The Resurgence of Scams Amid The Pandemic — MLMs
A “pyramid scheme”, as defined by Cornell Law School’s Legal Information Institute, is “an unsustainable, illegal business model where investment returns are typically from principals [sic] of investments or membership fees instead from the underlying investment gains”.
To put it simply, it’s a business model where you’re paid directly from the people who you recruit below you, rather than from a product that you sell or the value of your investment increasing.
Pyramid schemes have long been banned as an illegal practice in the US and elsewhere around the world, in part due to the losses of entrants stuck at the bottom. Various companies in the United States have been sued for operating as pyramid schemes.
Despite their legal status, pyramid schemes or business opportunities that have the appearance of a pyramid scheme have flourished in the United States. Notwithstanding, there is a certain industry that, while having many aspects of a pyramid scheme, are technically NOT pyramid schemes…. because money can be made directly from the sale of a product. There is a famous case in the 1970’s in which Amway survived being sued by the federal government for operating as a pyramid scheme. Amway surviving this suit paved the way for all other MLMs to flourish.
These types of schemes are WAY popular, especially in the United States for a variety of reasons, but chief among them are 1) the desire to make “easy” money and/or 2) gaining financial stability.
The Specter of COVID
The pandemic, along with the response to it on both the national, state, and local levels have wrecked absolute havoc on many people’s finances. With many facing layoffs, possible foreclosure, and defaults on various debts, people have been searching for ways to make money in a weakened job market. Amidst these conditions, these types of schemes and scams have flourished.
I wanted to take the type to focus on three types of financial scams that have been on the rise, one of them being VERY obvious to most but the other two, not so much upon first glance. Let’s talk about the elephant in the room first.
This post will be the first of a three-part series. Buckle in, it’s time to get this started.
The “Not-A-Pyramid” Scheme
There’s no need for a better introduction to “multi-level marketing” than Season 1 of the The Dream podcast, so check it out when you get the chance. Oh, and by the way, it often goes by sexier names such as “social selling”, “direct selling”, or “network marketing”.
And it’s against the backdrop of the pandemic that sign-ups for MLMs have greatly increased, aided in part by high unemployment and multiple rounds of stimulus checks from the US government. Some of you might have seen posts on Twitter or Facebook about an awesome way to make money from home/your phone. Sometimes they try to bring up the fact that you might have gotten your stimulus check or target those who are currently unemployed.
Seeing those messages and wanting to make quick and easy money, you might (and may have) be tempted to sign up for a chance to become your own boss. Here’s why that’s a bad idea.
Long-story short, you buy into the scheme and you make money by either selling products or recruiting. The pitch almost without fail focuses on how much money you can make selling the products. What happens however, is that most people end up losing money. Here’s the dirty secret: those at the top are those who recruit, recruit, recruit.
It goes without saying that I HATE MLMs in all its shapes and forms and in my humble opinion, they are nothing but legally-sanctioned pyramid schemes.
If you are in one, you are best served by leaving as soon as possible. If you have a friend, family, or loved-one involved in one, know that getting them out of it will be difficult (nigh impossible) and that you’ll need to be firm about your not participating in one, while still not putting them down. Here’s a GREAT post from a blog called Captain Awkward on how to deal with this exact issue.
