Multi-Level Marketing Scams

Abstract

Multi-level marketing (MLM) scams encompass various criminal behaviors. MLM companies regularly pay commissions to individuals for directly selling services or products to customers. Individuals are also regularly paid commissions to recruit others to sell MLM companies’ products and services. Such a business structure provides the opportunity for fraudulent behaviors and activities to take place. These fraudulent activities often include misleading claims regarding expected financial compensation, false health claims of products or services, and purchase incentivization beyond what any one customer could reasonably consume, among others. MLM companies, specifically top management, routinely engage in white-collar offenses. Edwin Sutherland, a preeminent sociologist, first defined white-collar offenses in 1939 as crimes committed by individuals with high social status and prestige during the course of their occupations. These crimes are commonly difficult to recognize due to their hidden nature. MLM scams, similar to other white-collar crimes, have three general costs: financial, physical, and social. For example, one MLM scheme case involved a company’s nutrition-club system that recruited people to buy and then try and sell its flavored nutritional shakes. This company was accused of targeting poor, often uneducated individuals, and undocumented immigrants. Financially, more than half of the individuals recruited lost or made no money from their investments. A lawsuit against this MLM company forced them to restructure their business model and focus on selling products instead of recruiting more distributors (participants). MLM scams also have a physical cost associated with them. Such crimes can be violent, since people are maimed and killed by unsafe products and services. There have been some unfortunate instances where individuals facing financial ruin from such scams attempt or commit suicide. While the social cost of MLM frauds cannot be directly measured, social exclusion from family and friends is a common byproduct of MLM due to the high-pressure nature of selling products and services and recruiting more individuals to buy and sell them. Personal relationships regularly suffer, and victims of these scams are often left feeling lonely, depressed, and isolated. Family members may trust the victim for involving them in the scam. It also creates a loss of trust in all MLM, because fraudulent practices undermine the legitimacy of this business model. With growing economic inequality in the United States and around the world, many individuals may turn to MLM in need of a viable form of income. The financial, physical, and social costs of MLM scams are likely substantial in all advanced industrialized nations.