics,” the famous writer on propaganda, Hannah Arendt, acknowledged, “Lies have always been regarded as necessary… tools not only of the politician’s or the demagogue’s but also of the statesman’s trade.” Yet, she added, “No permanence, no perseverance in existence, can even be conceived of without men willing to testify to what is.” Truth, she wrote metaphorically, “is the ground on which we stand and the sky that stretches above us.” This would seem to give assurance that, if not today, at some point, the Truth about MLM will prevail.

Yet, the shorter arc of history favors continuation of deceptions and consumer injury and no change at the FTC. Besides history, there is ongoing political influence-buying. There is the weight of MLM’s $20 billion bubble in Wall Street equity – including Carl Icahn’s stake in Herbalife that would instantly go up in smoke if the FTC enforced fraud law. And, did I mention that President Donald Trump himself, who oversees the FTC, is an MLMer?