When “MLM” pyramid scams proliferate on social media

Scams are on the rise on social networks claiming to be based on MLM. Traps that are easy to fall into.

Illustration of a dollar house of cards @BelgaImage

You may have seen these types of posts on social media like Facebook lately. A friend or an ordinary person offers you extremely attractive offers: natural products with extraordinary properties, miraculous diet methods or offers for heavenly journeys. To qualify, you’re told to join an MLM (the acronym for “multi-level marketing” or multi-level selling) network, mostly via private messages. It all sounds tempting, but beware, think twice before proceeding. Because behind this innocent private message you could fall into a trap. This week, the French Ministry of Economy warns the public about the many deceptions that exist on the Internet and that start this way. Not that MLM as such is an illegal system, but because scams claim to be MLM in order to fool their victims. The sector is poorly regulated and these crooks know they can easily cross the line of what is legal or not, to the detriment of those who are not careful enough.

Beautiful promises then everything falls apart

So what’s the problem? After all, for decades, Tupperware has grown on the MLM model by offering commissions to those who sell its products to their relatives. But a trap isn’t just about making a living, especially with doorstep selling. Many things are promised to you here when you become an affiliate, but most importantly, you are ultimately encouraged to recruit other people just like the person who led you to join this network. Beyond the production of fortune x or y through sales or promotions, it’s essentially about recruitment. To encourage you to do this, there may be an additional request: bring a basic amount with you when you come to the network, e.g. B. when purchasing a license with a starter kit (which is usually said not only in private messages). That can be 100€ registration, but also much more. Or you will find that you have to invest even more later. In this case, you can be sure that you will be motivated to seek new affiliates, especially by bombarding social networks with images and videos. A real influencer! In any case, hiring recruits earns you points that are converted into salary by the company in question. The more your network grows, the more you earn. In general, Dream Perks are given to you when you become a “Premium”, “Elite” or “Platinum” member. In short, you are presented as if you were your own boss, destined for great success.

Everything seems to be going like clockwork at the moment… but that’s it! Because with these so-called MLM scams, this system is de facto unsustainable, and for good reason: there will come a time when it will become increasingly difficult to recruit, if only because there are not an infinite number of people on earth . Suddenly one day everything collapses, more precisely this network created by society in the form of a pyramid. This is the principle of the “Ponzi pyramid”. When that happens, everyone pays the whistler except the people at the top of the company, who are the ones who earned the most (since they oversee the entire network, their salaries are bound to be higher than everyone else). The latter assure that there is nothing illegal, when in fact their products represent only the “legal showcase” of a system based solely on these affiliations. And to say that for once, that is reprehensible!

When the trap closes

Among those who lost everything we find a woman interviewed by Slate, here M. By investing in her network, she managed to climb the ladder and earn €6,000 a month, then €12,000 in three months. But one fine day, she finds out that her company has changed the compensation system suddenly and without warning. She felt the burn and wanted to leave the net and she is not wrong. In reality, the pyramid collapses, but it is too late for M. Her company freezes her salary and she loses the €15,000 she was promised last month. His godfather also suffered the collapse of the pyramid, for his case 30,000 euros remained untouched. Worse still, since the taxes are based on his previous income, M. owes the state gigantic sums. Since then she’s been trying to get away from it as best she can.

The list of Ponzi schemes identified in Europe is getting longer and longer. In Belgium last month, a Swiss-based cryptocurrency company was dismantled for practicing this “Ponzi scam,” L’Écho reports. Another such scam was discovered in Martinique in May. More broadly, these scams have multiplied with the health crisis as many people have been drawn in by these obvious extra income opportunities. For example, you may remember Jean-Pierre Fanguin, a young influencer in a suit who promised fortunes in 2020. As revealed by Le Parisien, his business constituted a Ponzi scheme, in this case to redirect people to Melius, a trading and cryptocurrency training company. Later, JP Fanguin himself admitted his wrong. Without being contradicted, he defended himself by saying that he “benevolent, even when extorting money“.

The XXL Excesses of “MLM Fraud”

In the USA it is the Eldorado of Ponzi schemes. Last June, the largest of its kind was dismantled in Las Vegas. It claimed many victims, particularly in the Mormon community. The amount in question: a $300 million scam. But this phenomenon is not new. In 2019, the media company Vice released a documentary about the victims of the clothing brand LuLaRoe. Again, it was a Ponzi scheme with absolutely unsellable clothes. The dangerous trap allowed people to live an extraordinary lifestyle until the fall.

The problem is all the greater as some of these Ponzi pyramids are coupled with an almost sectarian character. For example, this can take the form of a promise not to criticize the company, and by the time the deception becomes known it is too late to criticize. But in general, the simple fact that this system is based on recruitment takes the appearance of sometimes aggressive proselytism towards relatives. In Anglo-Saxon countries, broadcasters like Australian public broadcaster ABC end up writing articles to find out “how not to lose your friends because of MLM“. At the end of 2020, the social network TikTok announced that it wanted to actively fight MLM on its platform.

So yes, MLM does not necessarily mean fraud. As said, the case of Tupperware shows it well. However, the possibility of making money from investing in this environment (provided it is legal) is very slim. At least that’s what economic expert Bruno Wattenbergh told RTL Info. “In general, this model only satisfies the manufacturers and not the dealers. […] Many studies show that 99% of people on the network lose money“in the end. For those who would still be interested in MLM, he warns: “Very few people will be able to earn a stable income that feeds a household.“.

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