How ‘pyramid schemes’ are bankrupting America

When 23-year-old college graduate Julie was invited to a “girls night party” where the guests were told by a woman named Shawna from a company called Pure Romance that they could make big bucks selling middle-class suburban housewives “bullet vibrators and dildos,” Julie was down to get started.

Selling the Dream by Jane Marie

All she had to do was buy one of four Pure Romance starter kits for “demonstration and sale” for $99, and then hawk the company’s “sex toys” to friends, neighbors, strangers, her mother — even herself. 

Better yet, as Shawna explained, the really big money could be made by “recruiting” other women to buy Pure Romance starter kits and become their own saleswomen, just like she was. That way Julie would receive an immediate “bonus” for signing up a newbie, who would then become part of Julie’s own “team of employees” making more money for Julie “downline.”

Over the next six months, Julie would spend hundreds of dollars adding Pure Romance items to her sales kit.

A vintage Tupperware advertisement illustrating the fun and freedom associated with MLMs. SSPL via Getty Images

But Julie’s get-rich dream soon became a costly nightmare: Despite all those promises of big-money, she had been lured, like untold millions of other women, into one of America’s oldest business scams, the pyramid scheme, run by shrewd marketers promising financial independence and an abundance of riches.

“The product being sold doesn’t matter since most of the money is being made via those recruitment fees and distributors stocking their own shelves with inventory,” writes Jane Marie in the new book “Selling the American Dream” (Atria). 

An award-winning journalist-podcaster, Marie exposes the dark underbelly of a billion-dollar industry sucking the blood of mostly working-class women struggling to make ends meet.

Worth billions of dollars in annual revenues, Herbalife is one of America’s largest — and best-known — MLMs. AP

“Some multilevel marketers, known as MLMs, sell no product at all,” explains Marie. Instead, they sell the “opportunity to learn how to sell the opportunity to people who may not even know they’re interested in learning to sell the opportunity to learn how to sell,” Marie explains.

Think Amway household products, Avon skin care, Mary Kay cosmetics, Tupperware food storage containers. “Whatever the name, they all work in basically the same way,” asserts the author. 

According to Marie, a one-time high school dropout, these pyramid marketing companies enrich only those at the top while impoverishing those desperate enough to fall for the pitch of imminent wealth. For many, the end comes only when these dubious financial relationships wipe out their finances.

There’s nothing new about the pyramid scheme. Shady businesses have been operating successfully across the country since just after the end of the Great War, in 1919, when an Italian-American by the name of Charles Ponzi founded a company that promised investors small fortunes within some three months of investing their cash. 

Italian immigrant Charles Ponzi introduced MLM’s to the world in 1919; today they’re also known as Ponzi schemes. ullstein bild via Getty Images

The earliest investors doubled their money as Ponzi had planned it. Hype soon became rampant and overnight Ponzi was reportedly raking in $1 million a week from people hoping to get rich. But his scam was discovered; he soon went bankrupt; then to jail, and later was discovered hustling fraudulent land deals in Florida.

Two decades later, a California vitamin company came on the scene selling supplements door-to-door with big promises of opportunity and riches — it called itself Nutrilite.

An early proponent of branding and optics,  Nutrilite cannily recognized the power of image-making, and instructed its sales force to wear white medical lab coats and carry a clipboard “if they wanted to nail the doctor vibe,” writes  Marie. 

Products from health-based MLM companies have often run afoul of the Food and Drug Administration in Washington. REUTERS

Still, they pitched that they possessed a cure-all for anything that ails you. The Food and Drug Administration, however, investigated the spurious claims and ruled that the company could only state that it could “help with certain maladies.”

Nutrilite is still around today and sold by Amway, “the brand most responsible for the rise and pervasiveness of the modern MLM,” writes the author.

Today’s pyramid schemes are far more sophisticated and have some of the richest and most powerful people involved behind the scenes, as Marie reports in her elaborately-detailed industry and historical dive. She cites the powers involved in a company called Herbalife as especially emblematic of the reach of those behind these firms. 

Former Trump Sec. of Education Betsy DeVos is a major shareholder in Amway, the company founded by her husband’s father. REUTERS

When Vice President Kamala Harris was serving as attorney general for California in 2015, for instance, she declined to investigate allegations that Herbalife was a pyramid operation. The case, as reported, was potentially winnable but her reasons for not taking it on remain unclear.

What is known is that at the time, her husband, Douglas Emhoff, known today as the Second Gentleman, was employed at the law firm that represented Herbalife. You can figure out the rest.  

Similarly shady dealing circle around Madeleine Albright, secretary of state under President Bill Clinton, who became a brand ambassador for Herbalife. The firm, say critics, allegedly operated a fraudulent pyramid scheme. Nonetheless, Albright earned a whopping $10 million between 2008 and 2014 from the company.

Betsy DeVos, who was appointed US secretary of education under Donald Trump after donating some $82 million to the Republican Party, was a major shareholder in Amway, while her husband, Dick DeVos Jr. was a former Amway CEO, whose father cofounded the company in 1959.

Clinton-era Sec. of State Madeleine Albright earned millions from her association with Herbalife. REUTERS

When the FTC investigated Amway in 1979 as an alleged pyramid scheme, with “the capacity to deceive” recruits by dangling the carrot of financial freedom, Amway promised to overhaul their business practices in order to avoid being publicly labeled a scam operation.

“Today Amway leads in global annual revenues among all MLMs, at $9 billion, and boasting some 3 million distributors”, according to Marie. Avon is the runner-up with some $3 billion in annual revenues.

According to reports recounted by Marie, Donald Trump, before becoming president, had a personal MLM he purchased in 2009, which he renamed the Trump Network. He sold it in 2012, but not before hawking vitamins and supplements via vulnerable associates. Trump also earned $8.8 million promoting American Communications, also considered an MLM.

The husband of VP Kamala Harris was once a lawyer for Herbalife. AP

The promise of millions is how MLM’s continue to lure the vulnerable who should by now know better. “In the face of all evidence to the contrary,” writes Marie, “the dominant narrative of MLMs is one of abundance and freedom from financial stress.”

Be it stay-at-home moms, folks with disabilities, or immigrants looking for work, “being involved in an MLM can cost people their life savings and bankrupt their dreams.”

The Consumer Awareness Institute has concluded, “Ninety-nine percent of those who do join make no money and even lose money.”

But big promises of wealth continue to lure new recruits who go into debt to stay afloat and keep stockpiling products to peddle onto their recruits, asserts the author. “Instead of simply paying people a commission or wage to sell their products — as in a traditional retail operation,” writes Marie.

In the case of Julie, who had signed up for pitching sex toys and building her own female sales force, notes Marie, she soon learned that the “exclusive” sex toys the company was hawking were actually sold on Amazon for one-third the price. Thus, she was earning less than minimum wage and was stuck with about $4,000 worth of dubious and overpriced products.  

“In reality,” concludes Marie, “99 percent of people who participate in MLMs lose money.” As for that 1% — they’re sitting atop of a towering pyramid that penalizes everyone else.

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