Buzz
We’ve all encountered promises of a 'guaranteed path' to wealth, like those flashy online ads claiming instant riches. While most recognize these as scams, some desperate individuals see them as a lifeline. Many of these ads promote multilevel marketing firms (MLMs) such as Amway or Herbalife, both of which carry notorious reputations.
While some supporters argue in favor of these companies, critics insist they’re little more than sophisticated pyramid schemes. Despite operating with minimal legal interference, growing awareness is shedding light on their inherent risks.
10. A Legal Gray Area Enables Their Operation
An MLM closely resembles a pyramid scheme, but its primary focus is on product sales rather than member recruitment. In pyramid schemes, individuals sell products and bring in more sellers, forming what’s known as a 'downline.' Earnings from those in the downline are shared between the distributor and the recruiter.
This structure earns the name 'pyramid scheme' because the top recruiter brings in distributors, who then recruit others below them, creating a hierarchical pyramid. If the income relies heavily on recruiting rather than product sales, it’s classified as a pyramid scheme.
The described business model is illegal, which adds to the confusion. MLMs and pyramid schemes are so similar that they operate in a largely unregulated gray area. MLMs were designed as a legal workaround to bypass laws prohibiting pyramid schemes. Legally, an MLM is acceptable if its revenue comes from product sales rather than recruitment.
While commonly known as multilevel marketing, this model is also called 'network marketing' or 'direct sales.' There are countless variations, but Amway stands out as the most famous MLM. Despite its resemblance to a pyramid scheme, the Federal Trade Commission (FTC) recognizes Amway as a legitimate business due to its emphasis on product sales over recruitment.
9. MLMs Are Not Sustainable
An MLM stays profitable by maintaining a steady stream of new recruits who send money to their upline (those above them in the pyramid). Although most MLMs assert their revenue comes from product sales, many actually profit from recruiting new members, fueling the debate over whether they’re pyramid schemes. This model is fundamentally flawed because the global population is finite.
Consider this example: Imagine only five people exist, and one recruits another into their 'network.' This new member recruits another, who then recruits the next, until the last person joins. Now, all five are part of the network, and the scheme collapses because there’s no one left to recruit or buy products.
Applying this logic to the real world, the outcome is inevitable. If each member must recruit 10 others to turn a profit, by the ninth recruitment cycle, you’d need 10 billion people—exceeding the Earth’s population in 2015—to sustain profitability.
In such a scenario, the market becomes oversaturated with sellers offering the same product. While those at the bottom of the pyramid face losses, those at the top reap significant profits through commissions and fees from their downlines. Essentially, the success of those at the top relies on the failure of those at the bottom.
8. Amway’s Failure Rate Is Almost Comically High
While Amway insists its model is multilevel marketing, critics argue it’s a legally sanctioned pyramid scheme. Despite years of controversy surrounding its structure, Amway continues to operate and shows no signs of disappearing.
One of the most debated aspects of Amway is its advertising, which promises the ability to earn substantial income from home, retire early, or connect with a network of successful individuals.
Many of us have encountered online ads promoting 'easy money from your computer.' Amway has similarly made grand claims about potential earnings through their program. Yet, they seldom provide proof of anyone actually profiting from selling their products. According to most estimates, Amway’s failure rate is an astonishing 99 percent.
Frequently, Independent Business Owners (IBOs), the term Amway uses for its distributors, end up losing money. In 1983, the Wisconsin Department of Justice revealed that the highest-earning Amway distributors in the state reported a net loss of $900 on their tax returns. Between purchasing products, recruitment fees, seminar expenses, training materials, and other 'essential' items for success, IBOs often spend thousands before making any sales.
Amway justifies these high costs by emphasizing the 'opportunity' for success. While the bottom 99 percent operate at a loss, those at the top of the pyramid earn a median annual income of $128,000.
7. MLMs Exploit Society’s Most Vulnerable
By now, most people are aware of Amway’s business model, so why does it continue to thrive? Who is still joining if it’s widely regarded as a scam? While discerning individuals quickly see through MLMs’ deceptive promises, those who are less informed or educated often view pyramid schemes as a golden opportunity to improve their lives.
Middle-class individuals, college graduates, and those with financial literacy rarely fall for these schemes. However, the desperately poor, eager to improve their circumstances, often become easy targets. They are lured into a financial black hole with little to no chance of success. MLMs prey on anyone they can deceive, including college students struggling to pay bills and tuition.
For those in dire situations, MLMs appear to be a lifeline. High school students, who lack financial knowledge, are also prime targets. For instance, Vemma, a company selling health drinks, aggressively recruited high schoolers in Phoenix. They enticed students with images of 'wealthy young individuals enjoying luxury cars, jets, and yachts,' falsely promising earnings of up to $50,000 weekly. Many students invested $500 in starter kits before the FTC shut down Vemma.
6. Amway Employs Questionable Recruitment Strategies
Many consider Amway akin to a cult. Like religious cults, Amway uses psychologically manipulative methods to recruit distributors. A former Amway distributor shared stories of the tactics used to draw him into the company.
The initial tactic was social isolation. This individual was instructed to attend numerous Amway meetings and events, leaving minimal time for family and friends. Those who declined to join were labeled as unmotivated 'losers.' Immersed in Amway’s environment, he gradually grew distant from his loved ones, convinced that Amway members were his only necessary companions.
He was also advised to avoid financial news programs and magazines like Money or Forbes. Instead, he was pressured to purchase 'training' tapes. When he resisted, his upline secretly persuaded his wife to buy them. In total, he and his wife spent $1,000 on meetings and tapes. When he tried to leave Amway, his upline attempted to sabotage his marriage to isolate him from his wife, who was also involved. Eventually, his wife also left the company.
5. Amway and Other MLMs Are Expanding Rapidly
Amway continues to grow annually, particularly since the 2008 economic downturn. Although headquartered in Michigan, 90 percent of its operations occur overseas, where many are likely unaware of the company or its controversial practices.
In 2014, Amway generated $10.8 billion in revenue. Collectively, MLMs bring in an astonishing $30 billion annually. Despite these massive earnings, many participants believe they are assured some profit. However, the average distributor earns only $200 per month. Amway attributes this gap to insufficient effort or excessive focus on recruitment over product sales.
Through aggressive recruitment and the tactics mentioned earlier, Amway and other MLMs maintain a steady influx of new distributors convinced that these companies will grant them financial independence. Despite clear evidence that profiting from MLMs is nearly impossible unless you’re at the top, people worldwide continue to fall for these schemes.
4. MLMs Have Faced Legal Consequences
Over time, numerous complaints about losses and MLM practices prompted the FTC to investigate Herbalife, one of the largest MLMs. There were already multiple formal allegations claiming Herbalife operated as a disguised pyramid scheme rather than a legitimate MLM.
Initially, Herbalife appeared to be a reputable company. Its shares were listed on the New York Stock Exchange, and its performance was consistently strong. However, in 2014, a California distributor claimed the company operated like a pyramid scheme, preventing him from earning a profit. He initiated a class-action lawsuit against Herbalife. While under FTC investigation, Herbalife settled the lawsuit for $15 million. In 2015, another lawsuit against them was dismissed.
Amway has also faced legal challenges in recent years. In 2010, several distributors sued Amway for making false claims and other allegations. Following an investigation, Amway agreed to pay $150 million in restitution and reform costs, though the company admitted no wrongdoing. This settlement remains the largest in MLM history, and Amway critics view it as a significant victory.
3. MLMs Could Eventually Collapse
Despite the growing dominance of MLMs like Amway, industry experts suggest their success is part of a bubble that will eventually burst. One expert, who has studied pyramid schemes and MLMs since the 1980s, warns that the 'Main Street bubble' is on the verge of collapsing.
Robert Fitzpatrick is widely regarded as one of the foremost experts on MLMs. A former business consultant, Fitzpatrick has witnessed the almost delusional mindset that can develop when people get involved in these schemes. In the 1980s, he even operated a pyramid-style business that was eventually shut down. Since then, he has dedicated himself to studying and exposing the dangers of such models.
Fitzpatrick has played a pivotal role in raising awareness about pyramid schemes and MLMs. When discussing the impending collapse he predicts, he often draws parallels between MLMs and Bernie Madoff, who defrauded billions from clients in a Ponzi scheme. While Madoff deceived thousands, MLMs have swindled millions over the years, resulting in billions of dollars lost.
Fitzpatrick believes it’s only a matter of time before enough whistleblowers emerge to dismantle an industry that has so far appeared untouchable. The question isn’t if they’ll collapse, but when.
2. The Founders of Amway Hold Immense Influence
You might be curious about who controls MLMs in America. Many are connected to Amway in some way, with numerous subsidiaries operating under different names. As a result, many participants don’t realize they’re joining an extension of Amway.
These countless operations are all owned by the DeVos family. Richard DeVos, the family patriarch, is a major shareholder in Amway, and the wealth generated from the company has positioned the DeVos family as one of the most powerful in America.
Richard DeVos also owns the Orlando Magic, a professional basketball team in Florida. He is ranked 60th on the Forbes 400 list of America’s wealthiest individuals. Alongside his wife, he is a significant donor to conservative and Christian initiatives. Over the years, DeVos has also become a major financial supporter of Republican candidates, including Newt Gingrich and Rick Santorum.
In 2006, Dick DeVos, Richard’s son, ran for governor of Michigan but was unsuccessful. The family’s political influence is staggering, especially considering how they amassed their fortune. Since 1970, the DeVos family has contributed $200 million to think tanks, political candidates, parties, advocacy groups, and more. They’ve also donated $44 million to the Michigan Republican Party since 1997.
In an interview with Mother Jones, Saul Anuzis, the former chairman of the Michigan Republican Party, stated, “There hasn’t been a Republican president or presidential candidate in the last half-century who hasn’t had ties to the DeVos family.”
1. MLM Products Can Pose Serious Health Risks
The products sold by MLMs are often of poor quality, but some supplements and so-called 'nutritious' items can be downright dangerous. These companies frequently promote 'miracle cures' and products that claim to outperform proven medications. These 'cures' come in various forms, such as pills, shakes, and more. Many are marketed as weight loss or vitamin supplements, though they often contain little more than water.
For instance, MLMs often peddle ineffective weight loss supplements in gyms and fitness centers, targeting obesity—a serious health issue that requires lifestyle changes to address. Another popular product category is 'essential oils,' which are touted as remedies for stress, allergies, anxiety, and other health concerns.
Although beneficial in certain situations, these products are marketed by distributors who lack the qualifications to make health-related assertions. Regarding essential oils, the FDA had to step in due to the exaggerated health claims made by distributors. Even experts in holistic medicine are skeptical of the promises made by MLM products and their representatives, despite MLMs asserting that their offerings are rooted in holistic practices.
