Multi-Level Marketing, MLM, Network Marketing exposed By Steven Hassan PhD

Hi, I’m Steve hasson, and I’m with Bob Fitzpatrick and Doug Brooks. And Bob is an expert on multi-level marketing groups. He has a website, pyramid schemes, alert, dot org and Doug, you’re an attorney who has litigated and protected people involved with multi-level marketing groups. That’s correct. And I thought we take this chance since we’re all together and we’ve been chatting for the last few hours to maybe get on record, some of the important research that we’ve been doing.

And by when you share a little bit, what’s, what’s up with mlms Wyatt? Why are they bad? What’s why should people care MLM stands for multi-level marketing? Also known as network marketing? Sometimes referred to as direct selling. So, we’re speaking about a kind of industry that has spread worldwide touches people. Very directly done person to person.

And comes in the form of a solicitation to earn income and you earn income through a particular way of selling supposedly, selling a product. But at the end of the day, this form of business really turns out to be a pyramid recruitment scheme, pyramid recruitment scheme means that it is really based on soliciting other people to invest and to get their money. They have to solicit other people to invest, so it’s not just selling products. It’s actually recruiting.

People with the false belief that you’re going to make a fortune. Yeah. In fact, product is generally not sold in the sense of somebody going out door-to-door. First, the person selling the product, what they do go out selling is the income opportunity. Income opportunity is the opportunity to recruit others into the income opportunity. So this becomes a form of fraud. A pyramid scheme is merely a form of fraud in the same category as a bait and switch or no.

Bezel Mint or anything else would be but dressed up in in the current environment, dressed up to look like a legitimate business and is generally treated by the government and legally as a legitimate business. In fact, from the research that we’ve done over quite a few years and looked at many many of these companies, you’re talking about very dangerous Financial traps. So, in other words, a person

Like the approached by a family member or a friend or someone from your church or someone from your temple or someone from your health club and says, hey, check out this incredible opportunity. You can make a fortune. You can retire in the next five years with minimal effort. Yes, and look at me. I have a Rolex and I’m driving a Lincoln. Trust me. Let you know, let me let me tell you more about this.

This wonderful opportunity and from your in-depth research. The actual numbers are the people are going to lose money. They’re going to wind up alienating family members and friends, because they will lose money, precisely. In fact, no one actually volunteers to join these schemes. They are always will be solicited. You will be asked to join. You will be asked to join by someone, you know, and trust making it very difficult to evaluate it and turn it down. Yeah, actually.

And often the testimonies, as you mentioned that you can make a fortune or exaggerated or simply untrue from the person making, even though it’s someone, you know, they may be exaggerating the claim because statistically, and we verified this over and over again. Ninety-nine percent of all people who join will never make even one penny and her and profit, some people stay in for a little while, and lose a little bit. People who stay in a long time can lose, literally everything.

Uh-huh. I seem to remember Dateline did a special on Amway a number of years ago where they actually went in with footage to one of these Hotel pitch scenes and the fellow was touting that you can make a quarter of a million dollars part-time, you know, lady he was confronted. He said did I say that? Yeah, and it’s really quite telling I’m not sure if it’s up on the internet that particular date line, but it was just

Ordinary insight into the world of people who were just so much like a cult. Like the work that I do with people involved with the Moonies and Scientology. People are literally become a new identity where they become the the prot V company and they believe that if they leave it, they’ll be leaving their dream and they’ll be a failure and they’ll be stuck with a job. And this job is a

Terrible ditch is portrayed as the worst fate for everybody sentenced to hell. Yeah, user jostle, professional career. Any of those things will be presented as slave labor, limiting not not fulfilling your full potential. I focus primarily on looking at it as business model and trying to understand the true nature of the scheme. Doug focuses more on the legality of it. But of course to understand where the fraud is or the illegality car.

That includes understanding the deceptiveness. Then he might be able to shed a little more light. Yeah, I would like to lyrics of deception. Would you like to say, well, letter picture of the Wild West, that’s where we are with multi-level marketing. The Federal Trade Commission will occasionally go after a prominent scheme, the Securities and Exchange Commission has gone after a few big mlms, some State. Attorneys General will do it, but there’s no

Consistent enforcement. There’s no protective legislation that that clearly and effectively governs, a multi-level marketing. Most of these companies operate freely. And they portray themselves as Bob says, as a business opportunity and they say, oh no, we’re not a pyramid scheme. That’s something else. It’s always the other guy. That’s that’s a pyramid scheme, but

Bob and I and others have worked very hard to try to get the Federal Trade Commission to pass a regulation that would require, at least disclosures of the actual chances of success and multi-level marketing. And the Federal Trade Commission was very close to doing this a few years ago. And then the industry orchestrated, a firestorm of opposition and that regulation is is in limbo.

They lobbied it out of existence. The disc, they spent millions of dollars and the the problem one of the problems with multi-level marketing is that people once someone has been in it and has lost money at it. They, they just want to get away from it. They don’t want to stay involved. And try to help other people avoid this problem. And there are other elements that keep that veil of Silence over.

This whole business to, as Doug said, you’ve lost money. You want to move on with your life, so, sort of cut your losses. But even if you had inclinations to whistle blow, there are some very powerful elements of these schemes, that prevent that or way against it one, the shame, the other is fear, that you may hit be incriminating yourself. I mean if you discover that, it’s a pyramid scheme. Well you wore were a recruiter in it. So

Perhaps you’re liable. The other is a kind of social at, cohesion here. You’ve recruited friends. You had a friend recruit you blowing, the whistle means blowing the whistle on people, you know, so and if all of that doesn’t work, these schemes are notorious for suing people who tried to tell the truth about it. They also bind you up with contracts when you join many people. Do not realize that that

And many cases for making disparaging remarks or from suing, you have to go through their very biased and costly and impractical method of binding arbitration as they call it. So they’re using the law to protect themselves so they can defraud the public.

And enslave people into schemes that they know at the very top aren’t going to produce the results that they’re claiming. Right? Right. So it’s in a sense, an organized, criminal effort, one could say and the government has not done their due diligence to protect the public because of lobbying pressure. Well, I know when your work Doug, you’ve taken testimony from people depositions of people who or

Straight at the launch of some of these schemes. Yeah, so that, you know, you saw where they was clearly knowledge. That this thing is going to fleece a lot of people we know in advance, but here’s how it goes. One of the one of the phenomenon that we see is that the that a company will will grow and explode in size and then it will collapse. And then the high-level participants will move on to the next one. And then the next one and we’ve seen people move from from scheme to scare.

Scheme, once they get good at it. They get very good at it. And there are very few people who’ve made a lot of money at these things. 99% do lose and that’s not just a made-up number. That is a number that I seen in cases that I’ve litigated when we finally get the data from the company consistently. We see approximately 99 percent failure rate. And by that, I mean, if you’re in it on,

First most likely by December 31st that year, you were out of it and you’ve lost what we put into it. Hmm, just to give a little more substance even today 99% figure, which I know sounds a little bit like hyperbole 99% know. It really is 99% And in fact, it may be worse than that 99 point something. But this has been well known for quite some years. Going all the way back to 1982 when CBS 60 minutes.

Minutes that our report on Amway and the state of Wisconsin had Sudan way. And the Assistant Attorney General there, had gained through Discovery, the tax returns of the top, 1% of the Amway, in this case recruiters. So actually it was the top level people and from that, he determined that over ninety nine percent of all people, who in the state of Wisconsin that had ever invested in Amway lost money.

And of course, the people at Mike Wallace, who was the interviewer said, they are you saying 99%? Yes. 99% That’s what the data show. We had a more modern example of this in England, 2006, the government of England prosecuted, Amway and sought to have it shut down in that country for exactly the same reason they had collected the data over a 30-year period and determined that 99% of everybody who had ever invested in that.

I have never made a profit. Well in the scene, we’ve done our own statistical analyses comes out the same. Every time in my, in my experience, working counseling, some family members who’ve been taken into mlms. What was explained to me, is that there’s this whole Shadow side of the, of the organization that is organized, around selling tapes, selling books CDs to train people, how to have the right mindset.

Set to be successful, how to sell effectively, and in, and of itself that was spend it costing, huge amounts of money and that people were basically being indoctrinated and programmed into a set of beliefs that were faulty. That would put them at odds with their own career goals, or educational goals in their family, their relationships, their husbands, or wives and it mirrors my experience with religious.

Cults or political Cults, and such talk to me about a little bit more about lobbying and the effects of your research in terms of the impact on politics, for example, as well as as keeping any legislation that they could help people. Well the story of multi-level marketing and it’s epidemic spread around the country. The billions of dollars that it’s taking siphoning from

Main Street, every year is a story of politics because as Doug said, we have currently a kind of wild-west unregulated. We have no national law. There is no HR anti pyramid scheme law, number 25, and there should be there should be but we don’t. So the FTC has a broad act called sector against unfair. Deceptive trade practices. Pyramid schemes can be classified under that.

That then we have this crazy quilt of state laws that are depending on the state approach it in different ways some of our week summer strong. So it’s a the only way a fraud on a scale like this could develop is if regulation is thwarted if The Regulators are muzzle and look the other way and that is the history of this, this industry, develop that way.

The you might say the the way this industry was baptized and launched came with one Court ruling from a single judge an administrative law, judge that gave an ambiguous green light to allow the basic model to develop multi-tier. Distributors, all recruiting other distributors.

However, the ruling was given that was given a green light only on the condition that the basic funding of the the business was from retail sales not recruiting. And that would have perhaps been enforceable. However, we then ushered in an era of deregulation 1980s and the Reagan Administration, the Federal Trade Commission literally stepped back from the marketplace. And so there was no

Oversight and this thing grew in development, right? During the 90s. We had a Resurgence of Regulation and the mid-90s, the FTC prosecuted more schemes of this type in a two-year period than it, had in a previous 17-year period. And then we had again, another deregulation era, beginning in 2000. Now, during that time, this industry developed.

Quite a powerful lobbying machine with an office on K Street. The famous K Street lobbyists. They have an office there and they have worked very Faithfully to prevent the FTC from from enforcing the law to change in some cases, state state laws. And in the case of the FTC, this was done primarily through appointments President Bush and the Republican Party have been the prime recipients.

Republican party is the prime recipient and President Bush. George. W–. Bush was speaking about elected in 2000, was by far the greatest beneficiary money. From this industry, when he was elected. He appointed an attorney who’s largest client was the Amway Corporation. He appointed this attorney as the chairman of the FTC. That’s outrageous. And that’s at that point it in 2000, regulation, bringing a fox.

To be in charge box and now it’s incredible. And then, he then brought back into most name of this individual. Timothy, numerous demands are fact. Absolutely, a fact. This is 2010 and we’re sitting here and we’re talking about the present, the United States appointing. Someone who is an attorney for a group that has a long history of defrauding the public right along his Mercy, other organization. That’s trying to frighten the public.

Long history of litigation of private litigation of Regulation and so on quite a controversial business that had developed and was the target of Regulation and that very company’s attorney and effect was made the chief cop of the Federal Trade Commission. And then he brought in as the, his chief Economist a man named David Chapman and Chef men had just finished.

Testifying against the FTC on behalf of a multi-level marketing company that the FTC had been Prosecuting in the previous administration, successfully prosecuted successfully prosecuted, and shut down millions of dollars, were regained, and been redistributed to the public and this man had served as an expert witness on behalf of the scheme. He now become became the ftc’s chief Economist. So this is outrageous.

Bob, I read an article you recently published. It was called Main Street Main Street, bubble bubble, and that’s available on your website. Yes, people to read is that Sarah cost for the surgery? So I would really encourage you to go to the pyramid scheme alert that org don’t go to.net or dot because you’re go to a multi-level marketing. Side room is scheme saying you’re skiing with skis are alert. Thank you for correcting me read this article because it’s very scholarly. It’s

Very documented with specific factors. And what was amazing to me is that politicians were being paid, huge sums to come to these events by the multi, level Marketing Group. So they were being paid for that. Yes, as well as congressman and other politicians to basically in embed them in the scheme to defraud the American other. I had a caucus and in Congress.

What Molly Ivins called The Pyramid caucus, the writer Molly Ivins, the late Molly Ivins. And so they have, they have very powerful Insider influence in Washington and not just with these appointees. But in sheared dollars, the top five political givers, I’ve been identified as being related to the Amway Corporation. So we’re talking millions of dollars, not

Right. This is significantly. Less is going primarily to the GOP primarily to the GMT. That’s where it was focused. So there’s a political kind of a political agenda that’s connected with this possibly ideologically. Well, thanks think of it as a bit of a revolving, circular process. To the GOP, gets the money from this ill-gotten gains than these teams. Receive, they give it to the GOP, the GOP, then you.

Uses that money to influence Regulators to allow the scheme to continue, right schemes, grow gain, more money, and, and then give even more money back into the GOP. So, one of the things that really struck me in reading your piece, was your connection to the Bernie Madoff Scandal. And the fact that he was perpetrating this fraud.

Involving billions of dollars for years and years and years. Nobody stopped tried to stop him. The one person who is investigating know that he wanted to talk with him and yet you say this is even bigger than that. Could you talk a little bit more about that? Bernie Madoff? I think the eventually but the numbers around 30 billion that he had taken, because the number originally was 60 billion because that was the inflated number because he told people he was earning interest for them and are returns that

actually, we’re only on paper and

Okay, so that’s 30 billion, 110 relatively small group of people. And many of those people were wealthy. All right, okay, but we’re talking now, about a network of companies, operating over a 30-year period since that 1980 decision, that sort of gave these things. Some carte blanche to operate 30 years of 10, to 15 billion or more coming in the USA and much more worldwide.

So here, yes, and not coming from a Millionaire’s who were speculating. But from Main Street, America people who are truly struggling and who’s not just their money, but their entire dreams that our greatest hopes. All right, and then disrupting families. And so on is a way of getting this money. So to me, this is a far more Insidious influence in America.

The other sad analogous picture here as you presented, Bernie Madoff operating for about 17 years. I think with very great credibility. He was involved with, I think he’s the president of the NASDAQ and one time had a great reputation. These schemes have also gained this kind of credibility. The Amway Yacht, for example, is a fixture at Republican National Convention.

The top Stars Republican party speak. At the Amway meetings. One of the founders of Amway was the treasurer of the national Republican party at one time, but you could go on down the list of how they have embedded themselves into the United States Chamber of Commerce as well. So, they have assembled around themselves, the the elements of credibility.

But in the case of Bernie Madoff, as we know, it was all, merely a facade and that’s the same case here. The other thing about Bernie Madoff that he used as his defense, when occasionally questions would be raised about the legitimacy of his operation. He said, how can I be illegal? I’ve never been prosecuted. And these schemes today regularly use that as somebody raises. Isn’t this apparent? I’m going to be a pyramid scheme darling. What can we do?

I concur that constantly people will say well this I will I’ll hear the marketing pitch that’s given. And people will say well we can’t be a pyramid scheme because we’ve been around for so many years and I think the Bernie Madoff example is a great example there because it was successful though. So these things don’t necessarily explode right away. They can continue the companies, they go worldwide. So if they have plowed the field in the United,

States. They move on to Japan and then they move to Thailand and they desperately want to get into China, but there is there’s this constant, renewing of this recruitment pitch and some companies that have been moribund for years, revive themselves. We sessions are in a great environment for these schemes. Yeah, I’d say, you know, we’re clearly in a period of time and economic history where more people more vulnerable to these schemes.

Never before because the trying to find jobs and they’re not, they’re not the jobs out there and then they need someone. Who’s who’s confident, who’s smiling? Who’s saying, look at me. You too can be an independent business owner you guys who can be doing this work, and you’ll be sitting pretty and everyone else is going to be envious of you. And a lot of people don’t know that they can go on the internet, go on Google. Put the name of the

Groove Plus Cold Plus scam, plus fraud, they can go to your website and read the seven warning signs of a group. That’s that’s questionable. That’s a network marketing thing. But a lot of time people get overwhelmed by the I believe the individual pressure of the family member or friend who’s recruiting them, maybe a co-worker or the, the Conformity of the group pressure. They go.

One of these meetings and they don’t want to stick out, they want, they want the friendship or whatever.

And it we doing this interview. And by the way, I forgive us. But it was Sonny than the clouds come and it gets dark. I don’t know what the camera looks like. But I just wanted to have this opportunity to sit down with two people lived, and breathed this this fraud and helping people who’ve been victimized by these frauds and try to get the message out on the internet because our politicians are not looking after the Public’s best interest.

Tristan – it’s really been corrupted by by lobbying forces. You. Let me add one thing to this question about regulation and lobbying. We just going through a terrible episode. We’re in the middle of a terrible economic episode in America triggered by the collapse of our real estate industry and then a wall street collapse, right? The mortgage industry and then an insurance company collapse, requiring a massive bailout. You think we’ve nearly bankrupted our own government trying to

A coupe from the losses here. And what we discovered in the middle of that is that there were financial instruments involved that nobody knew anything about in are essentially unregulated. Derivatives. For example, are unregulated and credit default swaps. Most people still don’t know what they are. Okay, subprime mortgages. Again, a new instrument that just developed in recent times, right? Liar loans. And so on multi-level marketing and pyramid and Ponzi schemes, are it?

Very similar to that, but they’re down on Main Street. And but they offered a similarly unregulated and for many people type of scheme type of instrument that people don’t know about aren’t aware of don’t know how to deal with it. And the government is way behind the times and write the compensation plan based on Pyramid, recruiting is a kind of financial instrument much like a subprime mortgage, right?

People don’t understand those plans, and then as they ask questions about them. They’re told, well, don’t worry about it. Just just keep on recruiting, follow the plan. It doesn’t really matter. You don’t really need to understand this. Yes. I was thinking about some of the the cultic things that we’ve been talking about today work, very often. Someone is when someone is first brought into these companies, there’s told write down. What’s your dream? You know, what, how much money do you want to make? And always the

As always were the answer, we can we can give you that level of income. Yeah, and if doubts are raised the, the line is avoid the dream Stealers don’t listen to people that aren’t part of this group. I mean, while you’ve been given this very complex Financial proposition that nobody can understand a 10 levels of people above you, 12, different bonuses.

Moved purchase requirements involved. And so on. It’s like a, how does this work? So I’m going to put you on the spot. We’ve got about five minutes left, give the public what you think are the critical pieces that they should use. In layman’s terms of how to discern whether or not. It’s a legitimate business opportunity or something. They should know your, I’ll start with one or two. That may be able to offer leaves more please. The first one I would ask people.

To look at is if it’s direct selling as it is presented and there’s always a product. Can you truly sustainably earn a profit from selling that product person to person by yourself door-to-door, take the recruiting business off the table. If it’s a direct selling business. Can you really do that? Could you tell you make a living at it? And you make a living even a part-time profit sustainably. Are you a sales person if you’re selling vitamins?

Yeah, you know, 60 pills last two months and you build up enough customers by yourself to be a better competitor than Walmart and the local health food store and all of the online services, price compare and price that product and go to Walmart, go to Target and find out, you know, can, what is the, what is the competition showing? What we have found Bob and I found cases where the supposed wholesale price paid by multi-level marketing. Distributors is

Actually higher than the retail price for a similar product that you can get elsewhere. Yeah, so there’s no way you can because in order to make money in retailing, you’ve got to basically double your cost. So if you whatever you pay, you’ve got to be able to sell it for a hundred percent Mark. At least develop, they slap their own label on it and say, that it’s a special formulation, even though it’s exactly the same formulation as we wearing of wines, like that. Because I one of the first MLM cases

That I handled, I found a company that was selling their weight loss product under their own name at a wholesale. Supposedly wholesale price to Distributors the exact same product. Formulated by a factory was being sold under a different name, a direct to Consumers for the same price. You can’t have a wholesale price. That is the same as somebody else’s read to be taking. Yes.

So if you do that, very simple little due diligence. Can I really do direct selling with this product? And if the answer is maybe not then, what else would there be for you to earn a living from? And if the answer is, don’t worry about that, you’re going to make your living on other people joining up. You’re in a pyramid recruitment scheme. You don’t need to know much more than that if you can’t sell, but if not, if I get 100 people and I’m getting a little piece of each.

Am I going to make money is the logic, the answer on your research is you would only get 100 people by telling those hundred that they could each get 100. Now you need 10,000 and the 10,000 or each going to need 100. You’re up to a million a million or each going to need 100. So the Mac a magic show and prove that it can’t be done. Can’t be done. Also because you look on the chart and see where you are of the big picture. Usually, you’re at the bottom of a hundred thousand percent.

Certain organization. So and your got, there aren’t that many people on earth know who we’re going to buy your product or enjoying your downline, right? So that’s the trick. That’s really the math. Part of the trick is to convince you that you’re up here when you’re really down here. And there are a few people at the top who are making money yet. If you were starting brand new. Yes, you could make money at their expense, right? But joining at the bottom.

You’re going to make money at your expense, right? And then you also mentioned that there were people who are in one of these groups who realize this and then they go and they start their own group because they want to be at the top of it. They’re very tough. So instead of having 10 mL groups. It becomes 100 mln groups comes 1000m group. Yes, because there’s a certain percentage saying I want to be at the top and it’s like the by nature of corruption corruption, corrupts and corrupts, whatever it touches this particular.

A form of Corruption of the direct selling industry has a way of multiplying and moving into other product areas, in other Industries and attacking other types of groups that can go into churches. They can go into clubs ethnic groups and so on, right? All right gentlemen, I’m very impressed with both of your your efforts and your work. You’ve written a book false prophets, wanted to say a couple of words about as well. Profits pr0 fitt else profit.

Yes, false prophets looks at the bigger picture of this industry and its relationship to other more classic naked types of pyramid schemes that don’t even have products and shows you how to strip away the product and all that narrative and see the essence of pyramid being, maybe a working on another book, working on another book. Now, little, how about you Doug? What are you up to? I am very interested in helping people like Bob and

Get some regulations passed. I want to emphasize. I am not soliciting for clients in this. In this video. I have done a lot of your work pro bono, I have. But I’ve also made money yet. Unfortunately, based on suing these companies and I have to say with, with all the way lawsuits work. The, if your

The losses are never recovered. Some of that money is gone forever. The best way to stop these things is to not, let them start. Hmm. And awareness, class action, cases though, have become for many people are last Refuge, our last resort in lieu of Regulation, proper law enforcement. This is one of the few places that the, the citizens have been able to, at least try and prevent these humans. So you’re at least available as an expert.

witness or I’ve worked as an expert witness, when these

He’s come up. I don’t do expert, witness stuff. I’m just the counselor who’s a former Mooney who sees too many people being hurt by this. And so I wanted to do this this video and hopefully you’ll lot. Look at it and you can go on a freedom of mind.com and I have some information on my site on your site. There are a lot of good materials and links and if they want to reach you they can contact me. Or Bob. You’re you’re based in mess.

So chooses, so I understand and you’re down in Charlotte, North Carolina, and I’m here in Boston, and I’m going to sign off. Thank you very much. Take care.