One of the the greatest obstacles – perhaps the most important one – to law enforcement of Main Street pyramids is the disguise of pyramid schemes as “direct selling” enterprises that offer a viable “income opportunity” to large numbers of people .
A recent essay argues that not only are MLMs not direct selling (few MLMers have any customers; virtually no one makes a profit from retail selling; less than 1% of all MLMers make any profit), but also that MLM enterprises are not connected historically with “direct selling.” Their true roots are more closely aligned in style, products, and character with the “traveling medicine shows” popular in America until the end of World War II. A copy of the essay can be read Here
The referenced essay was published on the popular financial forum, Seeking Alpha. The essay as it appeared in Seeking Alpha can be read Here.
A summary of recent actions taken by regulators against MLM pyramids was published in the November edition of the Pyramid Scheme Alert UPDATE newsletter. See the previous Update Here.
The article explains how as direct selling was becoming obsolete, MLM companies used the disguise of the old business to cover over an entirely new kind of scheme, based on “endless chain recruiting”, a form of trickery on the “salespeople.” It shifted the focus from selling product to customers to getting new salespeople to buy products, with the false promise of high income.
It also explains how true direct selling was a solitary and sustainable business. MLM, in contrast, is based on “group persuasion” and uptopian promises of “unlimited income”, similar to the Medicine Show’s persuasion of large crowds that its “patent” medicines could cure “whatever ails you.” The article also shows the history of MLM tracing before Amway when the invention of the “endless chain” scam was made a “pay plan.”
Many regulators and attorneys have been diverted from recognizing the harm caused by endless chains because they mistakenly believe them to be viable “direct selling” enterprises, offering sustainable income based on “sales.” Moreover, they see the enterprises as part of a generally legitimate and valuable type of business with deep historical roots in American business. This article exposes that illusion.