Why MLM Is Invisible, Part 1: False Language

Aug 22, 2014

Normally, a social or economic phenomenon, in which as many as 15 million American households participate year after year and which involves intrusive and sometimes disruptive personal and social interactions in addition to potentially thousands of dollars of lost investments, would be extensively studied. It would be regularly reflected in the news, as a subject or at least as a backdrop in books, plays, novels, and movies. Something this pervasive and which dramatically affects family life, careers, the workplace and even churches of millions of people would be a topic of inquiry, interpretation, debate and, yes, comedy. A phenomenon of this scale falls into categories with other common and important activities and experiences like divorces, unemployment, foreclosures, home buying, commuting, obtaining heath care insurance, buying lottery tickets, taking kids to soccer practice, online stock trading and shopping in malls. All of these experiences are the stuff of media features, news, consumer research, drama and comedy.

Yet, strangely, multi-level marketing — an American invention and as Americanaas any of the experiences noted above, all of which emerged about the same time as MLM did in the 70’s, 80s and 90’s or later — is almost entirely absent in the arts. It remains unstudied by our universities, and gets only the barest of mention in the media. From a media, news and arts perspective it seemingly does not exist. Only in comedy, and even then on rare occasion, do the realities of MLM appear in the media.
In fact, as this analysis will show, it is not only that the daily experience of MLM is absent from the media and arts but the truth of MLM itself is missing. MLM exists in our society — and this is perfectly reflected by the paradoxical lack of public attention — as a myth, or as the author, Charles Mackay, would call it “an extraordinary popular delusion.” The truth of MLM shockingly conflicts with the prevailing myth of MLM. Indeed, the reality is the myth’s opposite, as writer David Brear has sought to reveal in his “deconstructed” analysis of the true nature of MLM. He characterizes MLM as “the American Dream Made Nightmare.” MLM’s absence in public forums or art and the media, therefore, indicates something far greater and different from neglect or absence. It indicates denial, disinformation, cover-up and suppression.

The recent publication of the first true novel – Downline by E. Robert Smith – in which MLM plays a central role in the lives of the book’s characters, prompts me to review the strange state of MLM in the media and arts, which is a way of examining the degree to which the raw truths of MLM are denied and covered up and to ask the question, why?

My Personal Quest

After personally experiencing, for the first time in my life, the ethics-shattering, thought-stopping, financially destructive power of a relatively small and local pyramid scheme, called the “Airplane Game,” in which I became involved in the 1980s, I started a quest to learn all that I could about

pyramid schemes. What are they and where do they come from and how do they operate? Soon after beginning my research, multi-level marketing (MLM) swept into where I was living then, and I saw many of the very same people who had been involved in the Airplane Game pyramid scheme (which the police had shut down) flocking into the MLMs along with many thousands more people. Now, the followers held high the banners of not only “a new way to get rich,” but also “It’s legal because we sell products.”

I was compelled to expand my research into multi-level marketing. I quickly concluded from reviewing pay plans, structures, marketing claims and income promises and from attending meetings and interviewing leaders and followers that MLM was the Airplane Game with products. It was merely the newest form of the classic pyramid scheme.

The small local scheme I had been in, of the type now called “gifting schemes,” (there have been more since then) pulled in about $20 million in just a few months from more than 10-15,000 people in just one part of one state, with more than 90% of participants losing all they invested. The MLMs’

recruiting sweeps where I was living were dwarfing the gifting clubs both in scale and dollar volume. As my research later revealed, the loss rates in MLM were far worse than the Airplane Game’s money transfer, exceeding 99% to the Airplane Game’s 90%. The MLM pyramids were more viral and harmful. They were capable of operating globally and continuing for decades. They represented a development in pyramid schemes that the world had never seen.

But while still trying to understand the expanding pyramid phenomenon, its strange power over people, and, unlike the Airplane Game, its seeming immunity from law enforcement, I was even more amazed to realize that virtually nothing was written about it. Just two books, each focused on Amway, addressed the topic seriously. News and magazine articles were sparse and limited in focus. Here were enterprises that could spring up almost spontaneously and induce thousands of people to part with millions of dollars, when a quick analysis would reveal that the last 99% were destined to get nothing from their investments and efforts. Surely this would be a subject of intense academic study, journalistic inquiry, legal attacks, economic analysis and sociological research.

But, no, to the contrary, I learned that pyramid schemes, in the format of “multi-level marketing” were virtual black boxes. I learned they were expanding financially into the scale of billions in ill-gotten revenue and were being escorted into other countries with help from our own Commerce and State Departments. Even more incredibly, just as the “gifting scheme” I was involved in was disguised as a “benevolent social club,” a new means of “sharing,” even a new form of spirituality, the MLMs were being presented as benign “direct selling,” the purest form of individual entrepreneurship, the building block of our economy. This realization led to my writing the book, False Profits. It was the first book to comprehensively look at the relationship of multi-level marketing and pyramid schemes and to treatthem as mass frauds, systemic fraud.

More than 15 years later, as MLMs quadrupled in size, still no other full-length book, other than reference texts or personal accounts focused on individual MLMs, has been written to address the topic comprehensively. No documentary has been produced. No Frontline investigation has aired. There has only been a very funny take-down of the entire MLM system by comedian/magicians, Penn & Teller, in which I play a major part as the straight man, offering explanation of MLM magic. (See 2010, Season, 8, Episode 5, “Easy Money”)

My own experience and my research had revealed that the rewards promised in both the no-product “gifting” clubs and the product-based MLMs were exactly the same, “unlimited” and “infinite.” The pathway to the “unlimited” rewards in both the gifting scheme and the MLMs was also exactly the same, recruit others to join who recruited others, with each person needing multiple levels of new recruits before rewards were possible and every person needing also to pay or to purchase products to participate. Charting the cash flow according to each of the no-product and product-based scheme’s rules shows that 90-99% must always be in unrewarded positions at the bottom of the chain. This is true based on math and geometry, and from direct experience and available data verifying loss rates. That is, 90-99+% of all who ever enroll will not get rewarded. So, the larger the MLM scheme gets, and the longer it continues, the greater the number of losers and harm caused. The proportion of losers to winners, which is even more extreme in the MLMs, never changes.

So, from my own experience and intellectual quest I was compelled to ask why was it that a plainly fraudulent proposition operating on a national and global scale, masquerading as “direct selling,” claiming to be “the greatest income opportunity in the world” while inflicting 99% loss rates was not vigorously examined? Discovering that my book, which was published in 1997 stood virtually alone in a direct inquiry into the entire MLM “industry,” I had to wonder why multi-level marketing was not reflected in the arts or reported in the media? Why were the billions in financial losses suffered by the participants not reported. How could this be?

This blog is the first of a series on the answers I arrived at, teaching me, in the end, as much about my country, our political and legal systems, the media and arts, as I have discovered about MLM or pyramids themselves.

Myth and a Language of Disguise

MLM does not operate in hiding. It is in plain sight, indeed it can hardly be avoided, but it is alway in disguise. The disguise is a mythological costume that conjures values, activity and experience that are false, but popularly believed. The current MLM myth might be compared to the historical myth of chivalry in the Middle Ages that is vividly recalled in each image of a knight in shining armor on horseback. That image calls up thoughts of virtue and bravery, religious piety and protection of women, and drives out actual realities of knights as enforcers of serfdom, pillaging captured lands, as protagonists of constant warfare, and the documented reality of women as chattel during that era of “chivalry.” It is unknown if people in the time of the Middle Ages widely believed the chivalry myths or whether it developed from a historical perspective, but in MLM’s case the myth is current, immediate, and widely accepted.

An essential part of this successful MLM disguise is MLM’s private, self-created language which was created as an integral part of the scheme itself. For analysis of the role of MLM’s self-created language, credit is due to English writer, David Brear. This False Profits Blog does not offer a “deconstructed” terminology that accurately describes MLM, as David Brear has done in his work of many years. Rather, in this Blog I seek only to show how language serves as a key — and perhaps the most important — element of MLM disguise and accounts partly for why MLM escapes critical attention.

All confidence schemes use proprietary terms to coverup or to divert attention from what is actually occurring. In the Airplane Game scam, initial investors were called “Passengers” and those who recruited enough to reach the top were termed, “Pilots”. The terminology was fanciful. In keeping with the facade of fun and fancy, the multi-million dollar fraud was generally called a “game” by the investing participants, though 800% return – or total loss – was no laughing matter. Some participants lost money they had borrowed. A few got as much as $100,000 in a just a few month’s time.

The language of the Airplane Game fraud was diverting, a form of “redirection”, but never meant to be taken literally. Yet, it did aid in hiding the nasty reality of commercializing relationships and engaging in an illegal fraud. It also contributed to general self-denial of the mathematically pre-determined loss rates. Few people in the “game” ever referenced a calculator that would reveal that geometric expansion could not continue and 90% of all who ever joined were destined to lose.

MLM’s disguising language is far more powerful and insidious than the Airplane Game’s, including the undefinable, self-made-up term, “multi-level marketing” itself. MLM’s myth-language is indeed meant to be taken literally. It does not just divert. It shields the schemes from public revelation by powerfully shaping individual and public thought. Valid observation and judgment require thoughts based on facts. Thoughts require language. MLM’s language keeps the speaker and thinker trapped inside a fictionalized narrative, preventing a recognition of plain facts, and precluding critical judgment. The facts of MLM can be plainly observed, yet when people attempt to speak about them in the terminology assigned to the schemes by the schemes’ own promoters, the words that come out mean something else. For example:

MLM is always defined as “direct selling” though almost no MLM participants actually have customers and virtually no one ever earns a profit from personal, direct selling. As soon as a person refers to MLM as “selling”, anything more that they may say about MLM’s flaws or deceptions is undercut by the “fact” of the value and inherent legitimacy of “direct selling”, which is viewed as a foundation of private enterprise.

MLM is also always defined as an “income opportunity” though rates of success among participants are far lower than those at gambling tables, disqualifying the term “opportunity” as it is generally understood. Median income among participants, even those defined as “leaders” or “active” or “business developers” is zero or a significant negative figure. As soon people use the term “opportunity” when trying to critique MLM, they are placed in the position of criticizing an essentially good and vitally important factor in a free market. All “income opportunities” are generally thought to deserve protection and a chance to thrive. Those who “offer” income opportunity, as the MLMs are thought to do, contribute to the common good.

MLM is referred to as “business” though the most basic requirement to qualify for that definition — the fair exchange of value — does not occur. In MLM, people invest money but get next to nothing in return and certainly not what they had been promised. When MLMs are called businesses, regardless of what else may be said, they are accorded an exalted status and the full protection of the law. Business, whether good business or poor business, is the fundamental institution by which goods and services are developed and distributed. MLM, thought of as a business, is therefore automatically legitimized. Those who critically examine the legitimacy of MLM become, to some extent, critics of “business” and therefore must justify themselves even before what they have to say can be heard.

MLM is always called “legal” but this refers to lack of law enforcement, not settled law. Bernard Madoff was also referred to as “legal” for almost 20 years before the truth of his illegality was finally revealed. He was never legal, just not investigated.

Pyramid schemes are illegal. They are “deceptive and unfair trade practices” which are illegal. Fraud is illegal. Yet, though multi-level marketing engages in each of those categories of illegal activities, it is always referred to as a “legitimate” form of “business.” Thus, trying to discuss the “legality” of any MLM, when MLM, as a “business” is viewed as generally “legal”, places the analyst in an untenable position. He/she cannot call the scheme illegal for doing what all MLMs do – deceiving about income, transferring money, operating an endless chain. In the popular mythology, none of those activities is illegal when conducted within the legal system of “multi-level marketing” that includes the ostensible sale of a product. How can one particular MLM be “illegal” when the MLM model is “legitimate.” Indeed, today, to call any individual MLM illegal for operating a pyramid scheme is viewed by courts as “libel per se,” subjecting the analyst, journalist or consumer critic to financially devastating lawsuits.

Socially, the reality of MLM recruiting is, on the whole, disruptive and destructive. At best it is awkward, annoying and manipulative. It could not be otherwise since it is based upon commercializing and exploiting relationships of love and trust, the so-called “warm list” for recruiting. With a 99% failure rate, it is inevitable and understandable that recruiting friends, families and neighbors into such losing propositions leads, almost universally, to rancor, alienation and the loss of trust. Divorces are a common outcome. Yet, MLM’s private language denies to the speaker even the ability to recognize the obvious and verifiable reality of social disruption. MLM’s myth-language requires that MLM be described as “network” marketing, “relationship” selling or “personal” referrals. Such terms indicate cooperation, mutual support and a smooth blending of commercial and non-commercial values — the opposite of what actually occurs. MLM is, in fact, the only business on earth based entirely upon the commercialization of personal relations, a fundamental contradiction that obviously could not work, yet, the language of MLM prevents the disastrous outcomes from even being expressed.

Millions of people, therefore, speak and act out the economic and social fiction of MLM as a legal direct-selling business or “industry” that provides millions of people with income from profitably selling goods to cooperative and satisfied friends and neighbors. Once inside the system, falsely and bafflingly termed as legal and conventional direct selling, entrepreneurship, home-based business, where one can readily earn unlimited income in your spare time by interacting helpfully with friends and relatives, the disguise is strengthened with still more euphemisms and pseudo-business and invented terms. Rewards gained from recruiting activity are called “commissions.” Payments to join and maintain a position on the recruiting chain are called point volumes, auto-orders, and sales packs. Recruiting is called “enrollment.” Recruiting requirements are called “building structure.” Recruits are “legs.” The new recruit, like the characters in Orwell’s 1984 novel, become incapable of a critical thought or judgment about their own experience. They have no words with which to form a valid thought about what they see and hear.

And so, the participants of MLM are held captive in a mythology, acting out parts assigned to them, speaking only as the script prescribes for the characters of the myth. The play-acting by millions of people in the MLM economic myth has much in common with avid followers of science fiction myths, such as Star Trek and Incredible Hulk and SuperMan heroes.

Like the science fiction followers, MLMers attend large MLM conventions where they meet fellow enthusiasts, dress up in “success” costumes, speak the secret language of the made-up characters (at Amway meetings, people were told to greet one another with the smiling salutation, “Ain’t it great!”) and emulate their heroes that are said to have super-human powers in leadership, inspiration, benevolence and insights into “secrets of success.”

MLM conventions even engage in their own form of science fiction, touting ordinary food supplements, vitamins, potions and lotions that are said to create immediate “energy”, increase sex drive, banish the forces of aging, cure AIDS, Alzheimers and arthritis. The mythological world of MLM is more fascinating and fantastical that Merlin’s enchanted times, more wonderful than any future world explored in Star Trek, and more heroic that the adventures of SuperMan.

MLM conventioneers are inspired by the virtues, powers and adventures of their MLM heroes. Many long to live in the mythological MLM world, a magical place that is still friendly to the common man, not just government and big business, and where extraordinary success is always available to anyone at any time, regardless of income, background, qualifications, education or past failures. The only requirement is to perfectly follow the MLM system taught by the leaders, requiring ongoing purchases and fees for training and motivation and system costs and relentless recruiting of new followers who will also buy and pay and recruit.

On the phenomenon of super-hero and science fiction emulation, more than one commentator has speculated that it may be driven by a widespread and deep-seated boredom or even despair among the followers with the realities of their own lives. MLM could be similarly viewed as an attempt to escape harsh, unacceptable economic realities, involving the loss of hope in the American Dream, fading prosperity, loss of social mobility and the lack of opportunity for meaningful employment, even among college graduates.

The difference between MLM and the super-hero cults is that one is relatively harmless while the other is a dangerous financial fraud that can destroy lives, livelihoods and families. One is fun and entertaining. The other seeks to replace gainful employment or formal education, change social values, requires distruptive proselytizing among friends and relatives and can cause personal bankruptcy.

That difference, in which one is recognized as merely entertaining, while the other is enormously destructive, at least potentially, may be a factor for why the super-hero phenomenon is examined, parodied and celebrated in the arts and media while MLM festers in the darkness, unstudied, denied, ignored. The sheer ugliness of MLM reality may by a causal factor, but this would be an inadequate explanation and it would only apply to those currently involved, not the millions of former participants, the media, news outlets, and the arts.

Future False Profits Blogs will explore other factors including government complicity, suppression of critics and analysts, the message of self-blame instilled among MLM victims, and the nature of all pyramid schemes in which participation involves also perpetration and therefore requires rationalization and denial.

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